Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1013087924279

Date of advice: 16 September 2016

Ruling

Subject: CGT - Pre-CGT Asset - Division 149

Question 1

Are a majority of underlying interests in the pre-CGT assets of the company still held by the ultimate owners who held them before 20 September 1985?

Answer

Yes

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The company owned land and commercial real estate at acquired prior to 20 September 1985. The company conducted a business out of the commercial property.

There were a number of different class shares in the company. Each class of shares had separate rights at the discretion of the directors. The shares in the company have been held at all times by members of the one family.

On the establishment of the company a single A class share was issued to individual A and a single B class share to relative individual B. The A class shares hold a voting right for each share, all other classes of shares have a voting right for each member holding shares of that class.

Individuals A and B were the directors of the company.

On a date in 19XX an additional 499 A class shares were issued to individual A, and an additional 499 B class shares were issued to individual B. 3,000 C, D and E shares were issued to relatives individuals C, D and E respectively.

On a date in 19XX an additional 100 A and 100 B class shares were issued to individuals A and B, and an additional 600 C, D and E shares were issued to individuals C, D and E respectively.

On a date after 20 September 1985, 3,500 of individual E's E class shares were transferred to individual A, and 3,500 of individual C's C class shares were transferred to individual C. Individuals C and E were left with 100 shares each. There were no other changes to the shareholdings after 20 September 1985, and no new shareholders were introduced to the company.

On a date in 19XX individual D became a director of the company. Individuals A and B ceased to be directors of the company in 20XX.

A contract was entered into to sell the land and commercial building on a date in 20YY. The property settled on a date in 20YY.

Relevant legislative provisions

Subdivision 149-A of the Income Tax Assessment Act 1997

Subdivision 149-B of the Income Tax Assessment Act 1997

Section 149-10 of the Income Tax Assessment Act 1997.

Section 149-15 of the Income Tax Assessment Act 1997.

Section 149-30 of the Income Tax Assessment Act 1997.

Reasons for decision

Division 149 of the Income Tax Assessment Act (ITAA 1997) is an anti-avoidance measure that prevents new owners whom after 20 September 1985 acquire a majority of shares in a company that holds pre-CGT assets from making CGT-free gains on the sale of those assets.

Under section 149-30 (ITAA 1997), an asset stops being a pre-CGT asset when the majority underlying interests in the asset were not held by the same ultimate owners who held the majority underlying interests in the asset immediately before 20 September 1985.

'Majority underlying interests' is defined in subsection 149-15(1) of the ITAA 1997 as more than 50% of:

The shareholders of a company are treated as having beneficial interests in the shares of the company, and are the 'ultimate owners' of the shares. These interests, in the shares and in income derived from the shares, are represented by the shareholdings.

In the case where there is a discretionary power to pay income to an individual class of shares at the exclusion of other classes, any class of shares cannot be precluded from being considered to hold a majority underlying interest. If any new shareholder is introduced after 20 September 1985, owning shares that entitle them to the majority of income from a given class of shares, the pre-CGT status of the assets will be lost.

Application to your situation

In your case, 100% of the underlying interests in the assets of the company were held by the five shareholders before 20 September 1985, and the same five shareholders held 100% of the underlying interests in the assets at the time the company sold the assets. It is not necessary to consider what entitlements belong to what classes of shares.

While the percentage of shares held by individual shareholders may have changed during this period, the ultimate ownership, a majority underlying interest in the asset and any entitlement to the income from the underlying assets are still held by the same ultimate owners who held them immediately before 20 September 1985.

Consequently, the pre-CGT status of the assets of the company will remain at the date of sale.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).