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Edited version of private advice
Authorisation Number: 1051908344533
Date of advice: 9 October 2021
Ruling
Subject: Capital gains tax
Question
Can the taxpayer utilise Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) to rollover the capital gain on the inadvertent sale of shares by the managed fund broker and defer any gain on the shares sold in error until such time as an actual consensual sale occurs?
Answer
Yes. In your circumstances, the sale of shares triggered CGT event A1, and CGT event C1 was also triggered because the shares were lost due to an involuntary occurrence. When more than one CGT event occurs, you use the event most specific to your circumstances. The most specific event in your situation is CGT event C1.
Division 124 of the ITAA 1997 allows for a replacement asset roll-over to defer the making of a capital gain or loss from a CGT event happening until a later CGT event in certain circumstances. You can choose a roll-over where the original CGT asset is lost.
In your situation, you meet the requirements to choose a roll-over to be applied to the capital gain resulting from the erroneous sale of the original shares. The original shares were lost, you received compensation including shares being replaced the next day so within the same income year in which the event occurred. The replacement shares did not become trading stock nor were they depreciating assets.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
In 20XX, your managed fund broker mistakenly sold all shares that were held in a managed investment account and crystallised a capital gain. This action was contrary to instructions that were provided by the financial planner, which were to sell only a select small parcel of shares. The shares have been repurchased; however a capital gain has arisen on the erroneous sale of shares.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-20
Income Tax Assessment Act 1997Subdivision 124-B
Income Tax Assessment Act 1997 section 124-10
Income Tax Assessment Act 1997 section 124-70
Income Tax Assessment Act 1997 section 124-75