ATO ID 2003/777: CGT: majority underlying ownership and deceased estate - life interest in shares
Date of decision: 27 June 2003
Year of income: Year ended 30 June 2003
Business line: Small Business/Individual Taxpayers

Issue
Has there been a change in the majority underlying ownership of a non-public entity (company) under Subdivision 149-B of the Income Tax Assessment Act 1997 (ITAA 1997) when the beneficiary acquires a life interest in shares in the entity under the will?

Decision
No. Taking into account the terms of the will, there has not been a change under Subdivision 149-B of the ITAA 1997 in the majority underlying ownership of the non-public entity when a beneficiary acquires a life interest in shares in the entity under a will.

Facts
The deceased estate holds almost all of the equity in a non-public entity as a result of the death of the majority equity owner. The equity was a pre-CGT asset of the deceased. The non-public entity owns assets that it acquired before 20 September 1985. A testamentary trust has been established in accordance with the will, for the benefit of a member of the family of the deceased. Under the trust, the family member has a life interest in the assets of the estate, after which they will pass to a remainder beneficiary, who is also a family member. The will of the deceased enables the trustee to sell, call in and convert into money the whole of the trust estate.

Reasons for decision
Summary: The provisions of Subdivision 149-B of the ITAA 1997 determine when a CGT asset of an entity stops being a pre-CGT asset (unless the entity is a public entity listed in section 149-50 of the ITAA 1997). Subsections 149-30(3) and 149-30(4) of the ITAA 1997 provide that, if an ultimate owner (new owner) has acquired an interest in an asset because it was transferred to the new owner by way of a marriage breakdown rollover or because of the death of a person (former owner), the new owner is treated as having held the underlying interests of the former owner for the period the former owner held them. On the terms of the will concerned, it can be argued that either: Because of the terms of subsections 149-30(3) and 149-30(4) of the ITAA 1997 it is not necessary to resolve this point. The person who has the beneficial interest for the term of the life interest, whether it is the person holding the life interest or the person who will take the assets on that person's death, is treated under subsection 149-30(4) of the ITAA 1997 as if they held those interests at all times when they were held by the deceased. Taking into account the terms of the will, there has not been a change under Subdivision 149-B of the ITAA 1997 in the majority underlying ownership of the non-public entity when the beneficiary acquired a life interest in shares in the entity under the will. Consequently, the pre-CGT assets of the non-public entity retain their status.

Legislative references: Income Tax Assessment Act 1997 Subdivision 149-B section 149-30 subsection 149-30(3) subsection 149-30(4) section 149-50
Related ATO interpretative decisions: ATO ID 2003/778 | ATO ID 2003/779
Subject references: Capital gains tax CGT assets CGT deceased estates Pre-CGT assets Underlying ownership & interests