Issue
Is the taxpayer, a financial service provider, eligible for rollover relief under section 124-915 of the Income Tax Assessment Act 1997 (ITAA 1997) when the taxpayer's old licence is replaced with the Australian financial services licence (AFS licence) acquired by a discretionary trust when the taxpayer moved to the financial services reform (FSR) regime?
Decision
No. The taxpayer is not eligible for the rollover relief provided by section 124-915 of the ITAA 1997 when the taxpayer's old licence is replaced with the AFS licence acquired by a discretionary trust.
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 incorporated a company which became the trustee of a discretionary trust. The trust was created to conduct the same financial services business that the taxpayer originally conducted.
The company as trustee applied to the Australian Securities & Investments Commission (ASIC) for the AFS licence during the transition period. ASIC granted the AFS licence to the company.
The taxpayer's old licence ceased to have effect when the AFS licence was granted to the trustee company. The AFS licence acquired by the company covered all of the activities that were authorised by the old licence. The taxpayer became an authorised representative of the trustee to provide financial services.
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 to the trustee.
Section 124-900 of the ITAA 1997 specifies the conditions to be satisfied for a taxpayer to be entitled to the rollover relief. Subparagraph 124-900(3)(a)(ii) of the ITAA 1997 requires that, where the new owner of the AFS licence is a trust, CGT event E4 (capital payments for trust interest), in section 104-70 of the ITAA 1997, must be capable of applying to all of the units and interests in a trust.
A beneficiary with only a discretionary interest in a trust does not own an interest of the nature or character referred to in subparagraph 124-900(3)(a)(ii) and section 104-70 of the ITAA 1997. Therefore, CGT event E4 cannot apply to an interest in a trust where a beneficiary has only a discretionary income or capital entitlement. As a result, the condition at subparagraph 124-900(3)(a)(ii) of the ITAA 1997 will not be satisfied and the taxpayer will not be eligible for the rollover relief under section 124-915 of the ITAA 1997. Note: Where the new owner of an AFS licence is a discretionary trust, both the original owner and the discretionary trust will not qualify for the new owner rollover relief under any of the following subparagraphs of the ITAA 1997: • subparagraph 124-900(3)(a)(ii), old licence rollover; • subparagraph 124-905(3)(a)(ii), qualified licence rollover; or • subparagraph 124-910(3)(a)(ii), rights rollover.