ATO Interpretative Decision
ATO ID 2003/334
Income Tax
Continuity of ownership test: transfer of shares received by a beneficiary of a deceased estate to a fellow beneficiary of the same estateFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where 50% of the shares in a loss company received by a beneficiary of a deceased estate are disposed of to another beneficiary of the same deceased estate, will this cause the company to fail the ownership conditions in Division 165 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Beneficial ownership of 50 per cent of the shares will no longer rest with someone who received them as a beneficiary of the estate and the requirement of paragraph 165-205(b) of the ITAA 1997 ceases to be satisfied from the time of the disposal to a fellow beneficiary of the estate.
Facts
All of the shares in Loss Company were beneficially owned by individual D at the time of his death. Individuals B1 and B2 were equal beneficiaries of the estate and each received half of the shares in Loss Company from the estate. Subsequently, B1 negotiated a disposal of their 50% shareholding in Loss Company to B2. Loss Company is now in a position to recoup prior year losses.
Reasons for Decision
For the purposes of the ownership conditions in Division 165 of the ITAA 1997, as long as the shares in Loss Company continue to be owned beneficially by someone who received them, in their capacity as a beneficiary of the estate, those shares will be taken to continue to be owned beneficially by the deceased pursuant to paragraph 165-205(b) of the ITAA 1997.
Upon disposal of the shares of beneficiary B1 to fellow beneficiary B2, the necessary connection of continuing beneficial ownership of the shares in Loss Company with someone who received them as a beneficiary of the estate, ceased to exist. The additional shares in Loss Company acquired by beneficiary B2 from B1 cannot be taken to have been received by B2 in their capacity as a beneficiary of the estate.
The requirement of paragraph 165-205(b) of the ITAA 1997 is not met in respect of 50% of the shares in Loss Company and therefore, the ownership conditions in Division 165 of the ITAA 1997 are not satisfied.
Date of decision: 10 March 2003Year of income: Year ended 30 June
Legislative References:
Income Tax Assessment Act 1997
Division 165
paragraph 165-205(b)
Keywords
Continuity of ownership
Deceased taxpayers
Underlying ownership & interests
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 10 March 2003 | Original statement |
| 15 January 2010 | Archived |