Private ruling: Capital gains tax rollover
Date of advice: 22 July 2019
Published: September 2019
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you eligible to claim the loss in value of shares against the capital gain of your property? | A1: No. | Q2: Are you eligible for an extension of time to reinvest the proceeds from the sale of your property? | A2: No.

Relevant facts and circumstances: You own shares in a company the value of which has declined a great deal since your purchase, as they were unable to have a new product approved. You have not sold the shares. The company is still operating, and is not in receivership or under the control of an administrator. No statement has been made by an administrator or any other entity stating that the shares in the company are worthless. You owned a rental property unit in a large complex. Due to outstanding debts owed by the body corporate of the property complex, the individual unit owners had to vote on the group proposal to sell the property, which was carried by majority vote. The vote resulted in a Court appointing a Statutory Trustee to settle the debts with all creditors by facilitating the sale of the property as one lot at auction. You did not wish to sell your unit. You have provided a 'Report to Court' from the Statutory Trustees which forms part of the facts of this private ruling. A clause of the Report to Court states the following: An Order, by Consent, was made in the District Court, providing amongst other matters, the following: · the Community Title Scheme be terminated pursuant to section 78(2) of the Body Corporate and Community Management Act 1977; · the Body Corporate lodge in registerable form with the Registrar of Titles a plan cancelling the lots in the Scheme; · upon the Registrar of Titles performing its duties under section 115V of the Land Titles Act 1994 , the orders governing the disposal and disposition of proceeds from the disposal take effect; and · Nominated parties be appointed Statutory Trustees for sale of property pursuant to Section 38 of the Property Law Act 1974 . Section 78(2) of the Body Corporate and Community Management Act 1977 deals with the termination of schemes and states that: Alternatively, the scheme may be terminated if the District Court decides it is just and equitable to terminate the scheme and makes an order for terminating it. Section 38 of the Property Law Act 1974 deals with 'statutory trusts for sale or partition of property held in co-ownership' and states, at (1): Where any property (other than chattels personal) is held in co-ownership the court may, on the application of any 1 or more of the co-owners, and despite any other Act, appoint trustees of the property and vest the same in such trustees, subject to encumbrances affecting the entirety, but free from encumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition. The property sold and settlement took place. A final distribution of funds was made to you. You had intended to use the proceeds of the sale of your property to purchase another CGT asset.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 s ection 124-75 | Income Tax Assessment Act 1997 section 124-85

Reasons for decision: Summary: If a liquidator or administrator makes an appropriate written declaration in respect of valueless shares or financial instruments, capital gains tax (CGT) event G3 will occur. A taxpayer makes a capital loss from CGT event G3 equal to the reduced cost base of the share or financial instrument to the taxpayer, but only if the taxpayer chooses to do so. The reduced cost base of the share or financial instrument to the taxpayer is worked out at the time the declaration is made by the liquidator. In your case, you still own the shares, and no statement has been made by a liquidator or administrator in respect of the shares. For this reason, you have not made a capital loss from the shares. A capital gain or capital loss is made as a result of a CGT event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). The most common event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else, for example you sell your property. The disposal of your rental property constitutes CGT event A1 (section 104-10 of the ITAA 1997). You make a capital gain if your capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if your capital proceeds are less than the asset's reduced cost base. In order to qualify for an extension of time to reinvest the proceeds from the sale of your property, you first need to be eligible for the CGT rollover. If your CGT asset is lost, destroyed or compulsorily acquired, you may receive money or another CGT asset (or both) as compensation. In this case, you can choose to: · defer your liability to pay tax on any capital gain arising on the disposal, or · get a CGT exemption for any replacement asset if you acquired the original asset before 20 September 1985. Subsection 124-70(1) of the ITAA 1997 provides that a replacement asset rollovermay be available to you if one of the events in the paragraphs below happens to a CGT asset that you own: a) it is compulsorily acquired by an Australian government agency; aa) it is compulsorily acquired by an entity (other than an Australian or foreign government agency) under a power of compulsory acquisition conferred by an Australian or foreign law (other than a compulsory acquisition of minority share interests under company law). (b) it, or part of it, is lost or destroyed; (c) you dispose of it to an entity (other than a foreign government agency) where the disposal takes place after a notice was served on you inviting you to negotiate with the entity with a view to the entity acquiring the asset by agreement (and other conditions are met); (ca), (cb) and (d) - an event occurs in relation to land, mining leases or leases over land generally. In your case, it is evident that the only event that could possibly apply to you is that in paragraph (aa) - the compulsory acquisition of your unit by an entity (other than an Australian or foreign government agency) under a power of compulsory acquisition conferred by an Australian law. Paragraph (aa) was inserted by the Tax Laws Amendment (2006 Measures No. 2) Bill 2006 which states (at 4.11) that this measure will cover cases (excluding certain share acquisitions) where a private acquirer 'compulsorily acquires an asset through recourse to a statutory power'. For paragraph (aa) to apply in your situation, a private entity would have had to have initiated the 'compulsory acquisition' of your unit under a 'power of compulsory acquisition' conferred by an Australian law. However, this is not the case here. The sale of your unit was initiated by the owners as a group following a vote. As a result of the vote, the body corporate scheme was terminated by the District Court under section 78(2) of the Body Corporate and Community Management Act 1977 and Statutory Trustees were appointed to carry out the sale of the entire property under Section 38 of the Property Law Act 1974. Neither of the above legislative provisions refers to or deals with the 'compulsory acquisition' of property and neither the Statutory Trustee, nor the entity that acquired the unit complex at auction initiated the acquisition of the units. Even though the disposal of your unit was involuntary as you did not wish to sell the unit, this does not mean that the unit was compulsorily acquired as per the intent of the CGT rollover provisions. Therefore, you are not eligible for a replacement asset rollover under subsection 124-70(1) of the ITAA 1997.