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Edited version of private advice
Authorisation Number: 1012681319237
Ruling
Subject: Capital gains tax
Question
Did a capital gains tax (CGT) event occur when a vesting order in real property was made by the Supreme Court pursuant to section 474(2) of the Corporations Act 2001?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2013
Year ended 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2012
Relevant facts and circumstances
The company (in liquidation) was wound up in the relevant financial year.
A liquidator has been appointed.
The company purchased real property some years ago.
The property is currently occupied by the company's former director and their spouse.
The former director is an undischarged bankrupt.
Due to the failure of the former director to cooperate with the liquidator they have sought an Order from the Supreme Court.
The Order vests the property in the liquidator, pursuant to section 474(2) of the Corporations Act 2001.
The liquidator is now registered on the title of the property in their capacity as liquidator for the company.
The former director and other family members have stated that they intend to file and application under section 482 of the Corporations Act 2001 seeking to have the winding up of the company set aside on the grounds that it is solvent.
This application, if it proceeds, will also involve an application to have the vesting Order set aside.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 Part 3-3
Income Tax Assessment Act 1997 Subdivision 106-B
Income Tax Assessment Act 1997 subsection 106-35(1)
Reasons for decision
Question
Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that CGT Event A1 happens to a taxpayer on the disposal of a CGT asset where there is a change of ownership from the taxpayer to another entity. This change of ownership is taken to have occurred either upon entering a contract for the disposal of the asset, or if there is no contract, when the change of ownership occurs (subsection 104-10(3) of the ITAA 1997).
However, section 104-10 of the ITAA 1997 appears in Part 3-1 of the ITAA 1997. Section 106-35 of the ITAA 1997 sets out the effect of liquidation on the CGT rules in Part 3-1 and 3-3 of the ITAA 1997. As a result, section 104-10 of the ITAA 1997 needs to be read subject to section 106-35 of the ITAA 1997.
Subsection 106-35(1) of the ITAA 1997 states that for the purposes of Part 3-1 and Part 3-3 of the ITAA 1997, the vesting of a company's CGT assets in a liquidator, or the holder of a similar office under a foreign law, is ignored. As a result, in such circumstances, the CGT provisions apply to an act done by a liquidator in relation to a company's CGT assets as if the act had been done by the company (instead of the liquidator).
In this case, this ensures that the ownership of the property does not transfer to the liquidator for the purposes of applying Parts 3-1 and 3-3 of the ITAA 1997. Accordingly, no CGT event occurred when the property vested in the liquidator pursuant to the Court Order.