Issue
If, as part of the restructure of a unit trust, the taxpayer, a unit holder of that trust, transfers all of their units to a company and the company issues shares as consideration, is this an 'exchange' for the purpose of paragraph 124-870(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The transfer of units in a unit trust to a company and the issue of shares by the company as consideration is an 'exchange' for the purpose of paragraph 124-870(1)(b) of the ITAA 1997.
Facts
The taxpayer owns units in a unit trust (the trust). The trust restructures by disposing of all its CGT assets to an Australian resident company limited by shares (the company). The taxpayer transfers all of their units in the trust to the company. The company issues shares as consideration for the units in the trust.
Reasons for Decision
Subsection 124-870(1) of the ITAA 1997 states: You may choose to obtain a rollover if: (a) you own units or interests in the trust; and (b) the ownership of all your units or interests ends under a trust restructure in exchange for shares in a company.
The word 'exchange', which is used in paragraph 124-870(1)(b) of the ITAA 1997, is not specifically defined for income tax purposes in either the Income Tax Assessment Act 1936 or the ITAA 1997. Therefore the ordinary meaning of the word is used.
The Australian Oxford Dictionary, 1999, University Press, Melbourne, defines 'exchange' as: a. the act of or an instance of giving one thing and receiving another in its place. b. give or receive (one thing) in place of another.
The Macquarie Dictionary , 2002, revised 3rd edition, The Macquarie Library Pty Ltd, Sydney, defines 'exchange' as: to part with for some equivalent, giving up (something) for something else
Therefore 'exchange' in paragraph 124-870(1)(b) of the ITAA 1997 means giving up units or interests in the restructuring trust and receiving shares in the company, to which the trust's assets were transferred, in its place. This includes the transfer of units in a unit trust to the company to which the unit trust is transferring all its CGT assets (under a Subdivision 124-N of the ITAA 1997 trust restructure) and the acquisition of shares in that company as consideration.