Private ruling: capital gains tax implications on disposal of shares
Published: June 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to disregard the capital gain made on the disposal of shares under subsection 104-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: Prior to 1985 you and your spouse jointly formed a company in which your spouse held three shares and you held one share. The company purchased shares in several public companies. Due to a change in circumstances prior to 30 June 1985, you and your spouse agreed to dissolve the company and instructed your tax agent to transfer all of the company's shares into you and your spouse's names, apportioned in accordance with your shareholding in the company. The dissolution of the company was effective as of 30 June 1985. You state that due to a delay in processing by your accountant, the shares were not transferred into you and your spouse's names until November 1985. You provided copies of the following documents, which should be read in conjunction with, and form part of this private ruling: Manual register of share holdings by you: Manual register of share holdings by your spouse: Schedule of investment for the period ended 30 June 1985; Shares transferred upon dissolution of the company; and A reconstructed history of the shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 104-10(5)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Capital gains tax (CGT) applies when certain events or transactions happen. These are referred to as CGT events. The most common CGT event is CGT A1 which occurs when your ownership in a CGT asset is transferred to another entity. When an asset is disposed of without a contract, the time of disposal is taken to be the time when the change in ownership occurs (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Subsection 104-10(5) of the ITAA 1997 provides that a capital gain or capital loss will be disregarded if the asset was acquired before 20 September 1985. In your case, you and your spouse were the only shareholders in the company, which owned shares in public companies. The company was dissolved on 30 June 1985. You provide that the accountant for the company was instructed to transfer all of the company's shares to you and your spouse's names. However, due to a delay in processing by your accountant, the shares were not legally transferred into you and your spouse's names until November 1985. Though legal title to property may not have passed from one entity to another, CGT event A1 looks to a change in beneficial ownership. We consider that CGT event A1 occurred on 30 June 1985, when the change in beneficial ownership of the shares (and the dissolution of the company) occurred. Accordingly, you and your spouse are viewed as having acquired the shares held by the company on 30 June 1985. As such, the shares are pre-CGT assets and any capital gain or loss you make when disposing of the shares will be disregarded.

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