Edited version of private ruling

Authorisation Number: 1011594265518

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Ruling

Subject: Capital gains tax: Disposal of shares without your consent

Question:

Did a capital gains tax (CGT) event happen when your shares were disposed by your stockbroker?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You acquired a specified number of relevant shares prior to 20 September 1995.

You acquired a specified number of relevant shares after 20 September 1995, giving you a total of X relevant shares.

Early this year, you authorised and instructed your stockbroker both verbally and in writing to dispose of a specified number of your post CGT relevant shares.

Your stockbroker inadvertently disposed of all your relevant shares.

The following day your stockbroker immediately repurchased the specified number of relevant shares when he realised his error.

These relevant shares were replaced at no cost to you.

You are asking the rollover relief applies to the relevant replacement shares.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-20

Income Tax Assessment Act 1997 Section 124-70

Income Tax Assessment Act 1997 Section 102-25

Subdivision 124-B

Reasons for decision

CGT event C1 happens if a CGT asset you own is lost or destroyed.

Shares are intangible CGT assets. CGT event C1 does not distinguish between tangible or intangible assets.

Paragraph 7 of Taxation Determination TD 1999/79 states that:

CGT event C1 does not distinguish between tangible and intangible assets. .Section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997 refers to 'CGT asset' and this includes intangible assets.

Paragraph 2 of Taxation Determination TD 1999/79 states that:

The word 'lost' in its context in 104-10(1) of the ITAA 1997 does not contemplate voluntary actions.

Your shares were disposed of by your stockbroker without your consent. You were involuntarily and permanently deprived of your ownership of the shares as the result of the unauthorised disposal by your stockbroker to another party who was a bona fide purchaser of the shares.

In your case, the shares were 'lost' and a CGT event C1 happened.

CGT event A1 also happened on the disposal of the shares to a third party (disposal of a CGT asset). If more than one CGT event can happen in your situation, you use the one that is most specific to your situation. In your circumstances, the most specific CGT event is CGT event C1.

The time of the CGT event C1 is when compensation is first received for the loss. If no compensation is received, the time of the event is when the loss is discovered.

As you received replacement relevant shares as compensation for the loss of your original relevant shares, you are eligible for CGT rollover.

If you acquired the original asset before 20 September 1985, you are taken to have acquired the new asset before that date.

If you acquired the original asset on or after September 1985, the first element of the cost base and reduced cost base of the replacement asset is taken to be the cost base and reduced cost base of the original asset at the time of the event.

Therefore, your specified number of replacement relevant shares is taken to have been acquired prior to 20 September 1985. This means you disregard any capital gain or capital loss you make when a later CGT event happens to these shares.

Your specified number of replacement relevant shares is taken to have acquired for the cost base of the original shares.