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Edited version of your written advice
Authorisation Number: 1051369225815
Date of advice: 9 May 2018
Ruling
Subject: Distribution received from Company A
Question
Are the proceeds you receive from the sale of a property by Company A included in your assessable income?
Answer
No
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You became a member of a Friendly Society when you were XY years old.
You took out this membership to have health cover once you began working.
In 197XX you moved to another city within Australia and you transferred your health cover to another Friendly Society (herein referred to as Company A).
You are a member of Company A. You paid a membership contribution and Administration levy annually until 20XX.
All members are equal members in Company A.
Company A is a not-for-profit company limited by guarantee.
Company A has approximately XX members.
Company A was incorporated and owns premises, referred to as the property.
The property was purchased by the Company in 19XX and was used to operate a related business.
In 201X, the Company sold the business, following which it was no longer able to carry out its primary purposes under the Constitution of the Company.
The Company leased the premises to tenants in 201X and 201X financial year. After such time, the tenants indicated that they were not renewing the lease.
The Company, along with the members decided to sell the property.
The property was sold (arm’s length sale) in 201X for $X,XXX,XXX.
The market value of the property was independently valued at $X,XXX,XXX.
Shortly after settlement occurred, each member received an interim distribution of $XX,XXX each.
The Board of the council advised members that these payments would leave a reserve fund. The withheld funds are required to pay winding up costs of the Council and other incidental costs.
Once final expenses are known and paid, a further smaller distribution to members (equal distribution) will occur.
The Company will be wound up.
The Companies original constitution states;
6.1 the Company is to be a non-profit organisation and none of its income, property, profits or financial surplus shall be paid to or distributed amongst the Members or Board except as provided in this constitution
39. Winding up- In the event of the Company being dissolved, the amount which remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to any organisation which has similar objects and which:
(a) has rules prohibiting and distribution of its assets to its members; or
(b) is approved by the Commissioner of Taxation as a public benevolent institution for the purposes of any Commonwealth Taxation Act.
An amended constitution was made in 20XX and states;
6.1 The Company may pay or distribute any of its income, property, profits or financial surplus amongst the Members equally or as provided in this constitution.
39. Winding up – In the event of the Company dissolved, the amount which remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred equally amongst Members.
You have not lodged tax returns in recent years as you receive a pension and haven’t been required to do so.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-25
Income Tax assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Division 149
Reasons for decision
The $XX,XXX (and any further distributions) you receive from the Company will not be included in your assessable income.
The amount you have received is considered to be in consequence of the winding up of the Company and is the result of your membership interest ending.
A Capital Gains Tax (CGT) C2 event happens if your ownership of an intangible CGT asset ends by the asset being redeemed or cancelled (section 104-25 Income Tax Assessment Act 1997).
In your case, C2 CGT event has occurred.
A capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985 (paragraph 104-25(5)(a) ITAA 1997)
You acquired your asset (membership interest) prior to 20 September 1985, therefore any capital gain or capital loss you make is disregarded.
Please note- If you have no other assessable income, you are not required to lodge a tax return.
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