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Is a roll-over available under Subdivision 122-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the disposal of shares held in joint names to a wholly owned company?

No. Where the assets disposed of are shares held in joint names, replacement asset roll-over under Subdivision 122-B of the Income Tax Assessment Act 1997 (ITAA 1997) will only be available if the shares disposed of are assets of a partnership business.

The taxpayer holds shares in Company A with their spouse. The issued capital of Company A is made up of ordinary shares.

The other shares of Company A are owned by an unrelated individual.

The taxpayer is considering the effects of a proposed restructure which would result in the taxpayer acquiring non-redeemable shares in Company B as consideration for the jointly owned shares in Company A.

The shares issued by Company B will represent 100% of the shares issued in the company and will be owned jointly in the same proportion as they currently hold shares (inter se) in Company A.

Section 122-125 of the ITAA 1997 provides that all of the partners in the partnership must dispose of their interest in a CGT asset of the partnership or all the assets of a business carried on by the partnership, to the company.

An 'asset of the partnership' is an asset that is used by the partnership in carrying on a business of the partnership. Section 160ZZNA of the Income Tax Assessment Act 1936 (ITAA 1936) (corresponding to section 122-125 of the ITAA 1997) refers to a 'partnership asset'. When this section was introduced, there was some uncertainty whether it applied to a general law partnership or a partnership under tax law (as per the definition in section 995-1 of the ITAA 1997).

The Explanatory Memoranda (EM) for section 160ZZNA of the ITAA 1936 specifically provided: 'the assets transferred must be "partnership assets", that is, assets owned by the partners of a partnership and used in the course of the partnership's business' (emphasis added).

This suggests that despite the fact that taxpayers who receive income jointly may be regarded as a partnership for tax purposes, roll-over will not be available under section 160ZZNA of the ITAA 1936 because they are not 'in business'. As section 122-25 of the ITAA 1997 is the corresponding provision to section 160ZZNA of the ITAA 1936, roll-over of partnership assets under the ITAA 1997 will also be limited to assets which are used in the course of a partnership's business.

Therefore, roll-over will only be available if the taxpayer is carrying on business in partnership and the assets owned by those partners for which a roll-over is sought are used in the course of that partnership's business.