Private ruling: CGT - disposal - rollover - destroyed assets
Date of advice: 11 October 2023
Published: 20 November 2023
Ruling period: Year ended 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Are you entitled to choose the replacement asset roll-over contained in paragraph 124-70(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made on the disposal of the shares? | A1: Yes. Division 124 of the ITAA 1997 allows for a replacement asset roll-over to defer the making of a capital gain or loss from a CGT event happening until a later CGT event in certain circumstances. You can choose a roll-over where the original CGT asset is lost. ATO Interpretative Decision ATO ID 2010/124 states that CGT event C1 happens if shares are sold without the owner's consent as a result of a stockbroker's mistake for value to a bona fide purchaser (who does not have knowledge of the owner's lack of consent) as the shares are lost. Your shares were inadvertently sold without your consent. Consequently, they are considered to have been lost and you are eligible for CGT rollover relief as provided for under paragraph 124-70(1)(b) of the ITAA 1997. | Q2: Is your eligibility to the roll-over pursuant to the additional requirements in section 124-75 of the ITAA 1997? | A2: No. Section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening. This section states that you must incur expenditure in acquiring another asset. The off-market transfer to correct the mistake was for nil consideration. Consequently, you have not incurred expenditure acquiring a replacement asset and the requirements contained in section 124-75 of the ITAA 1997 do not apply. | Q3: Is your eligibility to the roll-over pursuant to the additional requirements in section 124-80 of the ITAA 1997? | A3: Yes. Section 124-80 of the ITAA 1997 provides other requirements which must be satisfied if you receive another asset for the CGT event happening. In your case, you received shares to replace the ones that were inadvertently sold. Consequently, the additional requirements contained in section 124-80 will apply.

Relevant facts and circumstances: Your trustee provided instructions to a broker to sell shares which were owned by another entity. In error, and acting outside of its instructions, the broker executed a sale of shares owned by you. An off-market transfer for no consideration was initiated to transfer an equal amount of shares from the other entity to you to replace the shares that were inadvertently sold. All relevant entities are in the position they would have been but for the erroneous sale. The shares received are not trading stock nor depreciating assets. The market value of the replacement shares was more than the cost base of the original assets.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 124-70(1)(b) | Income Tax Assessment Act 1997 section 124-75 | Income Tax Assessment Act 1997 section 124-80