Issue
Does the application of the capital gains tax (CGT) discount in Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) to a capital gain constitute the making of a choice and, therefore, prevent the taxpayer from later choosing scrip for scrip roll-over under Subdivision 124-M of the ITAA 1997?
Decision
No. The application of the CGT discount in Division 115 of the ITAA 1997 does not constitute the making of a choice for the purposes of the CGT provisions of the ITAA 1997.
Facts
During the year ended 30 June 2000 the taxpayer held shares in 'A' company and in June 2000 those shares were exchanged for shares in 'B' company.
The taxpayer's shares in 'A' company and 'B' company were held in a personal portfolio service. All correspondence and documentation in relation to the exchange of 'A' company shares for 'B' company shares was received by the manager of the personal portfolio service.
The management of the personal portfolio service failed to keep the taxpayer fully informed as to the details of the exchange of 'A' company shares for 'B' company shares, particularly their choices in respect to CGT.
The taxpayer made a capital gain on the transaction and after applying the 50% discount available under Division 115 of the ITAA 1997 included half of the capital gain in their income tax return for the year ended 30 June 2000.
Having become aware of the availability of scrip for scrip roll-over, the taxpayer sought to make a choice to obtain scrip for scrip roll-over as provided in paragraph 124-780(3)(d) of the ITAA 1997.
Reasons for Decision
To obtain the scrip for scrip roll-over under Subdivision 124-M of the ITAA 1997 it is necessary for the taxpayer to first choose the roll-over under paragraph 124-780(3)(d) of the ITAA 1997.
The general rule is that a choice available under the CGT provisions once made can not be changed. Generally, such a choice must be made by the time the income tax return is lodged or within such further time as the Commissioner allows (see section 103-25 of the ITAA 1997).
The CGT discount in Division 115 does not require a choice to be made for its application but applies automatically if its conditions are satisfied and a choice is not made otherwise. Where the CGT discount has applied to a capital gain without consideration of the scrip for scrip roll-over no choice has been made and hence a choice for scrip for scrip roll-over may be made subject to further time being granted.
The taxpayer has established that they were unaware of the availability of the scrip for scrip roll-over when they lodged their income tax return. As a choice had not been made previously, the taxpayer could choose the scrip for scrip roll-over, subject to the Commissioner granting further time between the lodgment of the income tax return and the making of the choice.
If the taxpayer had considered the application of scrip for scrip roll-over but chose not to apply it, a choice would have been made which could not later be changed.