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Ruling
Subject: Capital gains tax - Managed Funds - whether a disposal of units has occurred
Question 1:
Did a CGT event happen to your units in your managed fund, when you changed your margin loan lender?
Answer 1:
No.
Question 2:
Is the first element of the cost base of your managed fund units, the total of the money that you paid for them, when they were first acquired by you?
Answer 2:
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on
1 July 2011.
Relevant facts and circumstances
You purchased managed fund units quite a few years ago, on or after 20 September 1985.
You financed the purchase of the units with a margin loan.
You have not sold any of your units.
The first margin loan was maintained in the relevant income year.
You changed your margin lender financier with the date of effect occurring in the subsequent year.
Setting up the loan with the second margin lender required you to transfer your units from your name to the margin lenders company for lodgement as security against the loan.
You transferred your units to the margin lender's company sometime in the subsequent year.
You have submitted various financial documents that are to be read with and form a part of the scheme for the purposes of this private binding ruling:
Relevant legislative provisions
Income Tax Assessment Act 1997 paragraph 104-10(7)(a),
Income Tax Assessment Act 1997 Section 106-60,
Income Tax Assessment Act 1997 Section 109-15 and
Income Tax Assessment Act 1997 subsection 110-25(2).
Reasons for decision
Question 1
A capital gain or a capital loss may arise if a CGT event happens to a CGT asset. The disposal of a CGT asset is a CGT event A1. You dispose of a CGT asset when there is a change of ownership in the asset, this can include a transfer.
In your case, the transfer of the fund units from your name to the financier's company was required by your financier because the fund units were used by the financier as security against your margin loan.
In these circumstances, paragraph 104-10(7)(a) of the ITAA 1997 has application. This paragraph specifically states that CGT event A1 does not happen if the disposal of the asset was done to provide or redeem a security.
As there has been no CGT event, (as a result of your changing margin lenders in relation to your investment units) capital gains tax is not applicable on the transfer from your name to the financier's company.
Question 2
The cost base of a CGT asset is made up of five elements. The first element of the cost base is the amount of money or property given for the asset. For you this will be the amount that you paid when you first purchased the units.