1 Did capital gains tax (CGT) event C1 happen when the Taxpayer's shares were incorrectly sold as a result of an error by the operator of the investment platform?
1 Yes The sale of the shares without the Taxpayer's consent as a result of a mistake by the operator of the investment platform, meant the shares the Taxpayer owned were lost, and this triggered CGT event C1 (section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The Taxpayer's circumstances are considered similar to the facts described in ATO Interpretative Decision ATO ID 2010/124 Will CGT event C1 under section 104-20 of the Income Tax Assessment Act 1997 (ITAA 1997) happen on the sale of shares in a company, without the consent of the owner of the shares, to a bona fide purchaser of the shares for value and without notice of the owner's lack of consent to the sale, as the result of a stockbroker's mistake?. CGT event A1 also occurred as it was a disposal of a CGT asset; however, subsection 102-25(1) of the ITAA 1997 states that if the situation can be defined by more than one CGT event, you should use the event which is most specific to your circumstances, which is CGT event C1 in the Taxpayer's case. Question 2 Can the Taxpayer apply CGT rollover relief under Subdivision 124-B of the ITAA 1997 to disregard the capital gain resulting from the sale of shares?
Answer 2 Yes The Taxpayer is entitled to choose the rollover as the shares they owned were considered lost when they were sold without their consent as of a result a mistake by the operator of the investment platform (paragraph 124-70(1)(b) of the ITAA 1997). The Taxpayer received another asset (the replacement shares), and the shares did not become items of their trading stock just after they acquired them, nor a depreciating asset whose decline in value is worked out under Division 40 of the ITAA 1997 (subsection 124-80(2) of the ITAA 1997). To the extent the market value of the replacement shares when the Taxpayer acquired them, was more than the cost base of the original shares just before the event happened, the requirements for the rollover are satisfied (subsection 124-80(3) of the ITAA 1997). Therefore, the Taxpayer is entitled to choose the rollover to disregard the capital gain they made from the disposal of their original shares as the result of the mistake by the operator of the investment platform. Question 3
If the Taxpayer can apply rollover under Subdivision 124-B of the ITAA 1997, will the cost base of the new replacement shares and date of acquisition for capital gains discount under section 115-25 be the same as the cost base and date of acquisition of the original shares? Answer 3 Yes As the original shares were acquired post-CGT, the cost base of the shares will be the same as that of the original shares at the time of their disposal (subsection 124-90(3) of the ITAA 1997). The Taxpayer is also taken to have acquired the replacement shares when the original shares were acquired (item 2 of the table in section 115-30 of the ITAA 1997). This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
1. The Taxpayer is incorporated in Australia and is an Australian tax resident. 2. The Taxpayer owns investments in shares and units for long term investment purposes. 3. All the investments are post-CGT as they were acquired after 20 September 1985. 4. The investments are not considered trading stock, nor depreciating assets whose decline in value is worked out under Division 40 of the ITAA 1997. 5. The investments are held in an investment account operated by an investment platform. 6. The operator of the investment platform does not provide financial advice to the Taxpayer nor do they have the authority to make or implement investment decisions in relation to the Taxpayer's investments without the prior agreement and consent of the Taxpayer. 7. The Taxpayer has a financial advisor who provides financial advice but is not authorised to implement the investment decisions of their client without their prior agreement and consent. 8. The Taxpayer sought to purchase certain assets, and the operator of the investment platform was instructed to facilitate this.
9. On DDMMYYYY, in error, and acting outside of its instructions by the Taxpayer and Financial Advisor, the operator of the investment platform executed a sale of shares owned by the Taxpayer. All assets sold were post-CGT. 10. A table containing details of the assets sold in error was provided. 11. On DDMMYYYY, when the unauthorised sales transactions were noticed, a meeting between the Financial Advisor and the operator of the investment platform was held to raise the issue. 12. On DDMMYYYY, the operator of the investment platform acknowledged that the transactions were implemented due to an administrative oversight. A letter to confirm this was provided. 13. To rectify the error, the investment platform operator took the necessary to restore the Taxpayer's investment account to the position it would have been if the unauthorised transactions not been implemented, including manual buy transactions to purchase shares that were incorrectly sold, using net consideration received from the unauthorised transactions.
14. The market value of the replacement shares was more than the cost base of the original shares, except in relation to XX shares, where the market value did not exceed the cost base of the original shares at the time they were acquired. 15. The Taxpayer is not seeking rollover relief under Subdivision 124-B of the ITAA 1997 for the XX replacement shares where they will incur a capital loss.
Income Tax Assessment Act 1997 section 102-25 Income Tax Assessment Act 1997 subsection 102-25(1) Income Tax Assessment Act 1997 section 104-20 Income Tax Assessment Act 1997 section 115-30 Income Tax Assessment Act 1997 Subdivision 124-B Income Tax Assessment Act 1997 section 124-70 Income Tax Assessment Act 1997 subsection 124-70(1) Income Tax Assessment Act 1997 paragraph 124-70(1)(b) Income Tax Assessment Act 1997 subsection 124-80(2) Income Tax Assessment Act 1997 subsection 124-80(3) Income Tax Assessment Act 1997 section 124-90 Income Tax Assessment Act 1997 subsection 124-90