ATO Interpretative Decision
ATO ID 2002/100
Income Tax
Income Tax: Capital Gains tax: Partial scrip for scrip roll-over: ineligible proceedsFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer, a shareholder who exchanges shares in one company for shares and a right to an undetermined number of shares in another company entitled to a full scrip for scrip roll-over under Subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The taxpayer is only entitled to a partial scrip for scrip roll-over under section 124-790 of the ITAA 1997.
Facts
Under a share sales agreement, the shareholders have sold shares in a company (the original entity) in exchange for:
- •
- shares in another company (the acquiring entity) and
- •
- a right to receive a number of shares in the acquiring entity equal to one times the combined earnings before interest and tax of the original entity for year ended 30 June 2001, upon completion of the audited financial accounts of the original entity for that year;
The requirements for roll-over are otherwise satisfied.
Reasons for Decision
The taxpayer is entitled to choose scrip for scrip roll-over to the extent that the taxpayer's shares are exchanged for shares in the acquiring company. Subsection 124-780(1) of the ITAA 1997 requires that a replacement interest must be of the same kind as the original interest, e.g., a share for a share.
Subsection 124-790(1) of the ITAA 1997 provides that there is no roll-over to the extent that the capital proceeds from shares includes something other than a 'replacement interest' which is referred to in this subsection as 'ineligible proceeds.'
Ineligible proceeds are not limited to cash, e.g., a right to be issued shares that cannot be ascertained until a future date, is not a replacement asset for a share for the purposes of subsection 124-780(1) of the ITAA 1997.
In these circumstances only partial roll-over is available as the taxpayer has accepted a right to shares which cannot be ascertained until a future date.
Under subsection 124-790(2) of the ITAA 1997 a reasonable part of the cost base of the taxpayer's shares in the original entity can be taken into account in working out the capital gain from the receipt of the ineligible proceeds. The Commissioner considers it is reasonable to allocate a portion of the cost base of the original shares having regard to the proportion that the ineligible proceeds bears to the total proceeds.
Date of decision: 10 December 2001Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subdivision 124-M
subsection 124-780(1)
section 124-790
subsection 124-790(1)
subsection 124-790(2)
ATO ID 2002/239
ATO ID 2002/274
ATO ID 2002/411
ATO ID 2002/891
ATO ID 2002/892
ATO ID 2003/177
ATO ID 2003/363
Keywords
Capital gains
Capital gains tax
CGT roll-over relief
Partial roll-over
Scrip for scrip roll-over
ISSN: 1445-2782