Edited version of private advice

Authorisation Number: 1051928217208

Date of advice: 30 November 2021

Ruling

Subject: CGT - majority underlying ownership

Question 1

Is the Commissioner satisfied that, at all times on and after 20 September 1985, the majority underlying interests in the company were held by the same ultimate owners who held the interests immediately before 20 September 1985?

Answer

Yes. The Commissioner is satisfied that, at all times on and after 20 September 1985, the majority underlying interests in the company were held by the same ultimate owners who held the interests immediately before 20 September 1985.

Question 2

Do subsections 149-30(3) and 149-30(4) of the ITAA 1997 apply to the transfers of A's shareholdings in the company to B?

Answer

Yes. Subsections 149-30(3) and 149-30(4) of the ITAA 1997 apply to the relevant transfers

of shareholdings.

Question 3

Is the relevant property considered to have retained its pre-CGT status?

Answer

Yes. The relevant property is considered to have retained its pre-CGT status.

This ruling applies for the following period:

Year ending 30 June 2022

The scheme commences on:

1 July 2021

Relevant facts and circumstances

The company was incorporated before 20 September 1985. The relevant property was purchased by the company before 20 September 1985. The shareholders of the company immediately before 20 September 1985 were A, holding x ORD-Class shares and B holding x ORD-Class shares.

In 19XX, A was issued x A-Class shares, and B was issued x B-Class shares. These shares were fully paid and were issued to A and B in the same proportions as their ORD-Class shareholdings. These shares were issued in accordance with the minutes from a company general meeting dated 19XX. Per the minutes, the shares were issued as a result of dividends paid to ORD shareholders from a pre-CGT capital profits reserve and a pre-CGT asset revaluation reserve.

The company constitution indicates that ORD-Class shares, A-Class shares and B-Class shares have identical share rights.

These shareholdings remained unchanged until A's death in 20XX. A left his x ORD shares and x A-Class shares to B. B continues to own 100% of the company shares to the current day.

All the shares in the company carry a discretionary right to dividends. Dividends have been paid to the A-Class and B-Class shareholders in some years between 19XX and 20XX. Each shareholder has maintained the majority of their underlying interests in the company and its assets. The interests in the pre-CGT assets did not change from immediately before 20 September 1985 until 20XX, as there have been no new shareholders introduced into the company.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 149

Income Tax Assessment Act 1997 Subdivision 149-B

Income Tax Assessment Act 1997 section 149-30

Income Tax Assessment Act 1997 subsection 149-30(1)

Income Tax Assessment Act 1997 subsection 149-30(1A)

Income Tax Assessment Act 1997 subsection 149-30(2)

Income Tax Assessment Act 1997 subsection 149-30(3)

Income Tax Assessment Act 1997 subsection 149-30(4)

Reasons for decision

Division 149 of the ITAA 1997 provides that pre-CGT assets will be deemed to be post-CGT where there has been a change in the majority underlying ownership of the assets.

Subsection 149-30(1) of the ITAA 1997 provides that an asset stops being a pre-CGT asset at the earliest time when *majority underlying interests in the asset were not had by *ultimate owners who had *majority underlying interests in the asset immediately before 20 September 1985.

Subsection 149-30(2) of the ITAA 1997 provides that if the Commissioner is satisfied, or thinks it reasonable to assume, that at all times on and after 20 September 1985 and before a particular time *majority underlying interests in the asset were had by *ultimate owners who had *majority underlying interests in the asset immediately before that day, subsections (1) and (1A) of the ITAA 1997 apply as if that were in fact the case.

Subsections 149-30(3) and 149-30(4) of the ITAA 1997 provide that if an *ultimate owner (the new owner) has acquired a percentage (the acquired percentage) of the *underlying interests in the asset because of the death of a person (the former owner), the new owner is treated as having held the former owner's interests in the assets for the period the former owner held those interests.

In your circumstances, the Commissioner is satisfied that the majority underlying interests in the company have been held after 20 September 1985 by the same ultimate owners who held the interests immediately before 20 September 1985. Consequently, the interests in the company retain their pre-CGT status.

As described above, per subsection 149-30(3) of the ITAA 1997, subsection 149-30(4) of the ITAA 1997 affects how the majority underlying interests in an asset are worked out if an *ultimate owner (the new owner) has acquired a percentage (the acquired percentage) of the *underlying interests in the asset because of the death of the former owner.

In your circumstances, by application of subsections 149-30(3) and 149-30(4) of the ITAA 1997, it is considered that B's shareholdings that were transferred from A - the acquired percentage - in the company have been held by B for that period of time that they were held by A, the former owner.

ATO Interpretative Decision ATO ID 2011/101 Capital Gains Tax: Division 149 majority underlying interests - no new shareholders addresses the issue of whether, for the purposes of Subdivision 149-B of the ITAA 1997, in a company where all the shares carry a discretionary right to dividends, that company's majority underlying interests in pre-CGT assets are had by ultimate owners who had such interests in the asset immediately before 20 September 1985 if after that date there have been no new shareholders in the company. ATO ID 2011/101 confirms that in such a situation, majority underlying interests in an asset are had by ultimate owners who had such interests in the asset immediately before 20 September 1985.

The company acquired the relevant property before 20 September 1985. Based on the decision in ATO ID 2011/101, and the reasoning given in the previous answers in this Ruling, because subsections 149-30(3) and 149-30(4) of the ITAA 1997 apply such that, per subsection 149-30(2) of the ITAA, the Commissioner is satisfied that there has not been a change in the majority underlying interests in the company, therefore the relevant property is taken to have retained its pre-CGT status.