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1: Did capital gains tax event C1 happen to you on the unauthorised sale of the shares under section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997)? A nswer: 1 Yes. Question 2: Can you choose the capital gains tax replacement asset rollover in Subdivision 124-B of the ITAA 1997 to defer any capital gain arising from the unauthorised disposal of the shares?

: 2 Yes. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

You are a share investor. Your shares are not used in relation to any business activities and are not trading stock or depreciating assets. From after 20 September 1985, you acquired shares in Company A and Company B, with shares in both companies being acquired at different times You use Company Z, a stockbroking platform, in relation to your share activities. Your shares trades are linked to your share trading account from which funds in relation to your share trading activities are deposited and withdrawn. Company Z issued you tax invoices to confirm the sale of some of your Company A and Company B shares. The proceeds from the sale of the shares had been deposited into your nominated settlement account. You contacted Company Z after receiving the tax invoices when you advised them that you had not authorised the sale of your shares. As a result of your discussion with their representative, and on their advice, you requested that they purchase replacement Company A and Company B shares on your behalf using the sale proceeds that had been deposited into your trading account.

The purchase of the replacement shares by Company Z occurred on the same day. The costs to acquire the shares in Company A and Company B were less than the sale proceed amounts that had been received from the unauthorised sale of the shares in the respective company.

Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10 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 124-75

Question 1: Did capital gains tax event C1 happen to you on the unauthorised sale of the shares under section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997)? Capital gains tax event C1 - loss of capital gains tax asset You may make a capital gain or a capital loss when a capital gains tax (CGT) event occurs to a CGT asset you own under section 102-20 of the ITAA 1997. CGT event C1 occurs when a CGT asset is lost under subsection 104-20(1) of the ITAA 1997. A CGT asset is any kind of property, or a legal or equitable right that is not property under section 108-5 of the ITAA 1997, such as shares. The time of the CGT event will be: •                     when the compensation is received under paragraph104-20(2)(a) of the ITAA 1997; or •                     if the taxpayer does not receive any compensation, when the loss is discovered under paragraph104-20(2)(b) of the ITAA 1997.

A capital gain is made as a result of a CGT event C1 occurring if the capital proceeds from the loss are more than the asset's cost base (the original share's cost base). A capital loss will be made as a result of the CGT event C1 occurring if the capital proceeds are less than the asset's reduced cost base under subsection 104-20(3) of the ITAA 1997. CGT event A1 occurs on the disposal of a CGT asset. However, subsection 102-25(1) of the ITAA 1997 states that if the situation can be defined by more than one CGT event, you should use the event which is most specific to your circumstances. ATO Interpretative Decision ATO ID 2010/124 Income Tax CGT event C1: sale of shares without the owner's consent - stockbroker's mistake outlines that CGT event C1 occurred when the shares were sold by stockbroker without the owner's consent, with the shares being lost by the owner. ATO Interpretative Decision ATO ID 2010/116 Income Tax CGT event C1: sale of shares without the owner's consent outlines that a CGT event C1 occurred on the sale of shares without consent of the owner of the shares, to a bona fide purchaser of the shares, with the shares being lost. Application to your situation

In your situation, some of your Company A and Company B shares were sold without your authority, with the sale proceeds being deposited into your trading account. CGT event C1 occurred as you were involuntarily and permanently deprived of your ownership of the shares as a result of the unauthorised sale of the shares resulting in your shares being lost. CGT event A1 also occurred when the shares were sold as your ownership interest in the shares had ended due to their sale. However, CGT event C1 is the most specific CGT event in your situation. You received immediate compensation for the loss of your shares with the share sale proceeds being deposited into your trading account. Therefore, CGT event C1 happened when the sale proceeds were deposited into your trading account and not at the later date when you became aware that the shares had been sold without your authority. Question 2 : Can you choose the capital gains tax replacement asset rollover in Subdivision 124-B of the ITAA 1997 to defer any capital gain made from the unauthorised disposal of the shares? Rollover relief

A replacement asset rollover in Subdivision 124-B of the ITAA 1997 allows a taxpayer, in specific circumstances, to defer the recognition of a capital gain where a CGT event happens to an (original) asset owned by a taxpayer until a later CGT event happens to a 'new' asset acquired as a replacement for the original asset. The choice for the rollover relief to apply in relation to a lost CGT asset is a choice that the taxpayer can choose not to make or alternatively can choose to make if the relevant conditions are met as discussed below. Not making the rollover choice If the choice is not made for rollover relief to apply when a CGT event C1 occurs, then the general CGT provisions in relation to a CGT event C1 occurring will apply, as outlined above. Making the rollover choice The rollover applies differently when you receive money and/or a asset as a result of the CGT event occurring, being the compensation received due to the CGT event occurring. If you receive money because a CGT event happens, you can choose a rollover only if the following requirements are met:

•                     you incur expenditure in acquiring another CGT asset, except a depreciating asset whose decline in value is worked out under Division 40 of the ITAA 1997 or deductions that are calculated under Division 328 of the ITAA 1997 under paragraph 124-75(2)(a) of the ITAA 1997. •                     at least some of the expenditure must be incurred: ­        no earlier than one year before the event happens under paragraph 124-75(3)(a) of the ITAA 1997, or •                     within one year after the end of the income year in which the event happens under paragraph 124-75(3)(b) of the ITAA 1997. •                     subsection 124-75(4) of the ITAA 1997 provides special rules if you receive money because of a CGT event, you can choose a rollover only if: ­        you incur expenditure in acquiring another CGT asset that is used: ­        in your business or installed ready for use in the business for a reasonable period if the original asset was a business asset; or ­        otherwise, for a reasonable period for the same or similar purposes as the original asset.

If you receive money and choose to take a rollover, subsection 124-85(2) of the ITAA 1997 states that the consequences when you acquired the original asset on or after 20 September 1985 will depend on whether: •                     the money received for the asset is more than the cost of replacement; or •                     the money received does not exceed the cost replacement. Application to your situation Your shares were sold without your authority and CGT event C1 occurred when your shares were lost. You received money as a result of the shares being sold, which was deposited into your trading account. You used the sale proceeds to purchase replacement shares which were not used in relation to any business activities or became items of your trading stock just after they were acquired. Nor were the replacement shares depreciating assets whose decline in value is worked out under Division 40 of the ITAA 1997. The replacement shares are being used for the same purpose that you had used the original shares, as share investments.

Therefore, you meet the necessary requirements to be eligible to make the rollover choice under Subdivision 124-B of the ITAA 1997 and you can either choose to make or not make the rollover choice.