Issue
Can the taxpayer, a financial service provider whose old licence had ceased to have effect and been replaced with the Australian financial service licence (AFS licence) when the taxpayer moved to the financial services reform (FSR) regime, not choose the rollover relief under section 124-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The rollover relief under section 124-10 of the ITAA 1997 automatically applied when the taxpayer moved to the FSR regime and their old licence ceased to have effect and was replaced with the AFS licence.
Facts
The taxpayer owned an old licence that was issued 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 taxpayer's old licence ceased to have effect when the AFS licence was granted. The AFS licence covered all of the activities that were authorised by the old licence.
The taxpayer satisfied the conditions in section 124-880 of the ITAA 1997 for the same owner old licence rollover.
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.
The rollover consequences in section 124-895 of the ITAA 1997 automatically applied when the taxpayer satisfied the conditions in section 124-880 of the ITAA 1997. Subdivision 124-O of the ITAA 1997 does not allow the taxpayer to choose that the rollover does not apply.
The outcomes for the taxpayer of applying the provisions of Subdivision 124-A of the ITAA 1997 and the modifications in section 124-895 are: • the capital loss 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 reduced 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.
As the taxpayer has satisfied the conditions of section 124-880 of the ITAA 1997, the same owner old licence rollover automatically applied.
Note: Subdivision 124-O of the ITAA 1997 provides six automatic CGT rollovers for financial services providers on transition to the FSR regime:
Three same owner rollovers • old licence rollover - section 124-880 of the ITAA 1997 • qualified licence rollover - section 124-885 of the ITAA 1997 • rights rollover - section 124-890 of the ITAA 1997.
Three new owner rollovers • old licence rollover - section 124-900 of the ITAA 1997 • qualified licence rollover - section 124-905 of the ITAA 1997 • rights rollover - section 124-910 of the ITAA 1997.