Issue
Is a roll-over available to a company under the Income Tax Assessment Act 1997 (ITAA 1997) when assets owned by it are disposed of to the sole shareholder of the company?
Decision
No. There is no provision in the ITAA 1997 that provides any roll-over relief for any capital gain that arises when a company transfers assets to the sole shareholder of the company.
Facts
The company was incorporated after 20 September 1985 with only one shareholder.
The shareholder had transferred a number of CGT assets to the company.
The company and the shareholder are residents for income tax purposes.
The company is now considering passing some of the assets back to the shareholder.
Reasons for Decision
There is no provision in the ITAA 1997 that allows the taxpayer to obtain rollover relief in the situation where the taxpayer is a company and is disposing of its assets to an individual shareholder. The fact that the individual is the sole shareholder of the company is of no significance.
The transfer of a CGT asset by the company to the individual shareholder will be a disposal of that CGT asset. That is, CGT event A1 under section 104-10 of the ITAA 1997 occurs at the time of transfer. The exception set out in paragraph 104-10(5)(a) of the ITAA 1997 will not apply as the CGT asset was acquired by the company on or after 20 September 1985.
In respect of each asset that the company transfers to the individual shareholder, the company will make a capital gain if the capital proceeds from the disposal are more than the cost base of the asset, or alternatively, will make a capital loss if the capital proceeds are less than the asset's reduced cost base (subsection 104-10(4) of the ITAA 1997).
It should be noted that the market value substitution rules in subsection 116-10(2) of the ITAA 1997 may apply in relation to the transfer where no capital proceeds are received or they are not equal to the market value of the asset as the parties would not be considered to be dealing at arm's length.