Issue
Is a replacement asset roll-over available under Subdivision 122-A of the Income Tax Assessment Act 1997 (ITAA 1997) when an asset owned jointly by two or more individuals is disposed of to a company?
Decision
No. A replacement asset roll-over is not available under Subdivision 122-A of the ITAA 1997 when jointly-owned assets are disposed of to a company because the requirement in subsection 122-25(1) of the ITAA 1997 cannot be satisfied.
Facts
The taxpayer owns shares in Company A jointly 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.
Reasons for Decision
Section 122-15 of the ITAA 1997 provides that an individual can choose to obtain a roll-over if one of certain specified CGT events occur. The disposal to a company of a CGT asset, or all the assets of the business, is a CGT event to which this provision applies. Certain conditions must be fulfilled for roll-over relief to be available.
Section 122-25 of the ITAA 1997 requires that the individual who has disposed of assets to the company must own all the shares in the company just after the time at which the trigger event (i.e., the disposal of assets) occurs.
In this provision the term 'individual' does not include more than one individual. The intent of the legislation is made clear by Act No. 48 of 1991, which introduced a range of CGT partnership amendments including a specific roll-over for partnership assets.
No roll-over is available where the asset to be rolled-over is owned by two or more people. This is so notwithstanding that the shares acquired in exchange for the asset rolled-over may be held in the same proportions as the taxpayers held interests in the asset.
Roll-over may be available if each owner rolled over their interest to a separate company in which they owned all of the shares.