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Edited version of private advice
Authorisation Number: 1052122002584
Date of advice: 19 June 2023
Ruling
Subject: Pre-CGT asset - change in major underlying interest - payment to stakeholder
Question 1
Will the land remain a pre-CGT asset after the change of major underlying interest in the shares the company in accordance with subsection 149-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. The land continues to be a pre-CGT asset of the company because Person A acquired a percentage of the shares in the company due to the death of Person B and Person C, and the ownership applies as if Person A's ownership interest is Person B's and Person C's ownership interest.
Question 2
Will the gain on the disposal of the land be disregarded for the company under subsection 104-10(5) of the ITAA 1997?
Answer
Yes. The land was acquired before 20 September 1985 and the pre-CGT status remains due to section 149-30 of the ITAA 1997 as explained in Question 1.
Question 3
Will the distribution of the gain payable by the company to the CGT concession stakeholder (Person A) be an exempt amount and as such not assessable income of the CGT concession stakeholder, in accordance with section 152-125 of the ITAA 1997?
Answer
Yes. Section 152-110 of the ITAA 1997 would have applied but the gain is disregarded anyway because the land was acquired before 20 September 1985. It is assumed that the company will make one or more payments related to the exempt amount within 2 years after the relevant CGT event or 6 months after the latest time a possible financial benefit becomes or could become due.
This ruling applies for the following periods:
Period ending 30 June 20XX
Period ending 30 June 20XX
Period ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The company was established in the late 19XX's. The shareholders were Person B and Person C.
At this time, the company purchased land with another entity. The company owns XX% interest of the land.
The company and the other entity carried on a partnership for over XX years. The partnership used the land to carry on a business of an entity that satisfies the ATO requirements.
Person C passed away. Person C's shares were transferred to their child, Person A.
Person A became the director of the company.
A few years later, Person B passed away. The remaining shares were transferred Person A, who is now the 100% shareholder of the company.
The company satisfies the maximum net asset value test.
The land has been owned for more than 15 years. It has been used in a business carried on for more than 7.5 years.
Person A is over 55 years old.
Person A will be closing down the company after the sale of the land is finalised. Person A intends to slow down and reduce their income, work hours and workload from their sole trader business.
The land has not been disposed of but is expected to be disposed of sometime after this ruling issues.
It is assumed that the company will make the distribution to the CGT concession stakeholder within 2 years after the relevant CGT event or 6 months after the latest time a possible financial benefit becomes or could become due.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 104-10(5)
Income Tax Assessment Act 1997 section 149-30
Income Tax Assessment Act 1997 section 152-110
Income Tax Assessment Act 1997 section 152-125