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Edited version of your written advice
Authorisation Number: 1012940762478
Date of advice: 4 February 2016
Ruling
Subject: Capital gain from transfer of shares
Question
Did you make a capital gain when shares were incorrectly transferred to a related entity?
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 Company is the trustee for the Trust, an entity related to you.
It was discovered that shares which were meant to be held on behalf of the Trust were actually held in the name of the Company, in its own right.
Arrangements were made to transfer the shares into the correct name.
The transfers occurred during the 20XX-YY financial year.
Your new accountants discovered that shares held in your name were accidentally transferred to the Trust. It was never your intention to transfer the shares out of your name.
The transfer has resulted in a capital gain.
You intend to have the shares transferred back into your own name and to declare all dividends received since the transfer in your personal tax returns.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 100-20
Income Tax Assessment Act 1997 Section 104-10
Reasons for decision
Section 100-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or capital loss if a capital gains tax (CGT) event happens to a CGT asset.
Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. It states that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or operation of the law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. Accordingly, it is the beneficial ownership of the asset that is of importance.
Broadly, the provisions dealing with capital gains and losses treat an absolutely entitled beneficiary as the relevant taxpayer in respect of the asset. It is considered that the test of absolute entitlement is based on whether the beneficiary can direct the trustee to transfer the trust property to them at their direction.
In your case, shares held in your name were accidentally transferred to the Trust when your former accountant was trying to correct the ownership details of other shares owned by the Trust. You will arrange the transfer of the shares back into your name and will declare any dividends receive in your personal tax return.
We consider that the Trust has held the shares on trust for you since the transfer occurred. Despite the transfer we consider you have continued to be the beneficial owner of the shares. As there was no change in the beneficial ownership of the shares, no CGT event has occurred and consequently no capital gain has been incurred.