Private ruling: Capital gains tax
Date of advice: 25 September 2018
Published: November 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Have majority underlying interests under Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997) been maintained in X Pty Ltd such that no assessable capital gain arises for it on the disposal of the Property? | A1: Yes. In this case, for the majority underlying interests in the Property to have been maintained, it is only necessary that Y maintained any underlying interest in the Property. As per IT 2340 and ATO ID 2003/78, for the purposes of Division 149 of the ITAA 1997, a beneficiary of a discretionary trust is treated as having a beneficial interest in the trust’s assets and the shareholder of a company is treated as having a beneficial interest in the company’s assets. As Y is a beneficiary of the trust that acquired their shares in X Pty Ltd, it follows that Y had an underlying interest in the Property being an asset of the company. As Y had an underlying interest in the Property of greater than 0%, the majority underlying interests in the Property were maintained.

Relevant facts and circumstances: X Pty Ltd was incorporated before 1985. It had four individuals as shareholders. The shareholders each had the same number of shares. The shares each provide the same rights. Dividends have always been equally distributed to each of the shareholders. In 20XX, one of the shareholders sold their shares to a trust (the Trust). In 20XX, a second shareholder (Y) sold their shares to the Trust. No other transfers of the shares in X Pty Ltd have occurred. During the year of income ended 30 June 20XX, CGT Event A1 occurred for X Pty Ltd which entered into and completed a contract to sell a property (the Property). The Property had been acquired by X Pty Ltd before 1985. The Trust is a discretionary family trust. Y is a specified beneficiary of the Trust and has received distributions from it.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 149 | Income Tax Assessment Act 1997 Section 149-15 | Income Tax Assessment Act 1997 Section 149-30