Private ruling: CGT - disposal - transfer of shares
Date of advice: 2 March 2016
Published: April 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the change of ownership from joint tenants to individual ownership be exempt from capital gains tax (CGT)? | A1: No.

Relevant facts and circumstances: Together you jointly own shares in a company. The shares were acquired after the 20 September 1985. You would like to be able to deal with the shares independently of the other for the purposes of future sales and your estates. You would like to transfer half of the shares to both of you individually so that you will each own half the shares outright.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 100-20(1) and | Income Tax Assessment Act 1997 Subsection 104-10(2) .

Reasons for decision: Summary: You only make a capital gain or capital loss if a CGT event happens to an asset that you own (subsection 100-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997)). CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) of the ITAA 1997 provides that you dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law. Taxation Determination TD 92/148 explains that there is a disposal and an acquisition where joint owners of a block of land subdivide that land into two smaller blocks with each owning one block. TD 92/148 explains that the act of subdividing the land itself is not considered a CGT event as there has been no change in ownership of the subdivided land. However, as a result of the transaction whereby each now has sole ownership of an individual block, each owner is taken to have disposed of his or her 50% interest in the subdivided block which is now owned by the other. There have been corresponding acquisitions by each owner from the other of that interest in land now owned by each of them which was previously owned by the other. The principle in this determination can equally apply for other assets. In your case, together you own a number of shares as joint tenants; you plan to transfer the shares so that you each own 50% of the shares individually. Your current ownership is such that each individual share is owned 50% by each person. Therefore by transferring the shares to your individual names, each owner will be disposing of their 50% share in 50% of the shares which is now owned by the person. For example: A and B are joint owners in 200 shares in company XYZ. They want to split the shares so that each person individually owns 100 shares in the company. For this to happen A has disposed of his 50% interest in 100 of the shares to B, and likewise, B has disposed of his 50% interest in 100 of the shares to A. Accordingly, CGT event A1 will occur upon transfer of the shares, as there has been a 50% part disposal of 50% of the shares to the other shareholder.