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Edited version of your private ruling
Authorisation Number: 1012563945700
Ruling
Subject: CGT - Disposal - Pre CGT asset
Question
Will assets acquired prior to 20 September 1985 remain pre-CGT assets if there is a transfer of shares?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commences on
1 July 2013
Relevant facts and circumstances
The company was incorporated in 19XX.
Since incorporation the company has owned a property which has been used for income producing purposes.
In 19XX, the shareholding changed following the death of one of the shareholders.
The shareholding was as follows:
· Shareholder one - 50%
· Shareholder two - 50%
Shareholder two wishes to sell their share either in the 2013-14 income year or the 2014-15 income year.
They wish to sell the share to X who will continue to operate the business.
The shares and the underlying asset are all pre CGT assets.
There have been no significant improvements to the property or any other capital expenditures that could trigger a K6 CGT event.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 149
Income Tax Assessment Act 1997 Subsection 149-15(1)
Income Tax Assessment Act 1997 Subsection 149-30(1)
Reasons for decision
Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the rules which govern when an asset acquired by a taxpayer before 20 September 1985 is treated as being acquired after that date for capital gains tax (CGT) purposes.
Under subsection 149-30(1) of the ITAA 1997, a pre-CGT asset of a non-public entity stops being a pre-CGT asset at the earliest time when the majority underlying interest in the asset were not had by the ultimate owners who had the majority underlying interests in the asset immediately before 20 September 1985.
Subsection 149-15(1) of the ITAA 1997 provides that majority underlying interests in a CGT asset consists of:
· more than 50% of the beneficial interests that ultimate owners have (whether directly or indirectly) in the asset; and
· more than 50% of the beneficial interests that ultimate owners have (whether directly or indirectly) in any ordinary income that may be derived from the asset.
Under the proposal, X would acquire 50% of the company's shares. In this case, shareholder one would be the only entity to have held shares both immediately before 20 September 1985 and after the change.
Immediately before 20 September 1985, shareholder one only held a 50% shareholding in the company and therefore did not have a majority underlying interest in the pre-CGT assets at this time.
Accordingly, under the proposal, the majority underlying interests will have changed since 20 September 1985 and any properties that were acquired prior to 20 September 1985 will not retain their pre-CGT status.
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