Private ruling: Capital Gains Tax on disposal of shares
Published: June 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are your shares in the company pre-CGT assets? | No.

Relevant facts and circumstances: You became involved in the entity prior to 1985. At that stage, the entity consisted of a small group of people manufacturing. It was an informal entity best described as a partnership or a joint enterprise. Your involvement consisted of contributing some funds, loan guarantees and on a part time basis, working and providing some expertise. Your contribution and that of the other partners was recognised by a share in the entity. Neither you nor the company has any records pertaining to the entity prior to 1985. The enterprise was registered as a private company prior to 1985 with the intention that the partners in the joint enterprise would be members of the new company. The arrangement was formalised at a subsequent annual general meeting (AGM) of the company held after 1985. You have provided us with a copy of the minutes from this AGM which states that share applications were formally tabled. You applied for and were allocated shares. The business activities of the entity have continued uninterrupted from commencement to the present day. You sold shares in the company.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 116-20

Reasons for decision: Summary: You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include shares acquired on or after 20 September 1985. Shares acquired before 20 September 1985 are pre-CGT assets and the CGT provisions will not apply to their disposal. In your case, we acknowledge that an informal agreement regarding the allocation of shares to you was made prior to 1985 but you did not actually receive any shares at this time. You actually received your allocation of shares after 1985 when the share distribution was tabled at the AGM. This date was after the implementation of the CGT provisions on 20 September 1985 and accordingly, any shares acquired after this date are not pre-CGT assets.