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Edited version of private ruling
Authorisation Number: 1011750477154
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Ruling
Subject: Capital gains tax
Questions and answers:
1. Did a CGT event happen when you disposed of your shares under the capital restructure of Company X?
Answer: Yes.
2. Did a CGT event happen when Company X was suspended from trading on the Australian Stock Exchange?
Answer: No.
3. Did you make a capital loss when Company X was suspended from trading on the Australian Stock Exchange?
Answer: No.
This ruling applies for the following periods:
Year ending 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You purchased shares in Company X in 2006.
In 2010 you were notified that there had been a capital restructure of Company X.
As a result of the capital restructure, you received a new parcel of shares in Company X in return for the original parcel of shares you previously held.
In 2010 you were also notified that Company X had been suspended from trading on the Australian Stock Exchange.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 104-25.
Income Tax Assessment Act 1997 Section 108-5.
Income Tax Assessment Act 1997 Section 124-240.
Reasons for decision
Subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines a capital gains tax (CGT) asset as any kind of property or a legal or equitable right that is not property.
Section 102-20 of the ITAA 1997 states that you make a capital gain or capital loss if and only if a CGT event happens. CGT events are the different types of transactions or happenings which may result in a capital gain or a capital loss.
Capital restructure
The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity.
Subsection 104-10(3) of the ITAA 1997 describes when the event happens. The time of the event is either when the taxpayer enters into a contract for the 'disposal', or if there is no contract - when the change of ownership occurs.
In your case, you disposed of your original parcel of shares in Company X and in return you were issued with a new parcel of shares in Company X.
CGT event A1 happened when you disposed of your original parcel of shares.
You will have made a capital gain from this event if the capital proceeds exceed the cost base of the shares.
You will have made a capital loss from this event if the cost base exceeds the capital proceeds of the shares.
The capital proceeds of the shares you disposed of is the market value of the replacement shares. The cost base includes the price you paid for them.
If you made a capital gain as a result of this CGT event, you can choose to obtain a rollover under section 124-240 of the ITAA 1997.
Suspension from trading
According to Taxation Determination TD 2000/7, a CGT event happens when a company is deregistered in accordance with the Corporations Law. A company ceases to exist on deregistration.
If ASIC deregisters a company in accordance with the Corporations Law, it is the Commissioners view that CGT event C2, as set out in section 104-25 of the Income Tax Assessment Act 1997 ITAA 1997, happens in respect of your investment on the date the company is deregistered.
In your case, you own shares in Company X. In 2010 you were informed that Company X had been suspended from trading on the Australian Stock Exchange (ASX). Company X has not been deregistered.
As Company X has not been deregistered, CGT event C2 has not happened. Suspension from trading on the ASX does not constitute a CGT event.
Therefore, as no CGT event has happened, you have not made any capital gain or capital loss as a result of Company X's suspension from trading on the ASX.
If Company X is deregistered in the future, a CGT event will occur at this time.