Private ruling: Capital gains tax-shares-absolute entitlement
Date of advice: 13 February 2019
Published: May 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will you or your spouse make a capital gain or loss under the provision of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997) where the legal title to one shares held by each you or your spouse in a company is transferred to a family member? | A1: No. On the basis of the information provided the Commissioner accepts that a trust arose when you and your spouse acquired one share each for the family member in the company. The family member has always had a vested and indefeasible interest in the trust assets and could call for the assets to be transferred to then or to be transferred at their direction. The transferring of the ownership of each share to the family member does not give rise to a CGT event because the family member (by virtue of section 106-50 of the ITAA 1997) is the beneficial owner of the share that you and your spouse each hold as trustees. Accordingly, there will be no change in beneficial ownership for the purposes of CGT when the shares are transferred to the family member.

Relevant facts and circumstances: You and your spouse and a number of family members were issued with shares in a company. At the time of establishing the company it was the intention of you and your spouse that each member of the family was entitled to XX% of the shares in the company. Due to one family member’s age and their inexperience you and your spouse decided to each hold XX% of the family member’s shares allocation in the company on bare trust for the family member. In a document provided the following information was note: ● The family member’s XX% share to be distributed to them from you and your spouse shares. ● You and your spouse held XX% and XX% of each you and your spouse held for the family member. The family member was overseas when the shares for the company were issued. The company paid fully franked dividends and imputation credits to the shareholders of the company. You and your spouse paid the dividends for the shares held on trust to the family member. You and your spouse each intend to transfer XX% of the family member’s shares allocation to them. The expected value of the family member’s XX% shares on the date of transfer is $XXX, XXX. You provided a number of documents that were considered as part of this private ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 104-10(1) | Income Tax Assessment Act 1997 Section 104-75 | Income Tax Assessment Act 1997 Section 106-50