Edited version of your private ruling

Authorisation Number: 1012502847438

Ruling

Subject: CGT

Question and answer:

Does the transfer of shares purchased in joint names trigger a capital gains event, when the shares are transferred equally to you and your spouse?

Yes.

This ruling applies for the following period:

Year ended 30 June 2014.

The scheme commenced on:

1 July 2013.

Relevant facts:

You and your spouse purchased shares post 1985, in joint names.

You intend to transfer you 50% share of shares into individual names.

You intend to sell your shares, but your spouse refuses to sell the shares jointly.

The share registry has advised you that they can transfer the shares into individual holdings.

Assumptions:

N/A

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 100-20(1).

Income Tax Assessment Act 1997 Section 108-7.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 115-15.

Reasons for decision

A capital gain or loss can arise where a capital gain tax (CGT) asset is subject to a CGT event. CGT event A1 disposal of a CGT asset, is the event familiar to many taxpayers where they sell property. However, CGT has a broader application than the sale of assets, for example it also applies to transfers, forfeited deposits and deceased estates.

It is only when a CGT event occurs that a capital gain or loss can arise; section 100-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Where there is a change in beneficial ownership of a CGT asset or a taxpayer receives a capital sum, there will be an event for CGT purposes.

Joint Tenants and Tenants in Common

Where an asset is owned by joint-tenants/owners, the property is treated as non-identifiable to each "tenant"/owner. It can not be identified which parts are owned by who. For example 2 shares owned by joint tenants; looking at the ownership of 1 of those shares, it is held half by one share holder and half by another shareholder. Because of this, it is not possible to spilt the shares.

Under the CGT rules, taxpayers who are joint owners of an asset as 'joint-tenants' are treated as 'tenants in common'.

Tenants-in-common are capable of owning identifiable parts of assets. For example 2 shares owned as tenants in common by taxpayer X and taxpayer Y; 1 share will be held by taxpayer X and the other share will be held by taxpayer Y.

Shares are held jointly, if the company's share register shows that the assets are held in joint names. If shares are registered in joint names, a restructure in the ownership will result in joint tenants having disposed of their interest in the asset e.g. to acquire separate interests in the same assets. This is considered a disposal of a CGT asset, event A1.

The Administrative Appeals Tribunal (AAT) held in Johnson v FC of T 2007 ATC 2161 that the transfer of a 50% interest in jointly owned shares by two brothers to each other, so that they could go their separate ways, was subject to CGT.

Having decided that the shares were held jointly, the AAT said that section 108-7 of the ITAA 1997, provides that individuals who hold a CGT asset as joint tenants are treated as if they were tenants in common who each owned a separate CGT asset comprising an equal interest in the asset. As a result, the restructuring of the jointly-owned shares constituted the disposal of CGT assets under CGT event A1 (section 104-10 of the ITAA 1997).

CGT calculation and relief

Where a gain is suspected, the cost base and capital proceeds are calculated, and if the capital proceeds are more than the cost base, a CGT gain has happened.

Over several years, starting post 1985, shares were jointly purchased with your spouse. You intend to transfer your 50% share into your name only. You believe there will be capital gain when you first restructure and then sell your shares.

Where a CGT gain arises, relief from taxation may be available. For an individual who has purchased shares post 21 September 1999 and meets the 12 month holding rule, they will be eligible to discount the gain by 50%; section 115-15 of the ITAA 1997. No additional relief in the form of exemptions or rollovers is available for an individual taxpayer who is restructuring the ownership of jointly owned shares.

You may be liable for CGT on the capital gain made from the disposal. The net gain can be reduced by the discount method (50%) as you have owned each group of CGT assets (shares) for more than 12 months.

For your information

Tax payable

From 1 July 2012, under the government's Household Assistance Package, the tax-free threshold increased from $6,000 to $18,200.

This means if you earn less than $18,200 in a financial year, you do not need to pay income tax. If you earn more than $18,200 in a financial year, you will only pay income tax on your earnings over $18,200.

Income tax rates 2012-13

Examples:

Restructure of share ownership

John and Jill purchase shares as joint owners for $25,000 in on the 1 July 1997.

In 2013 Jill decides she would like to sell her shares as she would like to go on a holiday.

As John and Jill own their shares jointly, the shares are not individually identifiable. In order for Jill to sell 50% of the holdings, the shares are restructured and CGT event A1 happens when the shares John and Jill own jointly are spilt 50/50 to each other.

The spilt takes place on 1 July 2012 and John and Jill calculate the cost base of the shares as $26,500 ($25,000 purchase price plus $1,500 in brokerage fees on purchase).

The capital proceeds will be calculated using the market value substitution rule as no capital proceeds were received; section 116-30(1) of the ITAA 1997.

Market value (MV) at time of disposal is $60,000 (this will also form the basis for the new cost base).

Jill's only other income is a part time job for which she received $7,000 in wages in 2012-2013 financial year. John is a successful tradesman and received $100,000 in wages.

Restructure	$		$
Jill		John
Cost Base	13,250		13,250
Capital Proceeds (MV)	30,000		30,000
Net Gain	16,750		16,750
Discount	50%		50%
Capital Gain	8,375		8,375

Come 30 June 2013, although Jill has a capital gain for the 2012-2013 financial year, because her total assessable income (wages and capital gain $15,375) is below the taxable income threshold she will not have any tax payable in the 2012-2013 financial year.

John will have tax payable depending on his other tax affairs e.g. eligibility to deductions, offsets and tax losses. (Note only particular capital losses can offset capital gains).

Sale of shares

Jill chooses to sell her shares on 1 July 2013, with her capital proceeds totalling $35,000 (sale price received). Her new cost base will be the market values of the shares on the date she acquired her interest separately form her spouse; $30,000 (60,000/2).

Jill will not be eligible for the discount method until she has held the shares for 12 months from the date she acquired her separate interest.