Private ruling: Liquidator's final distribution
Date of advice: 24 October 2025
Published: 15 December 2025
Ruling period: Year Ended 30 June 20XX
Date scheme commenced: 21 December 20XX

Ruling: Q1: Will the first element of the cost base of 6 shares held by (the Trustee of) the deceased's Estate in the Company be their cost base on the deceased's death pursuant to table item 1 in subsection 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997), and will the cost base of those shares on the date her death be equal to the market value of those shares on the day Person H died? | A1: Yes | Q2: Will the first element of the Estate's cost base of 988 shares in the Company be their cost base on the date of Doreen Leopold's death pursuant to table item 1 in subsection 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997), and will the cost base of those shares on the date of Doreen's death be equal to the market value of those shares on the day they were issued by the Company to Person H? | A2: Yes | Q3: Will the Proposed Dividend be deemed to be a dividend paid to the Estate by the Company out of profits derived by the Company pursuant to section 47 of the Income Tax Assessment Act 1936 (ITAA 1936), and therefore be an assessable dividend pursuant to paragraph 44(1)(a) of the ITAA 1936 when paid to the Estate? | A3: No | Q4: Will CGT event C2 under section 104-25 of the ITAA 1997 happen if the Company ceases to exist within 18 months of the Proposed Dividend being paid and, if so, will the Proposed Dividend constitute capital proceeds received by the Estate in respect of that event? | A4: Yes | Q5: Will CGT event G1 under section 104-135 of the ITAA 1997 happen if the Company ceases to exist later than 18 months after the Proposed Dividend is paid and, if so, will the Proposed Dividend constitute capital proceeds received by the Estate in respect of that event? | A5: Yes

Relevant facts and circumstances: T he deceased passed away on 21 December 20XX. Their Will provides for specific gifts to family members, and the distribution of the balance of her estate between her children and stepchild. The Estate includes all the shares in the Company. The Company is a resident of Australia for tax purposes, having been incorporated on 4 November 19XX by the deceased's spouse (Person H) for the purpose of holding their investments. Prior to September 1985, 6 of the 12 issued shares in the Company were held by Person H. On DD Month 19KW, the Company acquired a property Victoria (the Property) for $XX,XXX. Person H operated a hairdressing salon at the Property. On DD October 19KP, a further X shares in the Company were issued to Person H. At that time, Person H held X of the X shares on issue in the Company. The market value of the Company at around about the time that Person H acquired those X shares is estimated by the Estate to be approximately $XXX,XXX. The Property was sold for $XXX,000 to a third party in the income year ended 30 June 19XT. The capital gain realised by the Company from the sale of the Property was $XXX,XXX. This capital gain has been recorded in the Company's Capital Profits Reserve in each of its Balance Sheets since the year ended 30 June 19XY. Person H passed away on DD Month 20J0.They held the same X of the X shares on issue in the Company at that time. The remaining X shares on issue in the Company were held by Person U, the accountant for Person H, T he deceased and the Company, on trust for Person H, and had been since DD Month 19KK. The market value of the Company at around about the time of Person H's passing is estimated by the Estate to be approximately $XXX,XXX T he deceased inherited X shares in the Company pursuant to the Letters of Administration in Person H's estate, and the other X shares in the Company from Person U on DD Month 201W. T he deceased held all X shares until their passing. Following the deceased's passing, the Trustees have been appointed as directors and shareholders of the Company in their capacity as trustee of the Estate. To finalise the administration of the estate, in the income year ended 30 June 202C the Trustees caused the Company to dispose of its assets for market value consideration, satisfy liabilities and pay a dividend consisting of net retained earnings to the Estate (including profit for the 202C income year but excluding the Capital Profits Reserve). Proposed transactions The Trustees are now proposing to place the Company into members' voluntary liquidation and appoint liquidators. The Trustees expect that the liquidators will pay a final dividend of $XXX,XXX out of its Capital Profits Reserve to the Estate (the Proposed Dividend). After the Proposed Dividend is paid, the Company will have no assets, liabilities or reserves, and will be in a position to return paid up share capital and finalise liquidation. The Trustees will subsequently make distributions out of the Estate to beneficiaries in satisfaction of their entitlements under the deceased's Will. Assumption The 6 shares that t he deceased acquired from Charles Fleming have a cost base of nil.

Relevant legislative provisions: Income Tax Assessment Act 1936 paragraph 44(1)(a) | Income Tax Assessment Act 1936 section 47 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 paragraph 104-25(1)(a) | Income Tax Assessment Act 1997 subsection 104-25(3) | Income Tax Assessment Act 1997 section 104-135 | Income Tax Assessment Act 1997 subsection 104-135(1) | Income Tax Assessment Act 1997 subsection 104-135(3) | Income Tax Assessment Act 1997 subsection 104-135(4) | Income Tax Assessment Act 1997 subsection 104-135(6) | Income Tax Assessment Act 1997 paragraph 112-20(1)(c) | Income Tax Assessment Act 1997 subsection 112-20(2) | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 subsection 128-15(1) | Income Tax Assessment Act 1997 subsection 128-15(2) | Income Tax Assessment Act 1997 subsection 128-15(4) | Income Tax Assessment Act 1997 subsection 128-20(1) | Income Tax (Transitional Provisions) Act 1997 section 112-20

Reasons for decision: Summary: All subsequent legislative references are to the ITAA 1997, unless otherwise indicated. | Summary: The first element of the Estate's cost base of 6 shares in the Company will be their cost base on the date of the deceased's death pursuant to table item 1 in subsection 128-15(4), and the cost base of those shares on the date of the deceased death will be equal to the market value of those shares on the day Person H died. The first element of the Estate's cost base of 988 shares in the Company will be their cost base on the date of the deceased's death pursuant to table item 1 in subsection 128-15(4), and the cost base of those shares on the date of the deceased death will be equal to the market value of those shares on the day they were issued by the Company to Person H. | Detailed Reasoning - Detailed reasoning: Section 128-15 sets out what happens if a CGT asset you owned just before dying devolves to your legal personal representative or passes to a beneficiary in your estate (subsection 128-15(1)). In that regard, subsection 128-15(2) provides that the legal personal representative or beneficiary (as applicable) is taken to have acquired the asset on the day you died and subsection 128-15(4) sets out the modifications to the cost base and reduced cost base of the CGT asset in the hands of the legal personal representative or beneficiary. Under paragraph 128-20(1)(a), a CGT asset 'passes' to a beneficiary in your estate if the beneficiary becomes the owner of the asset under your will. Both the 6 shares in the Company originally issued to Person H prior to 20 September 1985 and the X shares in the Company originally issued to Person H (post-CGT) 'passed' to the deceased as a beneficiary in Person H's estate. The deceased was therefore taken to have acquired those X shares in the Company on the day Person H died. Pursuant to table item 4 in subsection 128-15(4) (applying to pre-CGT assets), the first element of the cost base of the X pre-CGT shares acquired by the deceased on the day of Person H's death was equal to their market value on the day they died. Pursuant to table item 1 in subsection 128-15(4) (applying to post-CGT assets which aren't otherwise covered by items 2, 3, 3A or 3B of the table), the first element of the cost base of the X post-CGT shares acquired by the deceased on the day of Person H's death was equal to their cost base on the day they died. The cost base of the X shares on the day Person H died was their market value at the time of their acquisition by Person H (pre-CGT) pursuant to the market value substitution rule under paragraph 112-20(1)(c). The Company shares held by the deceased, including the X shares she was taken to have acquired on Person H's death, devolved to the executors of her estate (i.e. her legal personal representatives) such that they were taken to have acquired those shares on the day the deceased died pursuant to subsection 128-15(2). Given all of those shares were post-CGT shares which aren't otherwise covered by items 2, 3, 3A or 3B of the table in subsection 128-15(4), the first element of their cost base in the hands of the Estate pursuant to table item 1 in subsection 128-15(4) is equal to their cost base on the day the deceased died. The first element of the cost base of 6 of those shares on the day the deceased died was equal to their market value on the day Person H died, and the first element of the cost base of X of those shares on the day the deceased died was equal to their cost base on the day Person H died. | Summary: The Proposed Dividend will not be deemed to be a dividend paid to the Estate by the Company out of profits derived by the Company pursuant to section 47 of the ITAA 1936. It therefore won't be an assessable dividend pursuant to paragraph 44(1)(a) of the ITAA 1936 when paid to the Estate. | Detailed Reasoning - Detailed reasoning: Section 47 of the ITAA 1936 provides that distributions to shareholders of a company by a liquidator in the course of winding up a company will be deemed to be dividends paid to the shareholders by the company out of profits derived by the company to the extent that the distributions represent income derived by the company (whether before or during liquidation). As a consequence, such distributions are assessable income of a resident shareholder pursuant to paragraph 44(1)(a) of the ITAA 1936. The Archer Brothers principle, borne out of the observations of the Full High Court's judgment in Archer Bros Pty Ltd (In Vol Liq) v. FCT (1952-53) 90 CLR 140 at 155; 10 ATD 192, is that if a liquidator appropriates (or sources) a particular fund of profit or income in making a distribution (or part of a distribution), that appropriation ordinarily determines the character of the distributed amount for the purposes of section 47 and other provisions of the ITAA 1936. Paragraph 2 of Taxation Determination TD 95/10 confirms that the ATO accepts that a liquidator may rely on the Archer Brothers principle, except where a specific tax provision produces a different result. Paragraph 4 of TD 95/10 provides that the Archer Brothers principle applies if: (i) the company accounts have been kept so that a liquidator can clearly identify a specific profit or fund in making a distribution; and (ii) it is clear from either the accounts or statement of distribution that the liquidator has appropriated the specific profit or fund in making the distribution. The Proposed Dividend (of $XXX,XXX) will be sourced exclusively out of the Capital Profits Reserve which represents a capital gain from the disposal of the Property, a pre-CGT asset. The accounts of the Company have been kept so that a liquidator can clearly identify that capital gain and it will be clear from the accounts that the liquidator will have appropriated the capital gain in making the distribution of the Proposed Dividend. Pursuant to the Archer Brothers principle, that appropriation by the liquidator will determine the character of the Proposed Dividend for the purposes of section 47 of the ITAA 1936, i.e. that which is capital in nature and arose prior to the introduction of the capital gains tax regime and is not assessable. Therefore, even though the Proposed Dividend will be a distribution by a liquidator to a shareholder (the Estate) of the Company in the course of winding up the Company, it will not represent a distribution of 'income' derived by the Company. The Proposed Dividend will therefore not be deemed to be a dividend paid to the Estate by the Company out of profits derived by the Company pursuant to section 47 of the ITAA 1936, and it won't be assessable income of the Estate pursuant to paragraph 44(1)(a) of the ITAA 1936. | Summary: CGT event C2 under section 104-25 will happen if the Company ceases to exist within 18 months of the Proposed Dividend being paid and the Proposed Dividend will constitute capital proceeds received by the Estate in respect of that event. CGT event G1 under section 104-135 will happen if the Company does not cease to exist within 18 months of the Proposed Dividend being paid and the Proposed Dividend will constitute capital proceeds received by the Estate in respect of that event. | Detailed Reasoning - Detailed reasoning: Paragraph 104-25(1)(a) provides that CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being redeemed or cancelled. If a company is wound up voluntarily, it is deregistered and CGT event C2 happens to the members' shares (see paragraph 4 of Taxation Determination TD 2000/7). Paragraph 1 of Taxation Determination TD 2001/27 confirms, for the purposes of capital gains or capital losses made on the happening of CGT event C2 in section 104-25, that the full amount of a final distribution made by a liquidator on the winding-up of a company constitutes capital proceeds from the ending of the shareholder's shares in the company. Subsection 104-135(1) provides that CGT event G1 happens if: (a) a company makes a payment to you in respect of a share you own in the company (except for CGT event A1 or C2 happening in relation to the share); and (b) some or all of the payment (the 'non-assessable part') is not a dividend, or an amount that is taken to be a dividend under section 47 of the ITAA 1936; and (c) the payment is not included in your assessable income. Subsection 104-135(6) nevertheless disregards a payment by a liquidator for the purposes of section 104-135 if the company ceases to exist within 18 months of the payment. Where the company ceases to exist within 18 months of the payment of the distribution, the non-assessable part is treated as part of the capital proceeds for the happening of CGT event C2 when the shares end. It follows that CGT event G1 under section 104-135 will happen if the Company does not cease to exist within 18 months of the payment of the Proposed Dividend. This is because: • the Company will have made a payment of the Proposed Dividend to the Estate in respect of its shares in the Company; • all of the payment is not a dividend or an amount taken to be a dividend under section 47 of the ITAA 1936 (as confirmed in question 3 of this ruling); • the payment is not otherwise included in the Estate's assessable income; and • subsection 104-135(6) does not apply to disregard the payment. For the purposes of subsection 104-135(3) and (4), the amount of the Proposed Dividend is the non-assessable part. If, on the other hand, the Company does cease to exist within 18 months of the payment of the Proposed Dividend, CGT event C2 under section 104-25 will happen. This is because the Company is being wound up voluntarily, the Estate's shares in the Company will end by redemption or cancellation and CGT event G1 will not apply as a result of the exception in subsection 104-135(6). For the purposes of subsection 104-25(3), the amount of the Proposed Dividend is the capital proceeds received by the Estate in respect of the CGT event C2.