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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051176670166

Date of advice: 22 December 2016

Ruling

Subject: Capital gains tax - cost base of pre and post-CGT shares

Question 1

Are you assessable on the capital gain made on the disposal of your shares purchased before 20 September 1985 in the Co-op?

Answer

No.

Question 2

Are you assessable on the capital gain made on the disposal of your shares purchased after 20 September 1985 in the Co-operative?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2016.

The scheme commences on:

1 July 2015.

Relevant facts and circumstances

Prior to 20 September 1985 a Co-operative (the Co-op) was set up as a non-trading co-op to purchase land for a animal refuge and a place of residence for the members.

You and your then spouse were among the original shareholders.

Each of the original shareholders, including you, purchased a number of shares.

Sometime after 1985, as part of a divorce settlement, you received your former spouse's shares.

You later transferred the shares received from your former spouse to your new spouse, as all shareholders were required to have equal shareholding.

Sometime after this, the Co-op became a trading co-op.

You have stated that this rollover involved:

    ● No change to the set-up,

    ● No change to the assets or liabilities,

    ● No change of Directors,

    ● No change in shareholders or members,

    ● No change in name or entity, and

    ● No change to the aims and business as a non-profit making entity which continues to this day.

This change gave shareholders the ability to retain profits from the sale of the property (the Co-ops only asset) if the Co-op was wound up.

A change in the rules allowed members to own more shares.

Your new spouse later sold their shareholding back to you.

You later sold all your shares in the Co-op.

The Co-op has not acquired any further assets.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

Question 1

Summary

You will not be assessable on the capital gain you make in relation to your pre-CGT shares.

Detailed reasoning

Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax event A1 occurs when your ownership in a CGT asset (that is shares in a company) is transferred to another entity. The time of the event is when you enter into a contract for the disposal, or, if there is no contract, the time of disposal is taken to be the time when the change in ownership occurs.

Subsection 104-10(5) of the ITAA 1997 provides that a capital gain or capital loss will be disregarded if the asset was acquired before 20 September 1985.

In your case, CGT event A1 occurred when you disposed of your pre-CGT shares you purchased before 20 September 1985; however, as these shares were acquired before 20 September 1985, and were unaffected by the Co-op's rollover from a non-trading entity to a trading entity any capital gain or loss made on the disposal is disregarded.

Question 2

Summary

You will be assessable on the capital gain you make in relation to your post-CGT shares.

Detailed reasoning

Where an asset is acquired after 20 September 1985, any capital gain or loss will be included in the assessable income of the financial year when the CGT event occurred.

Where a disposal of shares occurs and those shares are able to be individually distinguished e.g. by reference to share numbers or other distinctive rights or obligations attached to them, those shares are identifiable; their date of acquisition and cost base will be a matter of fact.

In your case, CGT event A1 occurred in when you disposed of your post-CGT shares you purchased from your spouse. You will be assessable on the capital gain made on the disposal of these shares.