The Full Federal Court in Hart v FCT affirmed the Federal Court’s decision in Paule v FCT that the capital gains tax (CGT) discount did not apply to the sale of shares owned by a trust.

Section 115-25 of the Income Tax Assessment Act 1997 requires for the CGT discount to apply the taxpayer must have acquired the asset giving rise to the capital gain at least 12 months before the CGT event. As reported in our earlier article, in this case the trusts acquired the shares as a result of a series of roll-overs in the days preceding their disposal and therefore the deemed time of acquisition rules did not apply.

The primary judge in Paule v FCT said the result was “unpalatable” and seemed at odds with the underlying policy of the legislation. The Full Federal Court however said that given the complexity of the provisions “it is difficult to assess whether the result is contrary to the underlying policy of the provisions” and the technical requirements are such that there “may be practical outcomes that appear to be inconsistent or hard to reconcile”.

This case is a cautionary tale of the devil being in the detail when undertaking restructures, particularly where undertaking a series of roll-overs. We note that the Australian Taxation Office has said that it intends issuing guidance in November 2019 on “sequential transactions and the 'nothing else' condition of a roll-over.”

If you are considering a restructure and would like to understand the tax implications, or have undertaken a restructure and are concerned about the tax consequences, contact our tax specialists:

Laura Spencer
Senior Associate
T +61 3 9611 0110
lspencer@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au

Neil Brydges
Principal Lawyer | Accredited specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au