Edited version of private advice

Authorisation Number: 1051837860471

Date of advice: 14 May 2021

Ruling

Subject: Capital gains tax

Question 1

Are the X ordinary class shares allotted in 19XX and the X ordinary class shares transferred to you in 19XX from X estates pre-CGT assets?

Answer

Yes, the bonus shares issued and the two ordinary class shares that were transferred to you are pre-CGT assets under section 130-20 and section 149-10 of the Income Tax Assessment Act 1997 (ITAA 1997) respectively as they were acquired by you before 20 September 1985.

Question 2

Were the XXX bonus shares in the form of dividends or taken to be dividends as a result of being issued on XX Month 19XX?

Answer

No, the bonus shares were issued from the capital profits reserve and are therefore not dividends.

Question 3

Are the XXX bonus shares issued in 19XX taken to have been acquired by the shareholders when they acquired the original shares between 19XX and 19XX and therefore the bonus shares are pre-CGT assets to the shareholders?

Answer

Yes, the bonus shares issued are taken to been acquired when the original shares were acquired and are pre-CGT assets in accordance with item 3 in the table in subsection 130-20(3) of the ITAA 1997. However, the shares, both original and bonus shares, acquired from Person C's estate in 20XX are not pre-CGT assets.

Question 4

In considering the application of Division 149 of the ITAA 1997, does the CGT status of the bonus shares determined under question 3 remain the same?

Answer

Yes, the underlying interest in the pre-CGT assets, the shares acquired in 19XX, 19XX and the bonus shares you acquired in 19XX, has remained the same since you acquired them. Therefore, division 149 of the ITAA 1997 does not change the pre-CGT status of the shares. However, the shares, both original and bonus shares, acquired from Person C's estate in 20XX are not pre-CGT assets.

This ruling applies for the following period periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The company was incorporated before 20 September 1985

Upon incorporation, Person A and Person B were each issued with X ordinary class shares.

All shares of the company have been and remain fully paid ordinary class shares.

Before 20 September 1985 you and Person C acquired a number of ordinary class shares each.

After your initial acquisition but before 20 September 1985 you acquired X ordinary class shares. X were transferred from the estate of Person A and X were transferred from the estate of Person B.

During the year ended 30 June 19XX, the company resolved to allot additional shares where the consideration for which the shares have been so allotted were "bonus share issue from reserves".

Prior to the issue of bonus shares, the company owned XXXX land.

The company revalued the XXXX land to the council valuation. The amount disclosed in the books of the company increased.

The company 'transferred' the amount of the increase to asset revaluation reserve.

The company resolved to issue a number, relative to the increase value of the land, of $X shares, from capital profits reserve, to each existing shareholder at the time pro-rata to their shareholding the time.

You were allotted a number of additional ordinary shares in the form of 'bonus shares'.

Person C was allotted a number of additional ordinary shares in the form of 'bonus shares'.

It is understood that the share issue was done to equate the number of issued shares with the market value of the land at that time.

The bonus shares were not issued in substitution for a dividend.

During the year ended 30 June 20XX you acquired Person C's shares as a beneficiary of Person C's will.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 130-20

Income Tax Assessment Act 1997 section 149-10

Income Tax Assessment Act 1997 Division 149