Issue
Could a company make a capital gain or a capital loss if a trust obtains a rollover under Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) and CGT event J4, section 104-195 of the ITAA 1997, later happens because the trust did not cease to exist within the required six month period?
Decision
Yes. The company that has acquired the CGT assets under the rollover could make a capital gain or a capital loss from CGT event J4, section 104-195 of the ITAA 1997.
Facts
A fixed trust disposed of all of its CGT assets to a company and ceased to exist. The trust and the company both chose to obtain rollover under Subdivision 124-N of the ITAA 1997. The trust took more than six months to transfer all its CGT assets to the company. There were no circumstances beyond the trustee's control which caused the transfer of the trust's CGT assets to take more than six months.
Reasons for Decision
CGT event J4 happens where: there is a rollover under Subdivision 124-N of the ITAA 1997 for a trust disposing of a CGT asset to a company under a trust restructure (paragraph 104-195(1)(a) of the ITAA 1997); the trust fails to cease to exist within six months after the first asset is disposed of to the company or as soon as practicable after the end of that six month period (paragraph 104-195(1)(b) of the ITAA 1997); and the company owns the asset when the failure happens (paragraph 104-195(1) (c) of the ITAA 1997).
As a result of the CGT event happening, the benefits of the rollover are negated and a capital gain or a capital loss may be made by the company for each of the assets referred to in paragraph 104-195(1)(c) of the ITAA 1997.
[Note: CGT event J4 can also happen to a shareholder in the company.]