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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1013102561378

Date of advice: 5 October 2016

Ruling

Subject: CGT event K6 share transfer

Question 1

Will CGT event K6 under section 104-230 of the Income Tax Assessment Act 1997 (ITAA 1997) happen on the transfer of the ordinary share in Company X (held by Company Y) to NewCo or to A and B in their own right (the Proposed Share Transfer)?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Business was established before 1985 by A and B.

The Business was transferred to Company X (the taxpayer) which was incorporated before
20 September 1985. The shareholders of Company X are A, B and Company Y (which was also incorporated before 20 September 1985).

The shareholders of Company Y are A, B and B as trustee for C and D.

Since before 20 September 1985 the Business has grown and continued to expand.

In 20XX a valuation was conducted on the Business by a registered valuer. The valuation provided the following information:

    • The net value of Company X (being the amount by which the sum of the market value of the assets of Company X exceeds the sum of its liabilities).

    • The market value of all of the property, excluding trading stock and goodwill (if any) which exists in the business operated by Company X.

    • The market value of the goodwill (if any) which exists in the Business.

    • The market value of the fully paid ordinary share in Company X held by Company Y.

The valuation provided that the market value of the property of Company X that was acquired on or after 20 September 1985 represents Y% to Z% of the net value of Company X.

Proposed Share Transfer

Company Y is considering a proposal to transfer its ordinary share in Company X to either another proprietary company of which A and B are the sole shareholders (NewCo), or to A and B in their own right (Proposed Share Transfer).

Market value consideration will be paid by NewCo or A and B (as applicable) for the transfer of the ordinary share.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-230

Income Tax Assessment Act 1997 subsection 104-230(1)

Income Tax Assessment Act 1997 paragraph 104-230(1)(a)

Income Tax Assessment Act 1997 paragraph 104-230(1)(b)

Income Tax Assessment Act 1997 paragraph 104-230(1)(c)

Income Tax Assessment Act 1997 paragraph 104-230(1)(d)

Income Tax Assessment Act 1997 subsection 104-230(2)

Income Tax Assessment Act 1997 paragraph 104-230(2)(a)

Income Tax Assessment Act 1997 paragraph 104-230(2)(b)

Reasons for decision

Question 1

Summary

The transfer of the ordinary share held by Company Y will not trigger a CGT event K6 because the requirement at paragraph 104-230(1)(d) of the Income Tax Assessment Act 1997 will not be satisfied.

Detailed reasoning

Subsection 104-230(1) states that CGT event K6 will happen if:

      (a) you own shares in a company that you acquired before 20 September 1985; and

      (b) CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and

      (c) there is no roll-over for the other CGT event; and

      (d) the applicable requirement in subsection (2) is satisfied.

Subsection 104-230(2) states that just before the other event happened:

      (a) the market value of property of the company or trust (that is not its trading stock) that was acquired on or after 20 September 1985; or

      (b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was acquired on or after 20 September 1985;

      must be at least 75% of the net value of the company or trust.

Taxation Ruling TR 2004/18, at paragraph 68, explains:

      68. The 75% test is satisfied only if one or both of the following tests are met:

    • the market value of property referred to in paragraph 104-230(2)(a) equals or exceeds 75% of the net value of the company;

    • the market value of property referred to in paragraph 104-230(2)(b) equals or exceeds 75% of the net value of the company.

In respect of paragraphs 104-230(1)(a) to (c), it is noted that:

    • a transfer of the ordinary share held by Company Y in accordance with the Proposed Share Transfer will trigger a CGT event A1 in relation to the ordinary share;

    • the ordinary share was acquired by Company Y before 20 September 1985; and

    • there are no roll-over reliefs in respect of the transfer of the ordinary share.

In relation to the application of paragraph 104-230(1)(d) and subsection 104-230(2), the valuation report provided as part of the application for the private ruling notes that the market value of property referred to in paragraph 104-230(2)(a) does not equal or exceed 75% of the net value of Company X.

As the 75% test is not satisfied, the transfer of the ordinary share under the proposed Share Transfer will not trigger the application of CGT event K6.


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