ATO Interpretative Decision
ATO ID 2006/139 (Withdrawn)
Income Tax
Capital gains tax (CGT): Deceased estate transfers private company shares to beneficiaryFOI status: may be released
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This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found in TD 2006/9.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 CGT event K6 in section 104-230 of the Income Tax Assessment Act 1997 (ITAA 1997) happen if Division 128 of the ITAA 1997 applies to a CGT event that happens to pre-CGT shares or interests in a trust?
Decision
No. CGT event K6 in section 104-230 of the ITAA 1997 does not happen if Division 128 of the ITAA 1997 applies to a CGT event that happens to pre-CGT shares or interests in a trust.
Facts
Prior to 20 September 1985 the taxpayer acquired shares in a private company. In 2005, the taxpayer died leaving their shares to their children as beneficiaries of their estate.
The assets of the private company consist solely of post-CGT investments with a cost of approximately $380,000. These investments have a current market value of approximately $1 million and the company has no other substantial assets or liabilities.
Reasons for Decision
CGT event K6 in section 104-230 of the ITAA 1997 happens if all of the following conditions are satisfied:
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- a specific CGT event happens in relation to shares in a company or an interest in a trust you acquired pre-CGT (paragraphs 104-230(1)(a) and 104-230(1)(b) of the ITAA 1997);
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- there is no roll-over for the other CGT event (paragraph 104-230(1)(c) of the ITAA 1997); and
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- immediately before the other event happens the market value of the post-CGT property of the company or trust is at least 75 per cent of the net value of the company or trust (paragraph 104-230(1)(d) and subsection 104-230(2) of the ITAA 1997).
In particular, CGT event K6 does not happen if roll-over is available for the other CGT event.
The expression 'roll-over' is not a defined term. The CGT provisions refer specifically to 'replacement-asset' and 'same-asset' roll-overs as defined in subsection 995-1(1) of the ITAA 1997.
Broadly, these roll-overs enable taxpayers to disregard capital gains or capital losses made in relation to CGT assets until the happening of a later CGT event. They also provide for the cost base and reduced cost base of the original asset to be transferred to a different taxpayer (same-asset roll-over) or to another asset (replacement-asset roll-over).
However, in the statutory context in which the expression 'roll-over' is used in paragraph 104-230(1)(c) of the ITAA 1997, the Commissioner takes the view that the term 'roll-over' does not only refer to the 'replacement-asset' and 'same-asset' roll-overs that are listed in the tables in sections 112-115 and 112-150 of the ITAA 1997. In the Commissioner's view, it includes any provision that has the effect of deferring, but not eliminating, tax recognition of a capital gain and providing for a cost base or reduced cost base transfer.
Although Division 128 of the ITAA 1997 is not specifically listed as a 'roll-over' in either section 112-115 or 112-150 of the ITAA 1997, Division 128 of the ITAA 1997 operates as a form of roll-over when a CGT asset passes to a beneficiary of the deceased estate (paragraph 12 in Taxation Determination TD 2006/9). Any capital gain or capital loss made from a CGT event that happens in relation to a CGT asset that the deceased owned just before dying is disregarded (with some exceptions in section 104-215 of the ITAA 1997) and the cost base or reduced cost base of the CGT asset are transferred to the beneficiaries.
Accordingly, as Division 128 of the ITAA 1997 operates as a roll-over provision with similar characteristics to a 'same-asset' roll-over, Division 128 is a roll-over provision for the purposes of Parts 3-1 and 3-3 of the ITAA 1997.
In this case, CGT event A1 in section 104-10 of the ITAA 1997 happens when the taxpayer dies because there is a change of ownership of the pre-CGT shares. As CGT event A1 happens because of the taxpayer's death, the provisions in Division 128 of the ITAA 1997 will apply to the pre-CGT shares.
Consequently, CGT event K6 does not happen to the deceased's pre-CGT shares because roll-over under Division 128 of the ITAA 1997 applies on the happening of CGT event A1.
Date of decision: 8 March 2006Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
subsection 104-230(1)
subsection 104-230(2)
section 104-10
section 128-10
subsection 128-15(4)
section 112-115
section 112-150
section 112-140
section 995-1
Related Public Rulings (including Determinations)
Taxation Determination TD 2006/9
Keywords
CGT exemptions
CGT events K1-K6 - other events
Pre-CGT assets
Deceased estates
ISSN: 1445-2782
| Date: | Version: | |
| 8 March 2006 | Original statement | |
| You are here | 3 October 2014 | Archived |