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Edited version of your written advice
Authorisation Number: 1051349372462
Date of advice: 6 April 2018
Ruling
Subject: The transfer of shares to a spouse
Question 1
Will you be able to disregard the capital gain made when you transferred your 50% ownership interest in your shares to your husband?
Answer
No.
Question 2
If capital gains tax (CGT) applies to the transfer of your shares will you be able to reverse the transaction so no CGT applies?
Answer
No.
This ruling applies for the following period
Year ended 30 June 20XX.
The scheme commences on
1 July 20XX.
Relevant facts and circumstances
In 19XY you started working for AAA organisation.
You first purchased your AAA shares shortly after commencing work.
Your total share portfolio consisted of the following:
In October 20XX you got married.
Both you and your husband have previously been divorced and have been through stressful property settlements.
Approximately five years after you got married you and your husband opened a joint bank account.
The next month you requested that the relevant share registry add you husband’s name to your AAA share portfolio.
In the same month you and your husband purchased a dwelling in joint names.
You received no consideration when you added your husband’s name to your AAA share portfolio.
You would not have proceeded with adding your husband’s name to your AAA share portfolio if you had been aware of any CGT implications.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 116-30
Reasons for decision
Summary
The Commissioner does not have any discretion, nor is there any legislation, to enable you to disregard the capital gain made when you transferred your 50% ownership interest in the shares to your husband.
There is no provision to allow an actual reversal of a transfer to take place to disregard the original CGT consequences.
Detailed reasoning
You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset. CGT event A1 happens when you dispose of an asset. You dispose of a CGT asset if a change in ownership occurs from you to another entity. An interest in an asset is considered to be an asset for CGT purposes. The shares that you acquired are CGT assets.
Where you transfer an interest in a share from an individual into joint names, you have disposed of 50% of your ownership of the shares and as such CGT event A1 occurs. This is because the ownership of the share has changed from being owned by you individually to being owned jointly by you and your spouse.
There is no exception for the transfer of shares between wife and husband, except upon order of the Family Court upon dissolution of marriage.
You make a capital gain if your capital proceeds are more than your cost base. You make a capital loss if your capital proceeds are less than your reduced cost base.
Generally, the capital proceeds are the amount of money that you receive for the disposal of your interest in the shares. However, section 116-30 of the ITAA 97 states that when you receive no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset at the time the CGT event occurred.
Application to your case
In this case, CGT event A1 happened when you transferred 50% of your ownership interest in your AAA shares (shares) to your husband, this occurred as a result of you changing the name on your share portfolio into joint names, therefore changing the ownership interest in the shares
You no longer own a 100% interest in each share, you now own a 50% interest in each share, with your husband owning the other 50% interest in each share.
Your capital proceeds in relation to each interest in the shares that you transferred to your husband will be the market value of the interest in the shares on the date of transfer. Any capital gain is calculated using the market value as the capital proceeds you have received for the disposal of your ownership interest in the shares.
You will make a capital gain if the capital proceeds are more than the cost base of the 50% ownership interest in the shares transferred to your husband. The capital gain must be included in your income tax return.
As the shares are now considered to be jointly owned by you and your husband any subsequent ‘reversal’ of the transfer of shares to your husband will result in a CGT event for your husband. There is no provision to allow an actual reversal of a transfer to take place to disregard the original CGT consequences.
While we acknowledge and appreciate your circumstances, the Commissioner does not have any discretion, nor is there any legislation, to enable you to disregard the capital gain made when you transferred your 50% ownership interest in the shares to your husband.