ATO Interpretative Decision
ATO ID 2002/816 (Withdrawn)
Income Tax
Capital gains tax: status of pre CGT assets - incorporated association becoming a companyFOI status: may be released
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This ATO ID has been withdrawn and replaced by ATO ID 2004/978.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does subsection 149-30(1) of the Income Tax Assessment Act ('ITAA 1997') apply when an association, incorporated under the ACT Associations Incorporation Act 1991, changes registration to a company under the Corporations Act 2001 (Corporations Act)?
Decision
No. To the extent that the incorporated association has an asset that the CGT law treats as having been acquired before 20 September 1985, subsection 149-30(1) of the ITAA 1997 will not apply on registration as a company under the Corporations Act.
Facts
The taxpayer is an association incorporated under the ACT Associations Incorporation Act 1991.
The association is to convert to a company under the Corporations Act.
The association is not an exempt entity for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997.
Reasons for Decision
Paragraph 601BM(1)(a) of Part 5B.1 of the Corporations Act provides that registration under this Part does not create a new legal entity. As such there is no change of ownership of assets on registration under Corporations Act and no CGT event will happen under Division 104 of ITAA 1997. Therefore, the pre-CGT asset status of assets will be retained on conversion to a company under Corporations Act provided the assets have not stopped being pre-CGT assets before the time of the conversion.
Subdivision 149-B of ITAA 1997 provides that an asset of a non-public entity stops being a pre-CGT asset at the time when majority underlying interests in the asset were not had by ultimate owners who had majority underlying interests in the asset immediately before 20 September 1985 (subsection 149-30(1) of ITAA 1997).
The majority underlying interest requirements are met where a company (the association is a company for the purposes of the ITAA 1936 and ITAA 1997) is an 'ultimate owner' because its constitution prevents it from making any distribution, whether in money, property or otherwise, to its members (paragraph 149-15(3)(b) of the ITAA 1997).
Section 160ZZS of ITAA 1936 (section 160ZZS of the ITAA 1936 was rewritten as Subdivision 149-B of the ITAA 1997) applies to pre-CGT assets before the start of the 1998-99 income year and for the purposes of this interpretative decision provides the same outcome.
Therefore, provided the association's constitution prevents it from making any distribution to its members on or after 20 September 1985 the pre-CGT assets of the association will retain their pre-CGT asset status on conversion to a company under Corporations Act.
After conversion, to preserve the pre-CGT status of assets, the company will need to continue to meet the requirements of Subdivision 149-B of ITAA 1997.
Date of decision: 30 May 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
section 160ZZS
Division 104
Subdivision 149-B
paragraph 149-15(3)(b)
subsection 149-30(1) Corporations Act 2001
paragraph 601BM(1)(a) Related ATO Interpretative Decisions
ATO ID 2002/257
Keywords
Capital gains tax
CGT assets
Non profit companies
Pre-CGT assets
ISSN: 1445-2782
| Date: | Version: | |
| 30 May 2002 | Original statement | |
| You are here | 10 February 2005 | Archived |