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Edited version of your written advice
Authorisation Number: 1012901227930
Date of advice: 9 November 2015
Ruling
Subject: CGT - disposal of shares
Question:
Will the sale of the shares acquired in an entity subject to capital gains tax event K6 under section 104-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer:
No
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commenced on:
1 July 2015
Relevant facts
The entity was incorporated prior to 20 September 1985.
The entity is not connected to or an interposed entity of another business or trust.
You initially held 50% equity interest in the form of shares in the entity. These shares were acquired prior to 20 September 1985.
Over a number of years new shares were issued to new shareholders and as a result you now hold substantial less than 50% interest in the entity.
You state that Division 149 of the ITAA 1997 applies to your interest in the entity.
You intend to dispose of the shares in the future.
The assets of the entity are currently made up of the following:
• cash
• receivables
• depreciating assets
• property
• other post Capital Gains Tax (CGT) assets
• goodwill purchased from another business has been absorbed into the current entity goodwill.
You state that the market value of the entity's post-CGT property is less than 75% of its net value.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 104-10(5)
Income Tax Assessment Act 1997 Section 104-230
Reasons for decision
Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax (CGT) event A1 occurs when your ownership in a CGT asset (eg. shares in a company) is transferred to another entity. The time of the event is when you enter into a contract for the disposal, or, if there is no contract, the time of disposal is taken to be the time when the change in ownership occurs.
Subsection 104-10(5) of the ITAA 1997 provides that a capital gain or capital loss will be disregarded if the asset was acquired before 20 September 1985.
Section 104-230 of the ITAA 1997 deals with the disposal of pre-CGT shares and CGT event K6. CGT event K6 will occur if:
a) a taxpayer owns shares in a company acquired before 20 September 1985; and
b) CGT event A1 occurs happens in relation to the shares; and
c) there is no roll-over in relation to the A1 event; and
d) either:
i. The market value of the property of the company (that is not trading stock) that was acquired on or after 20 September 1985; or
ii. The market value of the property of the company owned through interposed entities (that is not trading stock) that was acquired on or after 20 September 1985,
is at least 75% of the net value of the company just before the disposal of the shares.
If you meet conditions a), b) and c) and, either or both tests described at i) and ii) above, then CGT event K6 will occur and override CGT event A1.
In your case, if the shares are disposed of you will meet conditions a), b) and c). However as the market value of the post-CGT property in the company is less than 75% of its net value, CGT event K6 will not occur when you dispose of the shares held in the company.