Edited version of private advice

Authorisation Number: 1052003438122

Date of advice: 6 July 2022

Ruling

Subject: CGT - transfer of asset

Question 1

Pursuant to former section 160ZZN of the Income Tax Assessment Act 1936 (ITAA 1936), were the shares in Entity A issued to the Trustee of the Unit Trust deemed to have been acquired by the Trustee of the Unit Trust before 20 September 1985?

Answer

Yes.

Question 2

Pursuant to Subdivision 122-A of the Income Tax Assessment 1997 (ITAA 1997), are the shares in Entity A transferred by the Trustee of the Unit Trust to Entity B deemed to have been acquired by Entity B before 20 September 1985?

Answer

Yes.

Question 3

Are the shares in Entity A pre-CGT assets of the Unit Trust and Entity B for the purposes of Division 149 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period: XXXX

Relevant facts and circumstances

Entity A

In the early 19XXs the Unit Trust was settled and it acquired the goodwill of a business (Business).

In the early 19XXs the Trustee for the Unit Trust disposed of the Business to Entity A.

The Sale of Business Agreement between the Unit Trust (vendor) and Entity A (purchaser) indicates that on agreement was reached between the Trustee of the Unit Trust and Entity A for the sale of Business to Entity A in exchange for the issue of ordinary shares in Entity A. Specifically the shares were provided as consideration for the goodwill of the business.

The goodwill the subject of the sale was acquired by the Trustee of the Unit Trust before 19 September 1985.

The essential nature or character of the business had not changed from the time the Trustee of the Unit Trust acquired Business.

The assets did not include trading stock.

The fully paid ordinary shares in Entity A were equal to the market value of the assets, including goodwill, acquired.

The Trustee of the Unit Trust owns all ordinary shares in Entity A

Entity A does not have a constitution that prevents distributions to members such that the company itself would be considered to be an ultimate owner.

Post 20XX, the shares in Entity A were transferred from the Trustee of the Unit Trust to Entity B.

The fully paid ordinary shares in Entity B were equal to the market value of shares acquired.

The Trustee of the Unit Trust owns all ordinary shares in Entity B.

Entity B does not have a constitution that prevents distributions to members such that the company itself would be considered to be an ultimate owner.

The Family Trust

Relevantly the beneficiaries of the of the Family Trust are Family Group A, including Entity C.

The shareholders of Entity C are the Trustee of the Family Trust and individual members of Family Group A.

The Trustee continues to administer the trust for the benefit of a particular family being XXX and XXXXXX family group (the XXX family).

The Unit Trust

Relevantly,

•         25% of the units were held by Individual A and then by the trustee of their family trust upon their death.

•         25% of the units were held by Individual B and then 16.66% of their units were transferred to the Trustee of the Family Trust upon their death; and

•         50% to the Trustee of the Family Trust.

No entity is a tax exempt entity.

All entities are Australian residents for income tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 160ZZS

Income Tax Assessment Act 1997 Subdivision 122-A

Income Tax Assessment Act 1997 Division 149

Reasons for decision

Issue 1

Question

Pursuant to former section 160ZZN of the ITAA 1936, were the shares in Entity A issued to the Trustee of the Unit Trust deemed to have been acquired by the Trustee of the Unit Trust before 20 September 1985?

Summary

The asset (goodwill, that was disposed of in the transfer) was acquired by the Trustee of the Unit Trust before 20 September 1985. As a consequence, the shares in Entity A that were transferred to the Trustee of the Unit Trust in consideration for the disposal of the goodwill of Business are also deemed to have been acquired before 20 September 1985.

Detailed reasoning

Former section 160ZZN of the ITAA 1936

Former section 160ZZN of the ITAA 1936 provided CGT roll-over relief for assets transferred to a wholly-owned company. Subsection 160ZZN(4) of the ITAA 1936 applied to transfers by trustees, and provided the following:

Where-

(a) one of the following subparagraphs applies:

(i) a taxpayer in the capacity of a trustee of a trust estate that is a resident trust estate or of a unit trust that is a resident unit trust disposes of an asset (in this section also called a ''roll-over asset'' ) of the trust estate or of the unit trust to a company that is a resident of Australia;

(ii) ...

...

(b) subject to subsection (5A), the consideration in respect of the disposal consists only of non-redeemable shares in the company;

(ba) the market value of the shares is substantially the same as the market value of the roll-over asset, reduced, if the company assumes in connection with the disposal a liability or liabilities in respect of the roll-over asset, by the amount of the liability or the total of the amounts of the liabilities;

(c) immediately after the disposal the taxpayer owns all the shares in the company and holds those shares upon the same trust as the taxpayer held the roll-over asset that was disposed of to the company;

(cb) ...

(d) the taxpayer has, by notice in writing given to the Commissioner on or before the date of lodgment of the return of income of the taxpayer for the year of income in which the disposal took place, or within such further period as the Commissioner allows, elected that this subsection is to apply in respect of the disposal,

this Part (other than this section) does not apply in respect of the disposal and -

(e) if the roll-over asset was acquired by the taxpayer in the capacity of a trustee of the trust concerned before 20 September 1985 - the company shall be deemed, for the purposes of this Part, to have acquired the roll-over asset before that date; or

(f) ...

Where these requirements have been satisfied, former subsection 160ZZN(7) of the ITAA 1936 prescribes that if the asset was acquired prior to 20 September 1985, then the consideration received for that asset will also be deemed to have been acquired before that date.

In this case, on 1 July 1991, the Trustee of the Unit Trust, a resident unit trust, disposed of an asset (the goodwill of Business) to Entity A, a company resident in Australia.

Is the whole of the business goodwill an asset that was acquired before 20 September 1985?

Taxation ruling TR 1999/16 Income tax: capital gains: goodwill of a business (TR 1999/16) discusses when goodwill is considered to be acquired and states at paragraph 17:

The whole of the goodwill of a business that commenced before 20 September 1985 remains the same single pre-CGT asset (subject to Division 149 - about when an asset stops being a pre-CGT asset...) provided the same business continues to be carried on. This is so even though:

(a) the sources of the goodwill of a business may vary during the life of the business; or

(b) there are fluctuations in goodwill during the life of the business.

TR 1999/16 also recognises at paragraph 18 that a business or the sources of its goodwill may change so much that it can no longer be said to be the same business.

Whether the same business is being carried on is a question of fact and degree that ultimately depends on the circumstances of each particular case.

Paragraph 21 of TR 1999/16 provides that the business does not need to be identical from its acquisition to its disposal. If the essential nature or character of the business is not changed, the business remains the same business for the CGT goodwill provisions. A business owner may expand or contract activities, or change the way in which a business is carried on, without ceasing to carry on the same business provided the business retains its essential nature or character. Organic growth, expansion or diversification of a business does not of itself cause it to be a new business, providing the business retains its essential nature or character.

Paragraph 24 of TR 1999/16 provides the same business is not being carried on if:

a)    through a planned or systematic process of change within a reasonable period of time, a business changes its essential nature or character; or

b)    there is a sudden and dramatic change in the business brought about by either the acquisition or the shedding of activities on a considerable scale.

Additionally, TR 1999/16 states at paragraph 25 that the goodwill is a composite asset. That is, the whole of the goodwill of a business will either be a pre-CGT goodwill or post-CGT goodwill. It cannot be split into a pre-CGT and a post-CGT portion.

Paragraphs 60 to 62 of TR 1999/16 discuss whether new goodwill is acquired when an existing business either expands, or commences a new business. Where a new business operation is merely the expansion of an existing business, any goodwill built up will be an expansion of the existing goodwill of the business. On the other hand, if the new business activity is a new business, the goodwill attaching to that business activity will be a new separate asset to the goodwill of the existing business.

Paragraph 62 of TR 1999/16 provides the following factors that should be taken into account in determining whether there is merely an expansion of an existing activity or there is a new business activity commenced:

•         nature of the new business operation or activity;

•         types of customers that the business operation or activity attracts;

•         extent to which the business operation or activity:

•         is subject to the same integrated management and control as the existing business

•         is treated for banking and accounting purposes as an extension of the existing business or as a separate business

•         uses one or more different trading names

•         is related to or dependent on the exiting business in a practical, economic or commercial sense.

Paragraphs 91 - 95 of TR 1999/16 consider the factors to take into account in considering whether a business has changed to such an extent that it is no longer the same business. Factors include:

•         the nature or character of the business;

•         its location and size;

•         the extent of changes in the assets and resources;

•         the activities of the business; and

•         the way in which the business is structured, carried on, managed and controlled.

After considering the above factors of TR 1999/16 alongside the circumstances of the business over time, the Commissioner is satisfied that it is reasonable to accept that the essential nature or character of the business has not changed as a result of any activities or changes introduced. The business has remained as the same business for the CGT goodwill provisions and therefore all of the goodwill is considered to be a pre-CGT asset.

The consideration in respect of the disposal was fully paid ordinary shares in Entity A equal to the market value of the goodwill, acquired.

Immediately after the disposal, the Trustee of the Unit Trust owned all the shares in Entity A.

The asset (goodwill, that was disposed of in the transfer) was acquired by the Trustee of the Unit Trust before 20 September 1985. As a consequence, the shares in Entity A that were transferred to the Trustee of the Unit Trust in consideration for the disposal of the goodwill of Business are also deemed to have been acquired before 20 September 1985, i.e. pre-CGT assets, purposes of former Part IIIA of the ITAA 1936 and Parts 3-1 and 3-3 of the ITAA 1997.

Entity A is also deemed for the purposes of former Part IIIA of the ITAA 1936 and Parts 3-1 and 3-3 of the ITAA 1997 to have acquired the goodwill transferred to it upon the disposal of the Unit Trust's business when that goodwill was first acquired by the Trustee of the Unit Trust, i.e. before 20 September 1985.

Issue 2

Question

Pursuant to Subdivision 122-A of the Income Tax Assessment 1997 (ITAA 1997), are the shares in Entity A transferred by the Trustee of the Unit Trust to Entity B deemed to have been acquired by Entity B before 20 September 1985?

Summary

The shares in Entity A will be taken to have been acquired by Entity B before 20 September 1985.

Detailed reasoning

Subdivision 122-A of the ITAA 1997

Capital gains tax roll-over relief

Generally, Subdivision 122-A of the ITAA 1997 allows for the roll-over of a capital gain or loss when an individual or trustee disposes of a capital gains tax (CGT) asset to a company in which, just after the disposal, the individual or trustee owns all the shares.

Disposal or creation of assets - wholly owned company

In order for an individual or trustee to obtain roll-over relief under Subdivision 122-A of the ITAA 1997, the CGT event which triggers the capital gain or loss must be one listed in the table of section 122-15. CGT event A1, being the disposal of a CGT asset, is one of the trigger events listed in the table.

Under subsection 104-10(1) of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2) you dispose of a CGT asset if a change of ownership occurs from you to another entity. Shares in a company are CGT assets (section 108-5 of the ITAA 1997).

Application

The transfer of the Trustee of the Unit Trust's shares in Entity A to Entity B, will trigger CGT event A1 as a change of ownership will occur, effecting a disposal of the shares.

Therefore, this requirement is satisfied.

What is received for the trigger event

Under subsection 122-20(1) of the ITAA 1997, the consideration received (if any) for the disposal of the shares must be only shares in the wholly owned company or in addition to shares in the wholly owned company, the company undertaking to discharge any liabilities in respect of the shares.

In addition, subsection 122-20(2) of the ITAA 1997 requires that the shares received in the wholly owned company cannot be redeemable shares. The market value of the shares must be substantially the same as the market value of the shares disposed of, less any liabilities the company undertakes to discharge.

As outlined in ATO Interpretative Decision ATO ID 2004/94 Income Tax - Capital gains tax: Subdivision 122-A rollover: no consideration received (ATO ID 2004/94), section 122-20 does not require that consideration must be received for the disposal of an asset to a company in order to obtain the roll-over. Rather, it provides that if there is consideration received for the disposal, then that consideration must be either non-redeemable shares in the company, or non-redeemable shares in the company and the company's undertaking to discharge any liabilities in respect of the asset.

Under subsection 122-20(3) of the ITAA 1997, the market value of the shares you receive must be the same as the market value of the shares disposed of, less any liabilities the company undertakes to discharge.

Application

The market value of the shares in Entity B is substantially the same as the market value of the shares in Entity A.

Thus, section 122-20 of the ITAA 1997 is satisfied.

Other requirements that must be satisfied

Section 122-25 of the ITAA 1997 lists further requirements that must also be satisfied for roll-over relief to be available under Subdivision 122-A, relevantly being that:

a)    the individual or trustee must own all the shares in the company just after the time of the disposal of their shares to the company - and they must own the shares in the same capacity as they owned or created the assets that the company now owns (subsection 122-25(1)),

b)    the disposal of the asset is not one listed in the table in subsection 122-25(2),

c)    the ordinary and statutory income of the recipient company must not be exempt from income tax because it is an exempt entity for the income year the roll-over occurs (subsection 122-25(5)), and

d)    the company and individual are Australian residents at the time of disposal (paragraph 122-25(6)(a)).

Application

The Trustee of the Unit Trust owns 100% of the shares Entity B just after the share transfer. The Trustee of the Unit Trust owns the shares in Entity B in the same capacity, i.e. as a trustee, as they owned the Entity A shares. Therefore, the requirement in subsection 122-25(1) of the ITAA 1997 be satisfied.

None of the exceptions in the table in subsection 122-25(2) of the ITAA 1997, which lists certain assets for which the roll-over is not available, apply to these circumstances.

Subsection 122-25(5) of the ITAA 1997 is satisfied as the ordinary or statutory income of Entity B will not be exempt from income tax due Entity B being an exempt entity in the year the roll-over occurs.

The residency requirement under paragraph 122-25(6)(a) of the ITAA 1997 is satisfied as both the Trustee of the Unit Trust and Entity B are Australian residents at the time of the share transfer.

Company undertakes to discharge a liability

Section 122-35 of the ITAA 1997 provides additional requirements if a CGT asset has been disposed of and the company has undertaken to discharge a liability in respect of it.

Application

Section 122-35 of the ITAA 1997 does not apply in these circumstances as Entity B is not discharging a liability in respect of the shares of Entity A.

Conclusion

The transfer of the Entity A shares from the Trustee of the Unit Trust to Entity B will enable the Trustee of the Unit Trust to roll-over any capital gain or loss as specified in Subdivision 122-A of the ITAA 1997 should they so choose. The choice to obtain roll-over relief under Subdivision 122-A of the ITAA 1997 does not require a specific election. The way in which the income tax return is prepared is sufficient evidence of making the choice, pursuant to subsection 103-25(2) of the ITAA 1997.

Consequences

Section 122-70 sets out the consequences for the company when an asset is disposed of and the transferor chooses to obtain a roll-over under Subdivision 122-A of the ITAA 1997.

If the shares are still pre-CGT at this point

If the Trustee for the Unit Trust chooses to obtain a roll-over under Subdivision 122-A of the ITAA 1997 in respect of its disposal of Entity A shares which were acquired prior to 20 September 1985, pursuant to subsection 122-70(3) of the ITAA 1997 the shares will be taken to have been acquired by Entity B before 20 September 1985.

If the shares are post-CGT at this point

If the Trustee for the Unit Trust chooses to obtain a roll-over under Subdivision 122-A of the ITAA 1997 in respect of its disposal of Entity A shares which were acquired after to 20 September 1985, pursuant to subsection 122-70(2) of the ITAA 1997, the first element of the cost base, or reduced cost base, of each asset transferred to Entity B, in the hands of Entity B, is the asset's cost base, or reduced cost base, respectively, when the Trustee of the Unit Trust disposed of it.

In this case, the shares are pre-CGT shares (refer to the discussion below regarding the operation of Division 149 of the ITAA 1997 in these circumstances).

Issue 3

Question

Are the shares in Entity A pre-CGT assets of the Unit Trust and Entity B for the purposes of Division 149 of the ITAA 1997?

Summary

The goodwill and shares retain their pre-CGT asset status for the purposes of Division 149 of the ITAA 1997.

Detailed reasoning

Division 149 of the ITAA 1936

Goodwill

Goodwill, or an interest in goodwill, is a CGT asset (paragraph 108-5(2)(b) of the ITAA 1997). CGT event A1 happens under section 104-10 of the ITAA 1997 if you dispose of a CGT asset, but any capital gain or capital loss made from that disposal is disregarded pursuant to paragraph 104-10(5)(a) of the ITAA 1997, if you acquired the asset before 20 September 1985.

Goodwill of Business

The Trustee of the Unit Trust acquired the goodwill of Business pre September 1985.

Since the roll-over relief claim, made with respect to the Trustee of the Unit Trust's disposal of the Business to Entity A, being the goodwill in Business that the Trustee of the Unit Trust acquired pre pre September 1985, satisfied all the requirements of former subsection 160ZZN(4) of the ITAA 1936, Entity A is deemed for the purposes of former Part IIIA of the ITAA 1936 and Parts 3-1 and 3-3 of the ITAA 1997 to have acquired the goodwill transferred to it upon the disposal of the Unit Trust's business when that goodwill was first acquired by the Trustee of the Unit Trust, i.e. before 20 September 1985.

Has the same business continued to be carried on?

As the business being carried on is essentially the same as the business, the goodwill of the business is the same asset and, subject to the operation of Division 149, retains its status as a pre-CGT asset.

Division 149 of the ITAA 1997

Division 149 of the ITAA 1997 determines when an asset acquired on or before 19 September 1985 stops being a pre-CGT asset.

Generally, any capital gain or capital loss made from the disposal of a pre-CGT asset is disregarded provided the asset has not stopped being a pre-CGT asset under Division 149 or the former Division 20 of the ITAA 1936 (pre-1998-99 income years).

Subdivision 149-B of the ITAA 1997 contains provisions which govern when an asset of non-public entity stops being a pre-CGT asset.

Subsection 149-30(1) of the ITAA 1997 provides that the 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.

The test to determine when an asset of a non-public entity stops being a pre-CGT asset is a factual test. Under the test, the asset stops being a pre-CGT asset at the earliest time when majority underlying interests in the asset were not maintained. Therefore, an entity must examine the underlying interests in its pre-CGT assets on an on-going basis to ensure that majority underlying interests in them have been maintained when there has been a change, direct or indirect, in its shareholdings, unitholdings or other membership interests.

'Majority underlying interests' in a CGT asset consist of more than 50% of:

a)    the beneficial interests that ultimate owners have (whether directly or indirectly) in the asset, and

b)    the beneficial interests that ultimate owners have (whether directly or indirectly) in any ordinary income that may be derived from the asset.

An 'underlying interest' in a CGT asset is a beneficial interest that an ultimate owner has (whether directly or indirectly) in the asset or in any ordinary income that may be derived from the asset.

An 'ultimate owner' is defined in subsection 149-15(3) of the ITAA 1997 and includes:

•         an individual

•         a company whose constitution prevents it from making any distribution, whether in money, property or otherwise, to its members

•         the Commonwealth, a state or a territory

•         a municipal corporation

•         a local governing body, or

•         the government of a foreign country, or of part of a foreign country.

Commissioner's discretion

Subsection 149-30(2) of the ITAA 1997 provides the Commissioner with a discretion to overlook the factual test in subsection 149-30(1) if he is satisfied, or thinks it reasonable to assume, that at all times on and after 20 September 1985 when the asset was held by the taxpayer, majority underlying interests in the asset were held by ultimate owners who, immediately before that date, held majority underlying interests in the asset.

Subsection 149-30(2) of the ITAA 1997 requires that the Commissioner has to be satisfied that the majority underlying interests in the assets have not changed, otherwise the asset is deemed to have been acquired at the time that the change in majority underlying interests in that asset happened.

Beneficiaries of a discretionary trust are generally not considered to have any interest, either individually or collectively, in the property or income of a trust estate. Therefore, a discretionary trust cannot be an ultimate owner for the purpose of the majority underlying interest test. To determine the ultimate owners of a discretionary trust, it is necessary to trace through to an individual as the other ultimate owners listed in subsection 149-15(3) of the ITAA 1997 are not applicable.

The Commissioner has set out a pragmatic approach in Taxation Ruling IT 2340, of looking through interposed entities to determine which natural persons hold the beneficial interests for the purposes of the former section 160ZZS of the ITAA 1936 (the equivalent of Division 149). As a starting point, IT 2340 assumes that a beneficiary of a discretionary trust has a beneficial interest in the trust's assets.

Paragraph 5 of IT 2340 states that in relation to what are generally referred to as discretionary trusts, i.e., family trusts, it will be relevant to take into account the way in which the discretionary powers of the trustee are exercised when considering the question whether majority underlying interests have been maintained in the assets of the trust.

IT 2340 reflects the Commissioner's view that where a trustee of a family trust continues to administer the trust for the benefit of members of a particular family, Division 149 of the ITAA 1936 will not apply merely because different distributions to family members who are beneficiaries are made in such amounts, and to such of those beneficiaries, as the trustee determines in accordance with the exercise of the trustee's discretion. In such a case, the Commissioner would find it reasonable to assume that for all practical purposes the majority underlying interests in the trust assets have not changed.

However, the Commissioner also takes the view that if by the exercise of a trustee's discretionary powers to appoint new beneficiaries, or by amendment of the trust deed, there is in practical effect a change in the 'majority underlying interests' in the trust assets, subsection 149-30(1) of the ITAA 1936 will apply.

Death

Special rules apply to work out majority underlying interests in an asset if an ultimate owner acquired an underlying interest in it because of the death of the former owner.

Subsections 149-30(3) and (4) of the ITAA 1997 provide that, for the purposes of Subdivision 149-B, if an ultimate owner ('new owner') has acquired an interest in an asset because of the death of a person ('former owner'), the new owner is treated as having held the underlying interest of the former owner over the years. Subsection 149-30(4) of the ITAA 1997 treats the new owners as having a percentage of the underlying interests in the asset equal to the lesser of the acquired percentage or the former owner's percentage at that time. The new owner of the underlying interest in the asset is, in broad terms, taken to stand in the shoes of the former owner. In essence there is no change in majority underlying interests in an asset from this event.

Pre 20 January 1997

Relevantly, former subsection 160ZZS(2) of the ITAA 1936 (the transitional provision applicable in 1994 and the equivalent provision to subsections 149-30(3) and 149-30(4) of the ITAA 1997) provides:

For the purposes of this section, where, by reason of the death of a person, a natural person acquires a percentage (in this subsection referred to as the "acquired percentage") of the underlying interests in an asset, the natural person shall be deemed to have held (in addition to any other part of the total underlying interest that the person held or is deemed to have held), at any time when the deceased person held a percentage (in this subsection referred to as the "deceased person's percentage") of the total underlying interests in the property, a percentage of the total underlying interests in the property equal to the acquired percentage, or the deceased person's percentage at that time, whichever is the less.

Where the trustee of a discretionary trust acquires the interests of the deceased in a CGT asset, the beneficiaries of the discretionary trust at this point would be deemed to have held the interest originally held by the deceased. Where the deceased held the interest before 20 September 1985, those beneficiaries of the discretionary trust are similarly deemed to have held these interests from that point in time. Former subsection 160ZZS(1) of the ITAA 1936 would not operate to deem a new date of acquisition (see ATOID 2003/778).

From 20 January 1997

Relevantly, former subsection 160ZZRU of the ITAA 1936 which replaced subsection 160ZZS(2) with effect from 20 January 1997, and the equivalent provision to subsections 149-30(3) and 149-30(4) of the ITAA 1997), provides:

For the purposes of this Division, if, because of a person's death, a natural person acquires a percentage (the acquired percentage) of the underlying interests in an asset, the natural person is taken to have held (in addition to any other part of the total underlying interests that the person held or is taken to have held), at any time when the dead person held a percentage (the dead person's percentage) of the total underlying interests in the asset, a percentage of the total underlying interests in the asset equal to the acquired percentage, or the dead person's percentage at that time, whichever is the less.

Where the trustee of a discretionary trust acquires the interests of the deceased in a CGT asset, the beneficiaries of the discretionary trust at this point would be deemed to have held the interest originally held by the deceased. The effect of subsection 160ZZRU of the ITAA 1936 is that the relevant interest in the CGT asset is deemed to have been held during the period that they were owned by the deceased. Former subsection 160ZZS(1) of the ITAA 1936 would not operate to deem a new date of acquisition.

Application in these circumstances

Relevantly:

•         the Unit Trust is a private unit trust which acquired goodwill before 20 September 1985 - the Trustee of the Unit Trust held the interest in the goodwill.

•         Entity A is a private company which is deemed for the purposes of former section 160ZZN of the ITAA 1936 to have acquired the goodwill before 20 September 1985, having acquired the goodwill of Business from the Trustee of the Unit Trust, where the Trustee of the Unit Trust held the interest in the goodwill indirectly.

In order to determine the underlying interests and majority underlying interests in the ownership of the pre-CGT asset, i.e. goodwill:

•         the ownership of the Unit Trust from when it acquired the goodwill to when it disposed of the goodwill needs to be examined; and

•         the ownership of Entity A from when it acquired the goodwill.

The Trustee of the Family Trust has continued to administer the Family Trust for the benefit of the members of Family Group A at all times.

Upon Individual B's death, two thirds of their interest in the Unit Trust were transferred to the Trustee of the Family Trust. As it held the units in Unit Trust from before 20 September 1985, the beneficiaries of the Family Trust are similarly deemed to have held these interests from that point of time. Consequently, the Family Trust would have held more that 51% of the units in the Unit Trust.

As there has been no change in the beneficiaries of the Trust, i.e. no beneficiaries outside the Family Group A, there has been no change in majority underlying interest. Accordingly, the Commissioner finds it reasonable to assume that the majority underlying interests have been held at all times in the goodwill asset by the same ultimate owners who held such interests immediately before 20 September 1985.

Therefore the goodwill retains its pre-CGT asset status for the purposes of Division 149 of the ITAA 1997.

Shares

Shares are CGT assets (paragraph 108-5(2)(b) of the ITAA 1997). CGT event A1 happens under section 104-10 if you dispose of a CGT asset, but any capital gain or capital loss made from that disposal is disregarded pursuant to paragraph 104-10(5)(a) if you acquired the asset before 20 September 1985.

The shares in Entity A in relation to the sale transaction in 1991 is a pre-CCGT asset.

Shares rolled into holding company

The Trustee of the Unit Trust transferred its interests in the shares of Entity A to Entity B. This would not represent a change in the ultimate beneficial owners, as the Trustee of the Unit Trust owns 100% of the shares in Entity B and the company does not have a constitution that prevents distributions to members such that the company themselves would be considered to be ultimate owners.

As such, subsection 149-30(1) of the ITAA 1997 would not be triggered at this point.