Issue
Is the taxpayer, a financial service provider whose old licence had ceased to have effect and been replaced with an Australian financial services licence (AFS licence) when the taxpayer moved to the financial services reform (FSR) regime, eligible for rollover relief under section 124-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The taxpayer is eligible for rollover relief under section 124-10 of the ITAA 1997, as modified by section 124-895 of the ITAA 1997, when the taxpayer moved to the FSR regime and their old licence was replaced with an AFS licence.
Facts
The taxpayer owned an old licence acquired under the relevant law in force before the commencement of the Financial Services Reform Act 2001 . Subsequently, the taxpayer became a regulated principal under section 1430 of the Corporations Act 2001 .
The FSR regime came into effect on 11 March 2002. The taxpayer has a two year transition period ending on 10 March 2004 to apply for an AFS licence. The taxpayer applied to the Australian Securities & Investments Commission (ASIC) for the AFS licence during the transition period.
ASIC granted the AFS licence to the taxpayer. The taxpayer's old licence was cancelled when the AFS licence was granted. The AFS licence covered all of the activities that were authorised by the old licence.
Reasons for Decision
CGT event C2, section 104-25 of the ITAA 1997, happened when the taxpayer's old licence ceased to have effect when the AFS licence was granted.
Section 124-880 of the ITAA 1997 sets out the conditions to be satisfied for a taxpayer to be entitled to the rollover relief: • a taxpayer applies for an AFS licence during the transition period; • the taxpayer holds one or more licences, registrations, approvals, authorities, etc (the old licence(s)) as a regulated principal under section 1430 of the Corporations Act 2001 ; • the taxpayer is granted an AFS licence as a result of the application; • the AFS licence covers some or all of the activities that were authorised by the old licence(s); and • the old licence(s) ceases to have effect, either wholly or partially, at the earlier of the date the AFS licence is granted, or 10 March 2004.
Where the conditions in section 124-880 of the ITAA 1997 are satisfied, the consequences in section 124-895 of the ITAA 1997 apply.
Subsection 124-895(1) of the ITAA 1997 provides that where: • the taxpayer's ownership of the original asset (the old licence) has come to an end; and • the taxpayer has acquired the replacement asset (the AFS licence),
the provisions of Subdivision 124-A of the ITAA 1997 apply, subject to modifications.
The outcomes for the taxpayer of applying the provisions of Subdivision 124-A and the modifications in section 124-895 of the ITAA 1997 are: • any capital gain or capital loss made from CGT event C2 happening to the old licence is disregarded; • if the old licence was acquired before 20 September 1985, the AFS licence is taken to be have been acquired before 20 September 1985; • if the old licence was acquired on or after 20 September 1985, the first element of the cost base of the AFS licence is the cost base of the old licence plus any amount the taxpayer paid to get the AFS licence. The first element of the reduced cost base is worked out similarly.
As the taxpayer has satisfied the conditions at section 124-880 of the ITAA 1997, the taxpayer is eligible for the same owner old licence rollover relief.