ATO ID 2011/101: Capital Gains Tax: Division 149 majority underlying interests - no new shareholders
Date of decision: 29 November 2011
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
For the purposes of Subdivision 149-B of the Income Tax Assessment Act 1997 (ITAA 1997) in a company where all the shares carry a discretionary right to dividends, are majority underlying interests in a pre-CGT asset of the company had by ultimate owners who had such interests in the asset immediately before 20 September 1985 if after that date there has been no new shareholders in the company?

Decision
Yes, majority underlying interests in an asset are had by ultimate owners who had such interests in the asset immediately before 20 September 1985.

Facts
Immediately prior to 20 September 1985 the shareholders of Company B are individuals X, Y and Z. There has to date been no new shareholder who has acquired shares in Company B. Company B owns a pre-CGT asset. All issued shares in company B have discretionary rights as to dividends. All shares carry the same rights as to the capital of company B.

Reasons for decision
Summary: Subsection 149-30(1) of the ITAA 1997 provides that an asset stops being a pre-CGT asset at the earliest time when 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. 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 indirectly has a beneficial interest in ordinary income that may be derived from a CGT asset of another entity 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 that 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). Individuals X, Y and Z, collectively comprise those who would receive for their benefit any of a dividend if Company B were to pay the dividend. Subsection 149-30(2) of the ITAA 1997 provides that if the Commissioner is satisfied or thinks it reasonable to assume that at all times on and after 20 September 1985 and before a particular time majority underlying interests in the asset were had by ultimate owners who had majority underlying interests in the asset immediately before that day, subsections 149-30(1) and 149-30(1A) of the ITAA 1997 apply as if that were in fact the case. As there has been no change in the membership of that group, there has been no change in majority underlying interest. Accordingly, the Commissioner finds it reasonable to assume that majority underlying interests have been held at all times by the same ultimate owners who held such interests immediately before 20 September 1985.

Legislative references: Income Tax Assessment Act 1997 Subdivision 149-B subsection 149-15(2) subsection 149-15(5) subsection 149-30(1) subsection 149-30(1A) subsection 149-30(2)
Subject references: Capital gains tax CGT assets Pre-CGT assets Majority underlying interests