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Edited version of private advice
Authorisation Number: 1012626063894
Ruling
Subject: capital gains tax assets
Question 1
Are the shares issued by the government body capital gains tax (CGT) assets under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Are the shares issued by the government body 'active assets' for the purposes of the CGT concessions for small business under Division 152 of the ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You carry on a business.
You commenced this business in 198x. You were issued a licence to conduct this business.
In 199x restrictions were placed on the industry by a government body.
In 199x provisional shares were issued by the government body. Your initial shareholding was x shares, with a nil purchase price.
Full shares were issued in the year 200x.
You have subsequently purchased an extra x shares with a purchase price of $x, giving you x shares in total.
The shares determine to what extent you can carry on your business. Without these shares you cannot conduct your business.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 108-5
Income Tax Assessment Act 1997 section 152-40
Reasons for decision
A capital gain, or capital loss, may arise if a CGT event happens to a CGT asset. Section 108-5 of the ITAA 1997 states that a CGT asset is any kind of property, or a legal or equitable right that is not property. The shares in question are legal rights will consequently be CGT assets.
Paragraph 152-40(1)(b) of the ITAA 1997 provides that where a CGT asset is intangible (such is the case with a right or entitlement) it will be an active asset if you own it, and it is inherently connected with a business that you carry on. You own these shares and they are inherently connected with the business you carry on as without these shares you cannot conduct your business. Accordingly, the shares will be active assets.