Edited version of private advice

Authorisation Number: 1051990831243

Date of advice: 8 June 2022

Ruling

Subject: CGT- units - involuntary sale

Question 1

Did Capital Gains Tax (CGT) event C1 occur on the inadvertent sale of units in managed funds on XX/XX/XXXX?

Answer

Yes.

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). Whilst ATO ID 2010/124 refers to shares, the same principles apply in this case as the units are intangible assets which were lost due to a mistake by the Taxpayer's financial planner. The action happened without the Taxpayer's control or knowledge.

The disposal of the units triggered a CGT event A1. However, CGT event C1 applies in preference to CGT event A1 because it is more specific.

Further information can be found by searching Quick Code QC 66016 on ato.gov.au.

Question 2

If yes, did CGT event C1 occur in the income tax year ending 30 June 20XX?

Answer

Yes. The time of the event is when the taxpayer first receives compensation for the loss of destruction or, if no compensation is received, when the loss is discovered or the destruction occurred. In this case the Taxpayer received compensation in the income year ended 30 June 20XX.

Question 3

Can the Taxpayer apply Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain resulting from the inadvertent sale of the units?

Answer

Yes. The Taxpayer is entitled to apply the rollover in Subdivision 124-B of the ITAA 1997 to the capital gain. Further information can be found by searching Quick Code QC 66017 on ato.gov.au.

This private ruling applies for the following period:

Income year ended 30 June 20XX

Income year ended 30 June 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

Taxpayer invests in various managed funds via an investment account with a wealth management group.

Early 20XX, the Taxpayer obtained advice from a financial planner (FP) about matters including an investment strategy.

A copy of the FP's Statement of Advice (SoA) showed details about the investment strategy, such as:

•         Make some changes to increase International exposure by taking some profit from the Australian equities.

•         Increase your regular investment plan from $XXX pm to $X,XXX pm.

•         Change your future investment strategy to further increase your International allocation over time. (See the investment table over the page for more detail).

The SoA investment table illustrates:

(a)         the recommended changes to the investment portfolio to be made immediately by switching $XX,XXX of investments from Australian Fund A and Fund B to International Fund D and Fund E.

(b)         the recommended super contributions and increased regular investment plan to the investment portfolio, by investing $X,XXX per month (being $XX,XXX per annum) across the wealth management group's managed funds in the proportions set out under "Future Invest Selection" (FIS)

On XX/XX/20XX, in the course of implementing its advice, the FP requested the wealth management group change the Taxpayer's investment allocation as per the FIS proportions on the current investments (Switch), instead of applying the FIS proportions to future investments made by the Taxpayer.

This resulted in the inadvertent sale of units in Australian Fund A, Fund B and Fund C and purchase of units in International Fund D, Fund E and Fund F.

Wealth management group documents confirm the switch was requested by the FP.

FP identified the error in the second half of the 20XX calendar year. The FP contacted the wealth management group about the Switch that was actioned on XX/XX/20XX on the Taxpayer's account, in error. FP asked wealth management group to correct the mistake by making the necessary switches in investment allocations.

In that month, wealth management group processed switches to correct the investment allocations by reallocating units valued at the same amount from the International funds back to the Australian funds.

A wealth management group letter confirms the reallocation.

Also in that month, the wealth management group completed further switches in investment allocations by reallocating units valued at $X,XXX.XX from International Funds to Australian Funds.

The FP also asked the wealth management group to determine if the Taxpayer would have made any loss or gain on the investments had the error not occurred.

A letter from the wealth management group dated XX/XX/20XX advises there was a loss on the account as a result of the error. The account was reimbursed with units in managed funds valued at $XX,XXX.XX effective XX/XX/20XX, to ensure the Taxpayer has not been disadvantaged.

A summary of a wealth management group statement confirms the reimbursement.

A copy of the wealth management group's CGT Information Statement was provided showing all withdrawals made during the 20XX/XX financial year. The FP's Statement Report also shows CGT information.

The Taxpayer made a gross capital gain of $XX,XXX.XX on the units mistakenly sold on XX/XX/20XX.

The units received are not trading stock of the Taxpayer or depreciating assets.

The market value of the units received is greater than the cost base of the original units that were mistakenly sold.

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 124-70

Income Tax Assessment Act 1997 Section 124-80

Income Tax Assessment Act 1997 Section 124-90