Taxation Determination

TD 1999/64

Income tax: capital gains: what are the consequences for taxpayers who make a capital gain on the conversion of their Wheat Industry Fund units to shares in AWB Limited?

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FOI status:

1. The business operations of the Australian Wheat Board have been restructured from a statutory marketing authority to a grower owned company, AWB Limited, from 1 July 1999. Prior to 1 July 1999 growers held Wheat Industry Fund (WIF) units in the Australian Wheat Board. On 1 July 1999 the units were extinguished and B class shares in AWB Limited were issued as compensation. The extinguishment of a WIF unit represents a CGT event C1 (about loss or destruction of a CGT asset) in section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997) and the time of this event is 1 July 1999 when compensation was received.

2. Each B class AWB Limited share issued represents the acquisition of a CGT asset on 1 July 1999 for capital gains purposes.

3. Where the market value of a B class AWB Limited share as at 1 July 1999 exceeds the cost base of a WIF unit as at that date a WIF unitholder makes a capital gain on the WIF unit.

4. However, a WIF unit holder whose units are extinguished on 1 July 1999 is eligible to choose a roll-over on any such capital gain under Subdivision 124-B of the ITAA 1997. The effect of the roll-over is that the capital gain made from the WIF units is disregarded.

5. In a sense, a roll-over is automatically available. By not returning a capital gain in the year of income ended 30 June 2000, a taxpayer will have chosen a roll-over under Subdivision 124-B.

6. If Subdivision 124-B roll-over is chosen, the cost base of a B class AWB Limited share includes an amount equal to the cost base of the equivalent WIF unit as at 1 July 1999.

7. Alternatively, taxpayers who, because of their individual circumstances, choose not to claim a roll-over under Subdivision 124-B and who meet the conditions of the small business roll-over or retirement exemption provisions in Division 123 of Part 3-3 and Subdivision 118-F of Part 3-1 of the ITAA 1997, may choose to defer the capital gains tax liability or, alternatively, claim the retirement exemption. In this regard, the WIF units allocated to a wheat levy payer constitute active assets. (For further information refer to the ATO booklet 'A Guide to Small Business Capital Gains Tax Rollover Relief and Retirement Exemption', NAT 2685-6/1998).

8. The B class AWB Limited shares are not active assets. Therefore, the small business roll-over and the retirement exemption provisions do not apply to any capital gains arising on a CGT event happening to those shares.

Commissioner of Taxation
15 December 1999

Previously released as TD 1999/D27

References

ATO references:
NO NAT 99/7386-9

Related Rulings/Determinations:

TD 1999/65

Subject References:
capital gains
capital gains tax
CGT cost base
CGT rollover
CGT retirement exemption
wheat growing

Legislative References:
ITAA97 104-20
ITAA97 Pt 3-1 Subdiv 118-F
ITAA97 Subdiv 124-B
ITAA97 Pt 3-3 Div 123