Private ruling: CGT
Published: May 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will you make a capital gain (loss) when the incorrect units were transferred and subsequently reversed? | A1: No.

Relevant facts and circumstances: You requested a transfer of a parcel of shares from a joint account held by you and your partner to your partner's individual account. Shares in another fund had been transferred in error. You immediately proceeded to correct the error. The shares were held in your partner's name for a short period before returning to joint ownership.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 100-20 | Income Tax Assessment Act 1997 Section 104-10

Reasons for decision: Summary: Section 100-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or capital loss if a CGT event happens to a CGT asset. Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. It states that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change in ownership occurs from you to another entity, however, a change in ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. Accordingly, it is the beneficial ownership of the asset that is of importance. In some cases, an individual may hold legal ownership interest in an asset for another individual in trust. Broadly, the provisions dealing with capital gains and losses treat an absolutely entitled beneficiary as the relevant taxpayer in respect of the asset. It is considered that the test of absolute entitlement is based on whether the beneficiary can direct the trustee to transfer the trust property to them or at their direction. In your case, you attempted to transfer a parcel of shares that were jointly held with your partner to your partner's individual account. An error occurred and the wrong parcel of units was transferred before being reversed. We consider that your partner was holding the parcel of shares on trust for you for the days they were incorrectly in her individual account and that you continued to have beneficial ownership during that time. Therefore, as there was no change in the beneficial ownership of the units, no CGT event has occurred and consequently no captain gain (loss) has been incurred.