Private ruling: CGT - Shares
Published: June 2012
Ruling period: 1 July 2011 to 30 June 2012

Ruling: Question and Answer | Are you holding shares in trust for your child? | No. | Does the off market transfer of shares from one individual to another individual trigger a Capital Gains Tax event? | Yes. | If an individual transfers some of their share holding in a tax year with the remaining shares transferred over the following few tax years, are there any additional Capital Gains Tax and or other tax consequences with a partial transfer only? | Yes. | Will the individual be required to declare the balance of shares/dividends not transferred, and still held, in their income tax returns until the shares are fully transferred? | Yes. | Are there Capital Gains Tax roll-over relief provisions that can be applied to the transfer of shares from one individual to another individual? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an Australian resident for tax purposes. Your parent purchased shares, in a publicly listed company, for your child on your child's 1 st Birthday. The shares are in your child's name but you are listed as the trustee. There is no formal trust deed for the shares. You have total control over the shares and make all the decisions on those shares. You spend or use the dividend from those shares as if they were your own. You have declared the dividend income in your personal income tax returns since their purchase. You child is not aware of the shares. Your child is now over 18 years of age. You wish to transfer the shares via an off market transfer into your child's name.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 116-30

Reasons for decision: Summary: Section 6-5 Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an Australian resident, your assessable income includes ordinary income received from all sources, whether in or out of Australia. Ordinary income includes interest and dividend income. Taxation Ruling IT 2486 - Income Tax: Children's Savings Accounts - provides information for taxpayers on who is assessable on interest earned on accounts often referred to as children's savings accounts. Although the ruling considers bank accounts specifically, the principles are equally applicable to dividend income which is received from shares held in the name of a child. Paragraph 4 of IT 2486 provides that; · Regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?' When shares are purchased by an adult on behalf of a child, the decision of who declares the dividends received and/or any net capital gain/loss made from the sale of the shares depends on who rightfully owns the shares. If there is evidence that the investment and its associated income is really that of the adult, then it would be appropriate for the dividend income or resulting capital gains be assessed to that adult, rather than to the child. Under section 104 -10 of the ITAA 1997 the disposal of a capital gains tax (CGT) asset will create a CGT event A1. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs. Where off market transfer of shares occurs, under section 116-30 of the ITAA 1997, the market value at the time of the transfer is deemed the capital proceeds. The transfer of an interest in shares from a trustee to an individual results in a change of ownership and triggers a CGT A1 event. For capital gains purposes the shares are deemed to be disposed of on the contract date of the transfer of the shares. The capital proceeds is the consideration received on the disposal of the shares, however, in the event of no consideration received upon disposal, the shares are taken to be disposed of at market value on the date of disposal (section 116-30 of the ITAA 1997). Rollover provisions allow you to defer a capital gain you make when a CGT event happens until a later CGT event. CGT events which qualify for the rollover provision are; · Script for script - a company you hold shares in is taken over and you receive shares in the takeover company and the takeover meets certain conditions or a trust/fund you hold units in is taken over and you receive units in the takeover trust/fund. · Demerges or splits - you hold shares in a company that demerges or splits and you receive shares in the demerged company and the demerger meets certain conditions or you hold units in a trust/fund that demerges and you receive units in the demerged trust/fund. · Loss or destruction of an asset - you receive money or property (or both) as compensation for the loss or destruction of an asset or for the compulsory acquisition of an asset by an entity (other than a foreign government agency). Or the disposal of land after the compulsory granting of a mining lease and certain conditions are met. Application to your circumstances There is no formal trust deed for the shares, you make all decisions and control the shares and you use the dividend from those shares as if they were your own and your child is unaware of the shares, therefore it is deemed you are the owner of the shares and not your child. When you transfer the shares to your child a CGT A1 event will be triggered because there will be a change in ownership from you to your child. If you transfer 25% of the shares and repeat this over a number of years, each time you transfer shares you will trigger a CGT event. As the owner of the shares, any dividend, from the shares you have retained, you will need to declare in your income tax return until such time as you have completely disposed of them. Capital gains are not taxed separately, the gain is added to you income in the year in which it is incurred and the tax is calculated on your total assessable income using normal marginal rates. There are no rollover provisions in respect to your circumstances.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.