Private ruling: Capital gains tax - pre CGT assets
Date of advice: 17 March 2020
Published: April 2020
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Would the Commissioner be satisfied or find it reasonable to assume that, for the purposes of Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997), the majority underlying interests held in the pre - CGT assets of the company have been maintained? | A1: No

Relevant facts and circumstances: The company was incorporated before 20 September 1985 with two shareholders, Individual A and Individual B. The company owns various parcels of primary production land (the land) located in State A, acquired before 20 September 1985. In the year ended 30 June 19XX, share capital was issued resulting in two additional shareholders Individual C and Individual D. Individual A and Individual B were spouses with Individual C and Individual D their children. Individual A passed away. In 20XX Individual C acquired the balance of the company's shares: · Individual A's shares as provided for in their will; · Individual B's shares to facilitate succession planning; and · Individual D's shares under a commercial agreement. Individual D was not involved in the land and took the opportunity to dispose of their shares. As a result Individual C became the company's sole shareholder. The company's dividends and capital are allowed to be paid as determined by the directors. Individual C and their spouse have operated a farming partnership on the land since 19XX to 20XX. From 20XX, Individual C's child used the land in conducting a farming business. From 20XX, the land was farmed by an unrelated group. >

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 149 | Income Tax Assessment Act 1997 Section 149-25 | Income Tax Assessment Act 1997 Section 149-30

Reasons for decision: Summary: Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997) determines when an asset acquired before 20 September 1985 stops being a pre-CGT asset. In accordance with subsection 149-30(1) of the ITAA 1997, an asset will stop being a pre-CGT asset at the earliest time when majority underlying interests in the asset are not held by the same ultimate owners who had majority underlying interests before 20 September 1985. Alternatively, 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 day, majority underlying interests in the asset were had by ultimate owners who had majority underlying interests in the asset immediately before that day, subsection 149-30(2) of the ITAA 1997 would apply as if that were in fact the case, so that the assets would retain their pre-CGT asset status. In this case, the company had four shareholders prior to 20 September 1985. Individual C did not hold more than 50% interest at this time. In 20XX, Individual C has acquired the balance of shareholdings, a percentage via their parent's will with the remaining acquired through other circumstances, including facilitating succession planning and commercial reasons. This has resulted in Individual C obtaining full ownership in the company where their family (spouse and child) continued to utilise the land whether to conduct an enterprise or provide the land for use to an unrelated group. Majority underlying interests by ultimate owners in the company has significantly changed. The same shareholders do not continue to maintain ownership throughout the period. Shares were transferred in 20XX for Individual C's benefit to obtain full beneficial ownership of the land. Although the share dealings were made within the family group and partly with intentions of 'succession planning' this does not give reason for the Commissioner to make the reasonable assumption that ultimate ownership is maintained. Based on this information, the Commissioner is not satisfied nor thinks it's reasonable to assume that at all times on and after 20 September 1985, the majority underlying interests in the assets of the company were had by ultimate owners who had majority underlying interests in the assets immediately before that day.