ATO ID 2004/94: Capital gains tax: Subdivision 122-A rollover: no consideration received
Date of decision: 13 January 2004
Year of income: Year ended 30 June 2003
Business line: Small Business/Individual Taxpayers

Issue
Can a taxpayer choose rollover under Subdivision 122-A of the Income Tax Assessment Act 1997 (ITAA 1997) if they dispose of an asset to a company in which they own all of the issued shares and are not issued with any new shares or paid any other form of consideration by the company?

Decision
Yes. Section 122-20 of the ITAA 1997 does not require that a taxpayer must receive consideration for the disposal of an asset to a company in order to obtain the rollover. Rather, it provides that if there is consideration received for the disposal, then that consideration must be either non-redeemable shares in the company or non-redeemable shares in the company and the company's undertaking to discharge one or more liabilities in respect of the asset.

Facts
The shares in a resident company are all owned by the taxpayer (the trustee of a resident trust for capital gains tax (CGT) purposes). None of the shares is a redeemable share. The company is not an exempt entity. The company's only asset is less than ten dollars in cash. The taxpayer subsequently disposed of land to the company. No shares were issued by the company as consideration for the transfer of the land. No other consideration was paid by the company.

Reasons for decision
Summary: Section 122-15 of the ITAA 1997 provides that where a trustee disposes of an asset, or all of the assets of a business, to a company the trustee can choose to obtain rollover if certain requirements are met. One of the requirements is that if the trustee receives consideration for the disposal of the asset (or assets) to the company that consideration must include shares in the company (subsection 122-20(1) of the ITAA 1997). Although subsection 122-20(1) of the ITAA 1997 contemplates that ordinarily a transferee company will issue shares in respect of any assets transferred to it, the provision does not specifically require that consideration must be provided in respect of the transfer. Rather, the requirement is that where consideration is given by the company, it must be either shares in the company or shares in the company and the company undertaking to discharge one or more liabilities in respect of the asset or the assets of the business. As the taxpayer has received no consideration in respect of the disposal, there is no need to consider the application of section 122-20 of the ITAA 1997. Section 122-25 of the ITAA 1997 contains further conditions that must be satisfied before rollover can be chosen. Relevantly these are: Therefore, the taxpayer is entitled to choose rollover under Subdivision 122-A of the ITAA 1997. If rollover is chosen any capital gain or capital loss made by the taxpayer as a result of the disposal is disregarded (subsection 122-40(1) of the ITAA 1997). Subsections 122-40(2) and 122-40(3) of the ITAA 1997 provide rules for determining the first element of cost base and reduced cost base of each share received as consideration for the disposal of the asset and the pre-CGT status of those shares. In this case, the rules in subsections 122-40(2) and 122-40(3) of the ITAA 1997 will not apply in relation to the taxpayer's existing shares as those rules only apply to shares received as consideration for the disposal of the asset.

Legislative references: Income Tax Assessment Act 1997 Subdivision 122-A section 122-15 section 122-20 subsection 122-20(1) section 122-25 subsection 122-25(1) subsection 122-25(5) subsection 122-25(7) subsection 122-40(1) subsection 122-40(2) subsection 122-40(3)
Related ATO interpretative decisions: ATO ID 2004/95 | ATO ID 2002/172 | ATO ID 2002/361 | ATO ID 2004/8
Subject references: Capital gains tax CGT event A1-disposal of a CGT asset CGT events CGT replacement assets CGT replacement asset roll-over CGT roll-over relief Trusts Wholly owned