Edited version of private advice

Authorisation Number: 1052225925984

Date of advice: 16 May 2024

Ruling

Subject: CGT - asset acquisition date

Question

Will former subsection 160ZZS(1) of the Income Tax Assessment Act 1936 (ITAA 1936) or Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to deem the acquisition date of the shares in Company A that Individual A acquired before 20 September 1985 to be a date on or after 20 September 1985?

Answer

No.

This private ruling applies for the following period:

Income year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

Individual A currently beneficially owns shares in Company A. Individual A acquired some shares in Company A before 20 September 1985 and some shares after 20 September 1985.

Individual A has had a 100% beneficial interest in the Company A shares and in any income derived from the shares since the time they acquired the shares.

Both Company A and Individual A have been Australian income tax residents at all relevant times.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 160ZZS(1)

Income Tax Assessment Act 1936 subsection 160ZZS(1A)

Income Tax Assessment Act 1997 Division 149

Income Tax Assessment Act 1997 section 149-10

Income Tax Assessment Act 1997 subsection 149-15(1)

Income Tax Assessment Act 1997 subsection 149-15(2)

Income Tax Assessment Act 1997 subsection 149-15(3)

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(2)

Reasons for decision

Summary

Former subsection 160ZZS(1) of the ITAA 1936 and Division 149 of the ITAA 1997 will not apply to deem the acquisition date of the shares in Company A that Individual A acquired before 20 September 1985 to be a date on or after 20 September 1985.

Detailed reasoning

Section 149-10 of the ITAA 1997 provides that a CGT asset that an entity owns is a pre-CGT asset if, and only if:

(a)          the entity last acquired the asset before 20 September 1985; and

(b)          the entity was not, immediately before the start of the 1998-99 income year, taken under:

(i)            former subsection 160ZZS(1) of the Income Tax Assessment Act 1936; or

(ii)            Subdivision C of Division 20 of former Part IIIA of that Act;

to have acquired the asset on or after 20 September 1985; and

(c)          the asset has not stopped being a pre-CGT asset of the entity because of this Division.

Note: There are transitional rules for assets that stopped being pre-CGT assets under the Income Tax Assessment Act 1936: see section 149-5 of the Income Tax (Transitional Provisions) Act 1997.

Former subsection 160ZZS(1) of the ITAA 1936, which applied to pre-CGT assets held by non-public entities between 20 September 1985 and the end of the 1998 income year, provides the following:

For the purposes of the application of this Part in relation to a taxpayer, an asset acquired by the taxpayer on or before 19 September 1985 shall be deemed to have been acquired by the taxpayer after that date unless the Commissioner is satisfied, or considers it reasonable to assume, that, at all times after that date when the asset was held by the taxpayer, majority underlying interests in the asset were held by natural persons who, immediately before 20 September 1985, held majority underlying interests in the asset.

Former subsection 160ZZS(1A) of the ITAA 1936 provided that where subsection 160ZZS(1) applies to deem an asset to have been acquired after 19 September 1985, the asset will be taken to have been acquired for the purposes of Part IIIA of the ITAA 1936 on the date on which the majority underlying interests in the asset ceases to be held by the taxpayer who held that interest immediately before 20 September 1985. Further, the taxpayer is taken to have acquired the asset for consideration equal to the market value of the asset at that time.

Similarly, subsection 149-30(1) of the ITAA 1997 which applies from the 1999 income year states that a CGT asset stops being a pre-CGT asset at the earliest time when the 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.

'Majority underlying interests in a CGT asset' is defined in subsection 149-15(1) of the ITAA 1997 to mean more than 50% of the beneficial interests that ultimate owners have, whether directly or indirectly, in the asset and in any ordinary income that may be derived from the asset.

An underlying interest in a CGT asset is defined in subsection 149-15(2) of the ITAA 1997 as 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.

The definition of an ultimate owner in subsection 149-15(3) of the ITAA 1997 relevantly includes an individual, or a company whose constitution prevents it from making any distribution, whether in money, property or otherwise, to its members.

In this situation, Individual A acquired the shares in Company A before 20 September 1985 and has continued to directly hold these shares since that time. Individual A has had a beneficial interest in the Company A shares and any income derived from the shares since before 20 September 1985. As Individual A is an individual, they are the ultimate owner of the shares as defined by subsection 149-15(3) of the ITAA 1997.

As Individual A has held the majority underlying interests in the Company A shares since when they acquired the shares before 20 September 1985, former subsection 160ZZS(1) of the ITAA 1936 and Division 149 of the ITAA 1997 will not apply to deem the acquisition date of the shares to be a date on or after 20 September 1985.