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Edited version of private advice
Authorisation Number: 1012653411199
Ruling
Subject: Same asset rollover
Question
Can you apply the same asset rollover in subdivision 122-B of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The partners currently operate a business in partnership.
In order to facilitate future growth, the partners are considering transferring the business to a company structure (company A).
For intellectual property protection reasons, the partners do not wish to hold shares in this company as individuals.
Instead, the partners intend to form a new company (company B) that will hold the intellectual property rights. This company will hold all the shares issued by company A.
At the time of the proposed transfer, company A will be wholly owned by company B.
The partners will each acquire a number of the ordinary shares in company B.
The existing partnership will cease to exist after the transfer.
Relevant legislative provisions
Income Tax Assessment Act 1997 subdivision 122-B
Income Tax Assessment Act 1997 subsection 122-130(1)
Reasons for decision
Under subdivision 122-B of the ITAA 1997, partners in a partnership can obtain a rollover on transferring a CGT asset, or all the assets of a business, to a company.
Under subsection 122-130(1) of the ITAA 1997 in consideration, the partners must only receive:
• shares in the company; or
• for a disposal of their interests in a CGT asset, or in all the assets of a business, to the company - shares in the company and the company undertaking to discharge one or more liabilities in respect of their interests.
The shares cannot be redeemable shares. The market value of the shares each partner receives for the trigger event happening must be substantially the same as the market value of the interests in the asset or assets the partner disposed of, less any liabilities the company undertakes to discharge in respect of the interests in the asset or assets.
Subsection 122-135(1) of the ITAA 1997 requires the partners to own all the shares in the company just after the time of the trigger event. Each partner must own the shares the partner received for the trigger event happening in the same capacity that the partner:
• owned the partner's interests in the assets that the company now owns; or
• participated in the creation of the asset in the company.
Note that if a partner's interest were owned as trustee, the partner must receive shares as trustee.
Application to your circumstances
In this case, the assets of the partnership will be transferred to a company A. The partners will not hold any shares in this company A. Instead they will each acquire an interest in another company which in turn holds the shares in company A.
The legislation requires the partners receive shares in the company that acquires the asset or assets of the partnership. In this case, the partners are not receiving any shares. Instead they are acquiring an interest in an entity that holds all the shares in company A. As such, the conditions for the same asset rollover have not been satisfied.