Edited version of private advice

Authorisation Number: 1052358482761

Date of advice: 7 February 2025

Ruling

Subject: Capital gains tax

Question 1

For the purposes of subsection 149-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997), on the basis of the evidence provided, is the Commissioner satisfied that, or does the Commissioner think it reasonable to assume that, at the end of the test day 30 June 2024, majority underlying interests in the pre-CGT assets were held by ultimate owners who also had majority underlying interests in the assets at the end of the starting day 19 September 1985?

Answer 1

Yes.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

19 September 1985

Relevant facts and circumstances

The Taxpayer is a public entity that owns CGT assets acquired before 20 September 1986 (the pre-CGT assets).

The Taxpayer has chosen 19 September 1985 as the starting day for the purpose of subsection 149-60(1) of the ITAA 1997.

Majority underlying interests in the pre-CGT assets were held by ultimate owners who also had majority underlying interests in the assets at the end of the test days 30 June 1999, 30 June 2004, 30 June 2009, 30 June 2014 and 30 June 2019.

There has been no change in relation to the business structure of The Taxpayer since 30 June 2019.

The shareholders that have had majority underlying interests in the pre-CGT assets on the starting day 19 September 1985 and on the test days 30 June 1999, 30 June 2004, 30 June 2009, 30 June 2014, 30 June 2019 and 30 June 2024 and have not changed.

Some of the shares in the taxpayer are held by a trust.

The trust is a discretionary trust and the main source of the trust income is from investment activities.

The terms of the trust and the terms defining the identity and rights of the beneficiaries have not changed since before 1985.

The trust is and always has been administered by the trustee solely for the benefit of the family members defined in the Trust Deed.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 149-A

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 subsection 149-15(4)

Income Tax Assessment Act 1997 subsection 149-15(5)

Income Tax Assessment Act 1997 subdivision 149-C

Income Tax Assessment Act 1997 subsection 149-50(1)

Income Tax Assessment Act 1997 subsection 149-55(1)

Income Tax Assessment Act 1997 subsection 149-55(2)

Income Tax Assessment Act 1997 subsection 149-60(1)

Income Tax Assessment Act 1997 subsection 149-60(2)

Income Tax Assessment Act 1997 subsection 149-70(1)

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidancerule for income tax'.

Reasons for decision

Detailed reasoning

Subdivision 149-C of theITAA 1997 deals with when a CGT asset of a public entity stops being a pre-CGT asset. That subdivision applies to the taxpayer as it is an entity of the kind listed at subsection 149-50(1) of the ITAA 1997.

Within six months after each test day, an entity to which subdivision 149-C applies must give the Commissioner written evidence about the majority underlying interests in the CGT asset at the end of that day, in a form that makes the information about those interests readily apparent (subsections 149-55(1) and (1A) of the ITAA 1997).

On the basis solely of the evidence given to the Commissioner under subsection 149-55(1) of the ITAA 1997, the Commissioner must be satisfied that, or think it reasonable to assume that, at the end of the test day, majority underlying interests in the asset were had by ultimate owners who also had majority underlying interests in the asset at the end of the starting day (subsection 149-60(1) of the ITAA 1997).

An asset stops being a pre-CGT asset if the condition in subsection 149-60(1) of the ITAA 1997 is not satisfied (subsection 149-70(1) of the ITAA 1997).

Public entities should not assume the Commissioner would be satisfied, or think it reasonable to assume, that continuity of majority underlying interests has been maintained in their particular case, but should apply for a private ruling (see Taxation Ruling TR 2004/7 Income tax: capital gains: application of Division 149 of the Income Tax Assessment Act 1997 and Division 20 of Part IIIA of the Income Tax Assessment Act 1936 to public entities ("TR 2004/7"), at paragraph 4).

Generally, a public entity's starting day is 19 September 1985, or a day chosen by the entity within the period 1 July 1985 to 30 June 1986 (subsections 149-60(1) and (2) of the ITAA 1997).

Generally, each of the following is a test day for the purposes of subdivision 149-C of the ITAA 1997:

•                     30 June 1999

•                     a day that is 5 years after that date; and

•                     a day on which there is abnormal trading of shares in the company (subsection 149-55(2) of the ITAA 1997).

The following terms are integral in the operation of Division 149 of the ITAA 1997:

•                     majority underlying interests

•                     underlying interest

•                     ultimate owner

•                     indirectly has a beneficial interest in a CGT asset of another entity

•                     indirectly has a beneficial interest in ordinary income that may be derived from a CGT asset of another entity

The 'majority underlying interests' in a CGT asset consist of 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 (subsection 149-15(1) of the ITAA 1997).

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 (subsection 149-15(2) of the ITAA 1997).

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

An ultimate owner 'indirectly has a beneficial interest in a CGT asset' of another entity (that is not an ultimate owner), if he, she or it would receive for his, her or its own benefit any of the capital if the other entity were to distribute any of its capital and the capital were then successively distributed by each entity interposed between the other entity and the ultimate owner (subsection 149-15(4) of the ITAA 1997).

An ultimate owner 'indirectly has a beneficial interest in ordinary income' that may be derived from a CGT asset of another entity (that is not an ultimate owner), if he, she or it would receive for his, her or its own benefit any of a dividend or income, if the other entity were to pay a dividend, or otherwise distribute that income and the dividend or income were then successively paid or distributed by each entity interposed between the other entity and the ultimate owner (subsection 149-15(5) of the ITAA 1997).

Conclusion

The Commissioner is satisfied on the evidence provided that at the end of the test day, majority underlying interests in the pre-CGT assets of the taxpayer were had by ultimate owners who also had majority underlying interests in the assets at the end of the starting day 19 September 1985.

As the condition in subsection 149-60(1) of the ITAA 1997 is complied with, the pre-CGT assets of the taxpayer have maintained their pre-CGT status at the end of the test day.