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Edited version of private advice
Authorisation Number: 1052313971610
Date of advice: 04 October 2024
Ruling
Subject: Capital gains tax
Question
Is the commercial property a pre-capital gains tax (CGT) asset of yours pursuant to Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
A company was established with the shares issued to several individuals.
Following the deaths of the shareholders the shares were transferred numerous times.
The company acquired a commercial property prior to XX September 19XX.
The property has been disposed of and settled.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 149-30
Reasons for decision
Under section 149-30 of the ITAA 1997, an asset stops being a pre-CGT asset at the earliest time when the majority underlying interests in the asset were not held by the ultimate owners who held majority underlying interests in the asset immediately before 20 September 1985.
Where shares are transferred to a person upon the death of another person, that person is taken to have held the same interests as those held by the former owner (item 2 of subsection 149-30(3) of the ITAA 1997). The new owner is taken to have an underlying interest in the asset equal to the sum of their original interest and the lesser of the acquired interest or the former owner's interest at any time when the former owner had a percentage of the underlying interests in the asset (subsection 149-30(4) of the ITAA 1997).
The combined effect of subsections 149-30(3) and 149-30(4) of the ITAA 1997 is that the new owner of the underlying interest in the asset is 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.
In this case, the only changes to shareholdings were due to the deaths of shareholders. Therefore, there has not been a change in the majority underlying interest since 20 September 1985 for the purposes of Division 149 of the ITAA 1997. Consequently, the pre-CGT commercial property owned by the company retained its pre-CGT status.