Edited version of private advice

Authorisation Number: 1052241709051

Date of advice: 15 April 2024

Ruling

Subject: CGT - rollover relief

Question

Will the Commissioner of Taxation allow the Taxpayer, pursuant to section 103-25 of the Income Tax Assessment Act 1997 (ITAA 1997 further time to make a choice to obtain rollover relief under section 122-15 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

For the income year ended 30 June 20XX

Relevant facts and circumstances

The Taxpayer was the sole shareholder of Company A holding one ordinary class share in this company (the Share). The Taxpayer was also the sole shareholder in Company B.

Pursuant to the terms of a sale agreement, the Taxpayer sold their Share in Company A to Company B.

In exchange for the sale of the Share in Company A to Company B, the Taxpayer was issued with XX amount of ordinary shares in Company B of $yyyy which reflects the market value of the Share.

Just after the disposal of the Share in Company A to Company B, the Taxpayer owned all of the shares of Company B.

The Taxpayer's income tax return for the income year ended 30 June 20XX ('20XX income year') was lodged without making the written choice available under the provisions of Subdivision 122-A of the ITAA 1997 in relation to the sale of the Share.

The tax return was lodged in error by the Taxpayer's tax agent.

The Taxpayer has since lodged an amended tax return for the 20XX income year in which the written choice has been made.

The Taxpayer and Company B were Australian residents at the time of the transfer of the Share.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 103-25

Income Tax Assessment Act 1997 section 122-15

Reasons for decision

Note: All legislative references in the 'Reasons for Decision' are references to the Income Tax Assessment Act 1997.

The question of whether the Commissioner will exercise his discretion under section 103-25 to allow the Taxpayer further time to make a choice to obtain CGT rollover under section 122-15 requires consideration first, of whether the taxpayer has complied with the terms of section 122-15 and second, the exercise of the Commissioner's discretion under section 103-25.

CGT Rollover - section 122-15

Section 122-15 provides that an individual can choose to obtain roll-over relief if one of a number of specified CGT events (trigger event) occurs and certain conditions in section 122-20 and section 122-25 are satisfied.

One of the specified trigger events is CGT Event A1 being the disposal of a CGT asset - see item 1 of the table in section 122-15.

Under subsection 104-10(1), CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2) you dispose of a CGT asset if a change of ownership occurs from you to another entity. Shares in a company are CGT assets (section 108-5).

The sale of the Share in Company A to Company B will trigger CGT Event A1, as a change of ownership will occur, effecting a disposal of the Share.

Conditions - section 122-20

Relevantly, section 122-20 requires that:

• the consideration for the trigger event must be non-redeemable shares in the company (subsections 122-20(1) and (2)); and
• the market value of the shares must be substantially the same as the market value of the transferred asset (subsection 122-20(3));

In the present circumstances, the Taxpayer received in consideration for the disposal of the Share was only ordinary shares in Company B. The value of these shares was equal to the market value of the Share in Company A sold by the Taxpayer. Additionally, the shares issued by Company B to the Taxpayer were ordinary shares and not redeemable shares.

Thus, the conditions in section 122-20 are satisfied.

Conditions - section 122-25

Section 122-25 lists further requirements that must also be satisfied for roll-over relief to be available under Subdivision 122-A. Relevantly, this provision requires that:

• the individual must own all the shares in the company just after the disposal of the CGT asset (subsection 122-25(1));
• the CGT asset disposed of cannot be any of the assets listed in the table in subsection 122-25(2);
• the company must not be an exempt entity (subsection 122-25(5)); and
• the individual and the company must both be Australian residents at the time of the disposal of the CGT asset (paragraph 122-25(6)(a)).

Prior to the sale of the Share, the Taxpayer was the sole shareholder of Company B. Just after the sale of the Share to Company B, the Taxpayer continued to own all of the shares in Company B. Therefore, the terms of subsection 122-25(1) are satisfied.

Subsection 122-25(2) does not apply in these circumstances as the Share is not one of the assets listed in the table in subsection 122-25(2) for which CGT roll-over is not available.

Subsection 122-25(5) is satisfied as neither the ordinary nor statutory income of Company B was exempt from income tax.

The residency requirement under paragraph 122-25(6)(a) is satisfied as both the Taxpayer and Company B were Australian residents at the time of the transfer of the Share.

As the Taxpayer meets all the conditions, the Taxpayer will be able to choose the roll-over relief available under Subdivision 122-A.

Election

Under section 103-25, the choice to obtain rollover relief under Part 3-1 or Part 3-3 (which includes Subdivision 122-A), must be made by the day a taxpayer lodges their income tax return for income year in which the CGT event occurred, or within such further time allowed by the Commissioner. The way in which the taxpayer making the choice prepares their income tax return generally provides enough evidence of a choice.

In determining if the discretion to allow further time would be exercised the Commissioner has considered the following factors:

• there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension;
• account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension;
• account must be had of any unsettling of people, other than the Commissioner, or of established practices;
• there must be a consideration of fairness to people in like positions and the wider public interest;
• whether there is any mischief involved; and
• a consideration of the consequences.

The Taxpayer's tax agent inadvertently lodged the income tax return for the 20XX income year without making the written choice available about the CGT rollover. The Taxpayer has since lodged an amended income tax return rectifying this mistake.

Based on the circumstances and facts presented in the private ruling application, it is considered that there would be no prejudice to the Commissioner or unsettling of people by allowing the further time nor is there mischief involved.

The Commissioner considers it fair and equitable in these circumstances to exercise his discretion. Accordingly, the Taxpayer's request for further time to make the choice to apply the CGT rollover under section 122-15 is granted.