Private ruling: Former section 160ZZN Rollover
Date of advice: 30 April 2018
Published: July 2018
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the shares transferred to you in consideration for your interest in the goodwill of the partnership’s business deemed to be pre-CGT assets? | A1: Yes

Relevant facts and circumstances: Prior to XX/XX/19XX, you were partners of a partnership (the Partnership) which conducted a business. You each held a 50% ownership of the Partnership. The Partnership had commenced the business many years before the introduction of CGT. Documentation provided shows that on XX/XX/19XX an agreement was reached between the Partnership and a related company, (the Company) for the sale of the Partnership business to the Company in exchange for the assumption of related liabilities and the issue of X ordinary shares. Specifically the shares were provided as consideration for the goodwill of the business. The documentation also shows that the sale was structured to meet the requirements of the rollover in section 160ZZN of the Income Tax Assessment Act 1936 (ITAA 1936). Immediately after the business transfer you each held X in the Company (X from the transfer and X already held) Only Ordinary shares were issued in consequence of the business transfer. Immediately after the transfer, you both held beneficially all of the shares in the Company. A family related transaction is now being contemplated with the shares issued under the business transfer. You confirm that the original written notice would have been lodged with the 19XX-XX financial year Partnership tax return. However, you are unable to locate a copy of the lodged section 160ZZN notice.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 160ZZN(2) | Income Tax Assessment Act 1936 Subsection 160ZZN(6) | Income Tax Assessment Act 1936 Subsection 160ZZN(7)

Reasons for decision: Summary: Former section 160ZZN of the ITAA 1936 provided rollover relief where an asset was transferred by a non-corporate taxpayer to a wholly-owned company. To obtain the rollover relief, certain conditions need to be satisfied at the time the assets were transferred to the company. These requirements for the rollover relief are found in former subsection 160ZZN(2) of the ITAA 1936, as follows: ● A taxpayer (other than a company or a taxpayer in the capacity of a trustee) who was a resident of Australia disposed of an asset to a company who was also a resident of Australia: paragraph 160ZZN(2)(a) of the ITAA 1936; ● the consideration in respect of the disposal consisted only of non-redeemable shares in the company: paragraph 160ZZN(2)(b) of the ITAA 1936; ● immediately after the disposal the taxpayer was the beneficial owner of all the shares in the company: paragraph 160ZZN(2)(c) of the ITAA 1936; ● the taxpayer elected by notice in writing and given to the Commissioner on or before the date of lodgement of the return of the year of income in which the disposal took place: paragraph 160ZZN(2)(d) of the ITAA 1936. Where all the requirements for rollover under former subsection 160ZZN(2) of the ITAA 1936 are satisfied, former subsection 160ZZN(7) of the ITAA 1936 prescribes the status of shares received by a taxpayer as consideration for the transfer of their interests in a partnership asset to the company. Where the taxpayer acquired their interest in a partnership asset before 20 September 1985, any shares acquired in respect of it are taken to have been acquired by the taxpayer before that date (former paragraph 160ZZN(7)(a) of the ITAA 1936). In this case, the assets in question were your interests in the goodwill of the Partnership’s business. The relevant rollover event was the disposal by each of you of your asset to a wholly owned company. It is determined that the conditions in former subsection 160ZZN(2) of the ITAA 1936 were satisfied for the incorporation rollover to apply, because: ● Each of the partners and the Company were Australian residents at the time of the trigger event (disposal of partnership assets); ● The partners received non-redeemable shares (ordinary shares) in the Company in consideration for the transfer of their interest in the partnership business’s goodwill; ● Immediately after the disposal, the partners owned all the shares in the Company; ● You assert that a valid election was made under subsection 160ZZN(2)(d) of the ITAA 1936 by written notice to the Commissioner on or before 30 June 19XX. However, you are unable to locate any copy of written confirmation of the rollover election nor the income tax returns for the 19XX financial year. The ATO records are not available. Given the rollover election and the transaction in question occurred approximately 30 years ago, it is understandable that all the records cannot be located. Taking into account the documentation and information provided, it is accepted that the requirements of former subsection 160ZZN(2)(d) of the ITAA 1936 have been satisfied. Accordingly, the shares transferred to you in consideration for your interest in the goodwill of the partnership’s business are deemed to be pre-CGT assets under former paragraph 160ZZN(7)(a) of the ITAA 1936. | Detailed Reasoning - Additional information: For any subsequent transaction involving the pre-CGT shares, you should consider whether CGT event K6 is applicable.