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Edited version of your written advice
Authorisation Number: 1012801227785
Ruling
Subject: Part IVA of the Income Tax Assessment Act 1936
Questions and Answers
Will the Commissioner apply Part IVA to deny any tax benefit obtained as a result of the arrangement?
No
This ruling applies for the following period
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on
1 July 2014
Relevant facts
The company is a private company.
Under the Memorandum and Articles of the company the directors have the power to determine from time to time what dividends may be declared:
1. On one or more classes of shares to the exclusion of others
2. At different rates on different classes of shares
3. On any particular share or shares to the exclusion of other shares
All the shareholders have held their shares pre 20 September 1985 ('pre-CGT').
One shareholder acquired some of their ordinary shares from their spouse on death, the spouse, had held the ordinary shares pre-CGT.
All shares have rights under a winding up of the company.
The company is a passive investor holding a mix of pre-CGT and post-CGT assets.
The shares have been held by each of the relevant shareholders on capital account.
The market value of post-CGT property held by the company may exceed 75% of the net value of the company, however, until such time that the transfers of shares are effected under the plan, the CGT consequences will not be known. In any event, the individual shareholders will report any CGT liability in their respective tax returns when the CGT event occurs.
The shareholders have decided to consider a reorganisation of the company.
Individual shareholders and have decided that the best way to achieve this succession planning is to transfer their shares into their respective family discretionary trusts.
The individual shareholders propose to transfer their shares to their respective family trusts for nominal consideration.
The family trusts will be discretionary trusts.
While maintaining their majority shareholding, one shareholder intends to transfer some shares to the other shareholders' family trusts.
Relevant legislative provisions
Income Tax Assessment Act 1936 Part IVA
Reasons for decision
Part IVA
Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance provision that can apply in certain circumstances if a taxpayer obtains a tax benefit in connection with a scheme, and it can be concluded that the scheme, or any part it, was entered into for the dominant purpose of enabling a tax benefit to be obtained. Part IVA is a provision of last resort.
In order for Part IVA to apply, the following requirements must be satisfied:
• There must be a scheme as defined by section 177A of the ITAA 1936.
• There must be a tax benefit as defined by section 177C of the ITAA 1936, obtained in connection with the scheme
• The scheme must be one to which Part IVA applies, as determined by section 177D of the ITAA 1936, where it would be concluded that the taxpayer (or any other person involved in the scheme) had the sole or dominant purpose of entering into the scheme to obtain the tax benefit.
It is determined that Part IVA would not apply to the proposed business reorganisation.
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