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Edited version of your written advice
Authorisation Number: 1051504800203
Date of advice: 16 April 2019
Ruling
Subject: CGT - small business concession-15 year exemption - significant individual.
Question 1
Was Person one a significant individual of the company?
Answer:
Yes, based on the information the dividend rights attached to the B Class share held by Person two were suspended by agreement with the company under the Memorandum of the company. Accordingly as Person one has held half of the voting, capital and dividend rights in respect of the ordinary shares with the company, Person one has a small business percentage in the company of greater than 20%. Therefore, Person one is considered to be a significant individual of the company under section 152-55 of the Income Tax Assessment Act 1997 (ITAA 1997).
Question 2
Was Person two a significant individual of the company?
Answer:
Yes, based on the information the dividend rights attached to the C Class share held by Person one were suspended by agreement with the company under the Memorandum of the company. Accordingly as Person Two has a held half of the voting, capital and dividend rights in respect of the ordinary shares with the company, Person two has a small business percentage in the company of greater than 20%. Therefore, Person two is considered to be a significant individual of the company under section 152-55 of the ITAA 1997.
Question 3
Are Persons one and two each a significant individual of the company for at least 15 years?
Answer:
Yes, based on the information the company has had two significant individuals (Person one and Person two) for a total of at least 15 years during the period the company owned the business.
This ruling applies for the following period:
Year ended 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
In 198X the company was incorporated.
In 199X the company acquired a business from an entity.
The company operates a business.
Person one acquired half of the shares in the company.
Person‘s one shareholdings in the company consisted of the following:
● a number of ordinary shares.
● a beneficial interest in one half of the A class shares held by the entity.
Person one was an employee of the company from 199X until the business was sold recently.
In 199X the entity exited the company and Persons one and two each became equal shareholders of the company.
Person two acquired the following shareholdings in the company:
● a number of ordinary shares
● One half of the A class shares held by the entity.
Person one and Person two’s intention at the time was each would hold equal amount of shares in the company and each be entitled to an equal shares of the dividends paid by the company.
Person one and Person two are Directors of the company
The Memorandum of the company relevantly provides the following:
● The company may from time to time by ordinary resolution increase the capital by the creation of new shares.
● For new shares to issue with preferential or quaffing rights to dividends.
● The rights and privileges attached to each shares may be modified, commuted, affected abrogated or dealt with by agreement between the Company and any person purporting to contract on behalf of that class provided that such agreement by the holders of at least three-fourths in nominal value of the issued capital of the class or is confirmed by a resolution by a separate general meeting of the holders of shares of that class.
The company issued the following shares on the advice provided by a former adviser:
● A B Class share to Person one.
● A C Class share to Person two.
The shares of the company hold the following rights:
Class of Shares |
Voting Rights |
Dividend |
Surplus assets on the winding up of the company |
Shareholders |
Ordinary |
Yes |
Yes |
Yes |
Person one, Person two |
B |
No |
Yes |
No |
Person two |
C |
No |
Yes |
No |
Person one |
In 200X in accordance with the Memorandum of the company and the shareholders Person one and Person two agreed that B and C class shares rights to dividends would be ignored and that dividends would only be paid on ordinary shares.
The agreement between company and the shareholders was not ratified in writing.
X amount of time after the agreement was made, the agreement between company and the shareholders was ratified and in accordance with the Memorandum of the company and the shareholders Person one and Person two agreed that rights to B and C Class shares would be suspended until further notice and the holder of B and C Class shares had no right to the payment of a dividend.
Section 246B of the Corporation Act 2001 provides that if a company has a constitution which set out the procedure for varying or cancelling the rights attached to shares in a class of shares in the company’s shares capital, then those rights may only be varied or cancelled in accordance with the procedure. The procedure may be changed only if the procedure itself is complied with
The company paid dividends in respect of the ordinary shares.
Both, Persons one and two were over 55 years of age at the time of the company was sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 152-55
Income Tax Assessment Act 1997 subsection 152-65
Income Tax Assessment Act 1997 subsection 152-70(1)