ATO ID 2003/197: Capital gains tax: scrip for scrip rollover - unit in a public trading trust exchanged for a share in a company
Date of decision: 14 March 2003
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Is rollover available under Subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997) if a taxpayer exchanges a unit in a public trading trust that has not chosen to form a consolidated group, for a share in a company?

Decision
No. Rollover is not available under Subdivision 124-M of the ITAA 1997 if a taxpayer exchanges a unit in a public trading trust that has not chosen to form a consolidated group, for a share in a company.

Facts
The taxpayer acquired units in a public trading trust (as defined in section 102R of the Income Tax Assessment Act 1936 (ITAA 1936)) on or after 20 September 1985. The trust has not made a choice under section 703-50 of the ITAA 1997 to form a consolidated group. In accordance with an 'arrangement' that satisfied subsection 124-780(2) of the ITAA 1997, the taxpayer disposed of those units in exchange for shares in a company. The taxpayer and the company dealt with each other at arms' length. The taxpayer made a capital gain from the disposal of the units and wishes to choose rollover under Subdivision 124-M of the ITAA 1997.

Reasons for decision
Summary: Rollover is available under Subdivision 124-M of the ITAA 1997 if an entity exchanges a share in a company for a share in another company: subparagraph 124-780(1)(a)(i) of the ITAA 1997. Division 6C of the ITAA 1936 applies in relation to certain public trading trusts defined in section 102R of the ITAA 1936. For certain purposes of the ITAA 1936 and ITAA 1997 those trusts are treated as companies and units in them are treated as shares. The Explanatory Memorandum to the Bill which became the Taxation Laws Amendment Act (No.4) 1985 and which introduced Division 6C of the ITAA 1936 states: The purpose of this section [section 102T], in broad terms, is to equate public trading trusts or, where appropriate, prescribed trust estates, with companies in the application of certain specified provisions of the Principal Act. In like manner, units in prescribed trust estate, unitholders and unit trust dividends will be equated respectively with shares, shareholders and dividends paid by a company [emphasis added]. The issue in this case is whether a unit is treated as a 'share in a company' for the purposes of subsection 124-780(1) of the ITAA 1997. Section 102T of the ITAA 1936 sets out the circumstances when the application of the income tax law to a public trading trust is modified for example, subsection 102T(13) specifies that a unit will be treated as a share for the purposes of Subdivision 12F in Schedule 1 to the Taxation Administration Act 1953. Subsection 124-780(1) of the ITAA 1997 is not listed in section 102T of the ITAA 1936. However, the note to subsection 102T(1) indicates that there is a different approach for a public trading trust that chooses to form a consolidated group. Essentially, if that choice has been made, then Subdivision 713-C of the ITAA 1997 applies to treat the trust as a company and units in it as shares. As the trust has not made a choice to form a consolidated group, section 102T has its normal operation. Accordingly as subsection 124-780(1) of the ITAA 1997 is not listed in section 102T of the ITAA 1936, a unit in a public trading trust that has not made a choice to form a consolidated group is not treated as a share when applying Subdivision 124-M of the ITAA 1997. Roll-over is not available if the unit is exchanged for a share in a company.

Legislative references: Income Tax Assessment Act 1936 Division 6C section 102J section 102R section 102T subsection 102T(1) subsection 102T(13)
Subject references: Capital gains tax CGT event A1-disposal of a CGT asset Consolidated group Consolidation Corporate unit trusts Head entity Public trading trusts Scrip for scrip roll-over