Edited version of private advice

Authorisation Number: 1012623768765

Ruling

Subject: CGT Shares and units

Question 1

Are you eligible to elect to rollover any capital gain made on disposal of your shares in a Company to Another Company?

Answer

Yes.

This ruling applies for the following periods:

For the year ended 30 June 2014

For the year ended 30 June 2015

For the year ended 30 June 2016

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

You own shares in a Company. You acquired these shares after 19 September 1985.

It is proposed that you will transfer your shares to Another Company. The consideration for this transfer will be non-redeemable shares in Another Company. You are the sole shareholder in Another Company.

You have stated that the market value of the shares you will receive in Another Company should be the same as the market value of the Company shares as Another Company as no other assets or liabilities.

You and Another Company are Australian residents for tax purposes. Another Company is not an exempt entity and its income is not exempt.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 122-15

Income Tax Assessment Act 1997 section 122-20

Income Tax Assessment Act 1997 Section 122-25

Reasons for decision

A taxpayer makes a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.

Shares are CGT assets. Any capital gain or capital loss made on those acquired before 20 September 1985 is disregarded.

A disposal of a CGT asset is a CGT event A1 and includes disposals of shares by an individual to a wholly owned company. However, replacement asset roll-over relief is available under section 122-15 of the Income Tax Assessment Act 1997 (ITAA 1997), to an individual who disposes of a CGT asset, or all the assets of a business, to a company in which the individual owns all the shares.

However, there are a number of conditions in sections 122-20 and 122-25 of the ITAA 1997 which must be met before roll-over relief is available, which are as follows: 

1. Under section 122-15 of the ITAA 1997, a 'trigger event', must happen involving the individual and a company. In the case of a CGT event A1, the trigger must be the disposal of a CGT asset to a company. A CGT asset is any kind of property acquired after 19 September 1985, including shares in a company.

In your case, when you dispose of your shares in a Company (acquired after 1985) to your wholly-owned company, Another Company CGT event A1 will happen to your a Company's shares, and therefore, this condition will be satisfied.

2. In the case of shares being the consideration you receive for the trigger event happening, under paragraph 122-20(1)(a) and subsection 122-20(2) of the ITAA 1997, the shares must be non-redeemable and in the company.

In your case, you will receive only non-redeemable shares in Another Company as consideration for the transfer of your shares in a Company. Accordingly, condition 2 will be satisfied.

3. Under subsection 122-20(3) of the ITAA 1997, the market value of the shares that you will receive for the trigger event happening must be substantially the same as the asset disposed.

In your case, you have stated that the market value of the shares you received for the event should be the same as the market value of the shares transferred, given that Another Company will have no other assets or liabilities. Therefore, you will comply with this condition.

4. Under subsection 122-25(1) of the ITAA 1997, you must own all the shares in the company immediately after the time of the trigger event and in the same capacity as you owned the assets that the company comes to own.

In your case, you will own all the shares in Another Company, in the same capacity as you owned the assets prior to the transfer, and so this condition will be met.

5. Under section 122-25(2) of the ITAA 1997, it is stated that the Subdivision does not apply to disposal of assets listed in the table included under the subsection (collectables, personal use assets, precluded assets, trading stock, assets that become registered emissions units).

In your case, the shares in a Company are not assets of a type listed in the table, so this condition will be satisfied.

6. Also under subsection 122-25(6) and subsection 122-25(7) of the ITAA 1997, if you or the company, or both, are not a resident then each asset must be taxable Australian property at the time of the trigger event.

In your case, you and Another Company will be residents of Australia for taxation purposes, and so this condition will be been satisfied.

7. Under subsection 122-25(5) of the ITAA 1997, the company must not be exempt from income tax on its ordinary and statutory income because it is an exempt entity for the income year of the trigger event.

In your case, Another Company is not an exempt entity and its income will not be exempt, and so this condition will be met.

As all conditions have been complied with, you will be able to choose the replacement asset roll-over relief available under Subdivision 122-A of the ITAA 1997 on the disposal of your Company shares to Another Company.