Edited version of private advice

Authorisation Number: 1051975793453

Date of advice: 27 April 2022

Ruling

Subject: CGT - rollover of involuntary sale of shares

Question

Can the Taxpayer utilise Subdivision 124-B of the Income Tax Assessment Act 1997 to rollover the capital gain on the inadvertent sale of shares by the Taxpayer's financial planner and defer any gain on the shares sold in error until such time as a consensual sale occurs?

Answer

Yes. But the Taxpayer will need to acquire additional replacement shares if the rollover is to disregard the whole of the capital gain made from the inadvertent sale.

ATO Interpretative Decision ATO ID 2010/124 states that CGT event C1 happens if shares are sold without the owner's consent as a result of a stockbroker's mistake for value to a bona fide purchaser (who does not have knowledge of the owner's lack of consent).

CGT event C1 applies in preference to CGT event A1 (about disposals of CGT assets) because it is more specific.

The Taxpayer would only receive a partial exemption if they chose the rollover at present because the sale proceeds were higher than the amount spent buying the replacement shares. (The capital gain would be reduced to the amount of the difference.)

This private ruling applies for the following period:

20XX-XX income year

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Taxpayer acquired Company A shares over a period of time dating back some 30 years. Just before the events described below, the Taxpayer held X shares with a market value of $X and an uncrystallised nominal gain of $X.

The Taxpayer approached their financial planner for advice about funding a large expense they were about to incur.

The financial adviser recommended that the expense be funded from other investments held by the Taxpayer.

The financial advice specifically stated that there should not be any change in the holding of Company A shares to fund this outgoing, although it noted your goal as:

'You would like to manage the tax liability on your ... holdings to ensure the any capital gains tax (CGT) is minimised, while ensuring that your investment portfolio is appropriately diversified.'

In response, the financial advice states:

'In reference to your ... holding, based on our original advice, due to CGT implications, we will sell down the asset in staggered parcels over a number of years.'

The Taxpayer accepted all recommendations and asked that they be implemented.

Shortly afterward, the Taxpayer's financial planner mistakenly sold the majority of the Company A shares and crystallised a capital gain.

(The same number of) replacement Company A shares were purchased a couple of days later at a slightly lower price per share.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 section 104-20

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 124-75

Income Tax Assessment Act 1997 section 124-85