ATO Interpretative Decision
ATO ID 2003/777
Income Tax
CGT: majority underlying ownership and deceased estate - life interest in sharesFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Has there been a change in the majority underlying ownership of a non-public entity (company) under Subdivision 149-B of the Income Tax Assessment Act 1997 (ITAA 1997) when the beneficiary acquires a life interest in shares in the entity under the will?
Decision
No. Taking into account the terms of the will, there has not been a change under Subdivision 149-B of the ITAA 1997 in the majority underlying ownership of the non-public entity when a beneficiary acquires a life interest in shares in the entity under a will.
Facts
The deceased estate holds almost all of the equity in a non-public entity as a result of the death of the majority equity owner. The equity was a pre-CGT asset of the deceased. The non-public entity owns assets that it acquired before 20 September 1985.
A testamentary trust has been established in accordance with the will, for the benefit of a member of the family of the deceased. Under the trust, the family member has a life interest in the assets of the estate, after which they will pass to a remainder beneficiary, who is also a family member.
The will of the deceased enables the trustee to sell, call in and convert into money the whole of the trust estate.
Reasons for Decision
The provisions of Subdivision 149-B of the ITAA 1997 determine when a CGT asset of an entity stops being a pre-CGT asset (unless the entity is a public entity listed in section 149-50 of the ITAA 1997).
Subsections 149-30(3) and 149-30(4) of the ITAA 1997 provide that, if an ultimate owner (new owner) has acquired an interest in an asset because it was transferred to the new owner by way of a marriage breakdown rollover or because of the death of a person (former owner), the new owner is treated as having held the underlying interests of the former owner for the period the former owner held them.
On the terms of the will concerned, it can be argued that either:
- •
- the person holding the life interest has a beneficial interest in the assets of the estate; or
- •
- the person who will take the assets on that person's death has the beneficial interests, but that those beneficial interests may be defeasible during the term of the life interest.
Because of the terms of subsections 149-30(3) and 149-30(4) of the ITAA 1997 it is not necessary to resolve this point. The person who has the beneficial interest for the term of the life interest, whether it is the person holding the life interest or the person who will take the assets on that person's death, is treated under subsection 149-30(4) of the ITAA 1997 as if they held those interests at all times when they were held by the deceased.
Taking into account the terms of the will, there has not been a change under Subdivision 149-B of the ITAA 1997 in the majority underlying ownership of the non-public entity when the beneficiary acquired a life interest in shares in the entity under the will. Consequently, the pre-CGT assets of the non-public entity retain their status.
Date of decision: 27 June 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Subdivision 149-B
section 149-30
subsection 149-30(3)
subsection 149-30(4)
section 149-50
ATO ID 2003/778
ATO ID 2003/779
Keywords
Capital gains tax
CGT assets
CGT deceased estates
Pre-CGT assets
Underlying ownership & interests
Date reviewed: 26 February 2016
ISSN: 1445-2782