Private ruling: CGT - rollover of involuntary sale of shares
Date of advice: 24 May 2024
Published: 8 July 2024
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to choose the replacement asset roll-over in Subdivision 124-B of the Income Tax Assessment Act 199 7 (ITAA 1997) to disregard the capital gain of a specified amount made from the disposal of the AA shares held by you without your consent, as a result of the trainee share traders mistake? | A1: Yes. As all the requirements for the rollover in Subdivision 124-B of the ITAA 1997 are satisfied, you are entitled to disregard the capital gain of a specified amount you made. The AA shares were considered lost when they were sold without your consent as a result of the trainee trader's mistake. You repurchased same number of shares (the replacement shares), the shares did not become items of your trading stock and are also not depreciating assets under Division 40 of the ITAA 1997. The market value of these replacement shares exceeded the cost base of the original AA shares just before the event occurred.

Relevant facts and circumstances: You are a self-managed superannuation fund (SMSF), and your members of the SMSF are Individual A and Individual B. You are a full financial planning client of Company A, and you engaged them to provide financial advice on investments held within the SMSF and dealing/trading services for the SMSF. You owned a parcel of specified number of AA shares and you provided us with details on the purchase date and purchase amount. These shares were purchased independently without any advice from Company A. On a specified date, Company A sent the recommendation to clients decrease their investment in AA shares to specified percentage. You accepted the recommendation on the basis that Company A would not reduce the holding of your AA shares held outside the Company A strategy. On a specified date, a trade was implemented by a trainee share trader selling majority of your AA shares. You provided us with details on the sale amount. The trainee share trader did not realise that the parcel of AA shares sat outside the Company A strategy and were outside your recommendation confirmation. This resulted in the sale and a crystallised capital gain of the AA shares without your consent. A trade reconciliation was completed, and the trade error was discovered by a senior member of the Company A Team. On the next trading day, the parcel of AA shares were bought back for a specified amount. This is more than the cost base of the original AA shares that were mistakenly sold. You provided a copy of your trade details report for buy and sale transaction. The report showed the selling and rebuying of the same number of the AA shares. The replacement AA shares purchased on a specified date are not your trading stock and they are not depreciating assets. The rebuying of the AA shares resulted in a capital gain of a specified amount which you will declare on your tax return for the relevant financial year. This is the difference between the selling and purchasing of the same number of AA. You held AA shares in the trading account at Company B that is administered by Company A. It was of the understanding and agreement that these shares were not to be sold and would be treated independent of any share portfolio recommendations Company A would provide to you. Company A was holding the AA shares in the Company B trading account to allow all financial assets to be visible to Company A, as they are your financial advisor.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 124-B | Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 section 124-80 | Income Tax Assessment Act 1997 section 124-90