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Edited version of your private ruling
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Ruling
Subject: Capital gains tax
Question
Did a capital gains tax (CGT) event occur when your shares were sold in error by a financial planner?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
· the application for private ruling, and
· the documents provided in with the application for private ruling.
Your financial planner sold shares in several companies. These transactions occurred due to an administration error.
On realising the error, the shares were immediately purchased back at the same price at which they were sold.
The financial planner has admitted that the sale was due to their error.
The overall net effect of the transactions is that you have your original shares.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 120-20, and
Income Tax Assessment Act 1997 section 104-10.
Reasons for decision
Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset.
CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).
The shares you own in various companies are considered CGT assets. At law, a CGT event A1 occurred even though the shares were sold due to an error. Although your financial planner purchased the same number of shares in the same companies to replace the ones which were erroneously sold, the acquisition of the new parcel of shares does not negate the disposal. It will result in the acquisition of a new CGT asset.
There are a number of provisions within the ITAA 1997 that may exempt, exclude or defer a liability for CGT in certain circumstances. However, there are no provisions in the legislation to allow relief in your circumstances to disregard the CGT event. Therefore, any capital gain you made on the disposal of the shares cannot be disregarded.