Edited version of private advice

Authorisation Number: 1052232658098

Date of advice: 18 March 2024

Ruling

Subject: CGT - rights attached to a share

Question 1

Is there a separate intangible asset attached to the share in the company?

Answer

No.

Question 2

If there is a separate intangible asset, does that asset qualify as an active asset of yours under the small business CGT concessions?

Answer

Not applicable.

This ruling applies for the following period:

30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You operate your business as a sole trader.

You are a member of a group of professionals that all conduct their businesses independently from the same office premises.

The group of professionals are shareholders in a company. You hold a share in the company and acquired the share in the 19XX income year for $X.

The company leases the office premises from an unrelated landlord.

There is no lease between you and the company. The company charges each member of the group a monthly floor fee to cover rent and administration services.

You provided monthly invoices from the company for the floor fees and other costs.

The company is run on a cost recovery or break-even basis, making little or no profit and has negligible net tangible assets.

Each share in the company entitles the holder of the share to a right of occupancy of a specific room in the office premises.

You provided a copy of the Memorandum of Association and Articles of Association (the Articles) of the company.

Schedule A of the Articles states you hold share number X and room number X.

Each member, subject to approval by the company directors, may sell their share to another person, and in so doing, the new owner will gain the right to the room.

During the year ended 30 June 2023, you sold your share in the company for $X.

Relevant legislative provisions

Income Tax Assessment Act 1997subsection 108-5(1)

Income Tax Assessment Act 1936 section 160A

Income Tax Assessment Act 1936 section 160M

Income Tax Assessment Act 1936 section 160T

Reasons for decision

Subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset is:

a)    any kind of property; or

b)    a legal or equitable right that is not property.

Taxation Ruling TR 94/30 Income tax: capital gains tax implications of varying rights attaching to shares provides the Commissioner's opinion on how rights attached to shares should be treated for CGT purposes.

Paragraph 32 provides that in considering the nature of a share it has been the prevailing view of the courts that the rights attaching to shares cannot be dealt with separately from the share itself. The Commissioner considers that these rights are not assets under the definition of 'asset' in section 160A of the Income Tax Assessment Act 1936 (ITAA 1936).

Paragraph 33 provides that the expression 'any other right' is a general provision which, under the rules of statutory interpretation, does not take precedence over a more specific provision. As a share is a chose in action, subparagraph 160A(a)(iii) of the ITAA 1936 takes precedence over subparagraph 160A(a)(iv) of the ITAA 1936 to the effect that a share itself is the asset and not its constituent rights. The concept of a share as a whole being the relevant asset is also supported by other provisions in Part IIIA: see, for example, paragraphs 160M(5)(a), 160T(1)(c) and 160T(1)(j) of the ITAA 1936.

Application to the circumstances

You held a share in the company. The share in the company entitled you to the exclusive use and occupation of a room in the premises. The right to exclusive use of the room is set out in the company's Articles.

The company leases the premises from a third party under a lease agreement. There is no separate lease agreement between you and the company. The company invoices you monthly for floor fees.

The use and occupation of the room is a right attached to the share you own in the company. The right is not considered a separate CGT asset.