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Is the taxpayer, a financial service provider whose contract had been terminated and replaced with a new contract when the taxpayer moved to the financial services reform (FSR) regime, eligible for rollover relief under section 124-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The taxpayer is eligible for rollover relief under section 124-10 of the ITAA 1997, as modified by section 124-895 of the ITAA 1997, when the taxpayer moved to the FSR regime and their original contract was replaced with a new contract.

The taxpayer is an authorised representative of a regulated principal under section 1430 of the Corporations Act 2001 . The taxpayer had entered into the contract with the regulated principal after 19 September 1985.

The FSR regime came into effect on 11 March 2002. The taxpayer has a two year transition period ending on 10 March 2004 to move to the FSR regime. The taxpayer's contract with the regulated principal was cancelled when the regulated principal moved to the FSR regime during the transition period.

At the same time, the taxpayer entered into a new contract with the same entity in full substitution of the contract that was cancelled.

CGT event C2, section 104-25 of the ITAA 1997, happened when the taxpayer's intangible CGT asset, the rights under the original contract, were cancelled when the taxpayer moved to the FSR regime.

Section 124-890 of the ITAA 1997 sets out the conditions to be satisfied for a taxpayer to be entitled to the rollover relief: • an intangible CGT asset(s) owned by a taxpayer ceases to exist during the FSR transition period; • the asset(s) ceases to exist because of the termination of a contract(s); • the termination is directly connected with Chapter 7 of the Corporations Act 2001 (as amended by the Financial Services Reform Act 2001 ) beginning to apply to the taxpayer; • the taxpayer acquires an intangible CGT asset(s) by entering into a contract(s) in substitution (wholly or partly) for the contract(s) that were terminated.

Where the conditions at section 124-890 of the ITAA 1997 are satisfied, the consequences in section 124-895 of the ITAA 1997 apply.

Subsection 124-895(1) of the ITAA 1997 provides that where: • the taxpayer's ownership of the original assets (the rights under the original contract) has come to an end; and • the taxpayer has acquired replacement assets (the rights under the new contract), • the provisions of Subdivision 124-A of the ITAA 1997 apply, subject to modifications.

The outcomes for the taxpayer of applying the provisions of Subdivision 124-A and the modifications in section 124-895 of the ITAA 1997 are: • any capital gain or capital loss made from CGT event C2 happening to each of their rights under the original contract is disregarded; • if the original rights were acquired before 20 September 1985, the new rights are taken to be have been acquired before 20 September 1985; • if the original rights were acquired on or after 20 September 1985, the first element of the cost base of each new right is the cost base of the related original right plus any amount the taxpayer paid to get the new right. The first element of the reduced cost base is worked out similarly.

As the taxpayer has satisfied the conditions at section 124-890 of the ITAA 1997, the taxpayer is eligible for the same owner rights rollover.