Private ruling: Sale of shares - revenue or capital
Date of advice: 8 September 2025
Published: 10 November 2025
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: XX XX 20XX

Ruling: Q1: Does the disposal of the Shares only give rise to statutory income under Part 3-1 of the Income Tax Assessment Act 1997 ? | A1: Yes

Relevant facts and circumstances: The trust 1. Z Pty Limited is trustee for the Trust) which was established in 20XX. 2. The Trust is a discretionary trust established for the benefit an individual and their family. The individual controls the Trust. 3. The Trust was established as a special purpose investment vehicle for the purpose of acquiring and holding shares (the Shares) of B Pty Ltd. The Trust does not have a prospectus or similar issued by B Pty Ltd. 4. The opportunity to acquire the Shares was presented to the individual by an investment adviser. The investment adviser was the individual's neighbour and was previously an executive at A Bank. A Statement of Advice was not provided for this investment advice. 5. The individual's best recollection of the oral advice was that the investment opportunity was a very good one because it provided them with a X% annual return. 6. This was attractive because the individual's private group had historically invested heavily in a certain industry and was looking for opportunities to diversify away from this industry. Particularly as the terms of the Shares indicated an intention to deliver a X% per annum dividend return. 7. No formal due diligence was prepared on the individual's behalf. The Applicant acknowledges that it may seem unusual for a significant investment such as this to be made without preparation of more formal reports and also said: • whilst the investment was for a significant sum in general terms, for a person of the individual's wealth, this represented a relatively modest sum and accordingly they were willing to undertake the investment without formal reports. • the individual took comfort from the fact that A Bank had also recently invested and done its own due diligence. • The individual also took comfort from the fact that their neighbour had previously worked at A Bank and the individual had a high level of trust in them. 8. After making the decision to invest in the Shares, the individual decided to hold the investment in a special purpose trust and accordingly arranged for the establishment of the Trust. 9. The Trust's only activity was to hold the Shares, it had no other substantive investments and does not carry on a business. Prior to the sale, the Shares were the Trust's only substantive investment. The Trust has invested the sale proceeds in the form of loans to related parties. Investment overview 10. In 20XX, the Trust entered a 'Selldown Share Sale Agreement' under which A Pty Ltd disposed of a number of Shares to the Trust for consideration of approximately $X million. 11. Immediately prior to the Trust's acquisition of the Shares, A Pty Ltd held a number of Shares. The sale to the Trust was a partial sell-down of A Pty Ltd's holding of Shares. 12. At the same time, the Trust acceded to the 'Shareholder Deed' which was executed by the original shareholders in B Pty Ltd in 2020. 13. There are no written communications between A Pty Ltd and the Trust concerning the offer to sell the Shares. 14. The Trust had no representation on the B Pty Ltd Board. The individual is not involved with either B Pty Ltd or A Pty Ltd. 15. The Deed of Accession named private equity business entities as the holders of the X Class and Ordinary shares. The tag along rights under the Shareholder Deed meant that the Shares had to be sold should the private equity business entities sell their X Class and Ordinary shares. 16. The Shareholder Deed included definitions and clauses of relevance to the Shares. 17. Since acquisition, the A Pty Ltd Board has not resolved to pay any dividends on the Shares. The Trust was a minority shareholder, with the controlling mind of the Trustee (the individual) holding no Board position and no influence over the Board. Accordingly, he had no influence over the decision to declare dividends. Disposal 18. In 20XX, a Share Sale Deed was executed by the shareholders of A Pty Ltd to dispose of 100% of the shares on issue to C Pty Ltd for a total consideration of approximately $X million. C Pty Ltd is an unrelated third party and the Trust was not involved in attempts to sell the investment. The interest held by the Trust in the Shares is a minority interest and the sale process and related decisions were arranged and agreed by A Pty Ltd, and ordinary shareholders, parties who were independent of the Trust. 19. The Trust's share of the sale proceeds was determined in the Share Sale Deed. 20. Based on the Share Sale Deed, the Trust's share sale consideration was approximately $X million. 21. Completion of sale occurred in 20XX. 22. Neither the Trust nor the individual (in any capacity), took any steps to increase the value of the Shares. 23. The Shares were acquired in a single transaction and the Trust did not engage in any further investment activity. 24. The Trust did not have sufficient influence based on the size of the interest held to have any impact on the disposal transaction occurring or the form of that transaction. The individual is not aware of any association with other shareholders in A Pty Ltd.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1

Reasons for decision: Summary: 1. Taxation Determination 2011/21 Income tax: does it follow merely from the fact that an investment has been made by a trustee that any gain or loss from the investment will be on capital account for tax purposes? (TD 2011/21)explains the fact that the entity receiving the sale proceeds is a trust does not automatically lead to the conclusion that the amount received on the sale of the Shares is on capital account. [1] 2. The gain or loss will be on revenue account for tax purposes if no provision specifically treats it as being on capital account and after looking at all the relevant factors, it is determined the gain or loss was from: • a normal operation in the course of carrying on a business of investment; • an extraordinary operation by reference to the ordinary course of that business but one entered into with the intention of making a profit or gain; or • a one-off or isolated transaction where the investment was acquired in a business operation or commercial transaction for the purpose of profit-making. [2] 3. The nature of the trust and the terms and content of the trustee's duties are important considerations in the characterisation process. However, they are not necessarily determinative in any particular case and must be carefully weighed together with other factors, including: • the nature and scale of the trustee's investment and other activities; • the investment style employed in respect of the trust assets; • the nature of the trust assets; • the length of time individual investments are held, the regularity in sale activity involving the trust assets; • the average annual turnover of the trust assets; • the percentage of total income which the gains represent; and • the nature of any connection between the trustee and other parties to the dealings. [3] A gain from a normal operation in the course of carrying on a business of investment? 4. Prior to the sale, the Shares were the Trust's only substantive investment. The Trust has invested the sale proceeds in the form of loans to related parties. The Trust has no other substantive investments and did not carry on any activities in addition to holding the Shares. The Shares were held for over 3 years. On these facts, the Trust is not carrying on a business involving the trading in securities. A gain from an extraordinary operation by reference to the ordinary course of a business of investment but one entered into with the intention of making a profit or gain? 5. As the Trust was not carrying on a business of trading in securities, it is not necessary to consider this aspect further. A gain from a one-off or isolated transaction where the investment was acquired in a business operation or commercial transaction for the purpose of profit-making? 6. TD 2011/21 refers us to Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income . [4] TR 92/3 sets out the Commissioner's views as to the application of the decision of the Full Court of the High Court of Australia in FC of T v. The Myer Emporium Ltd (Myer Emporium), where it was said: It is one thing if the decision to sell an asset is taken after its acquisition, there having been no intention or purpose at the time of acquisition of acquiring for the purpose of profit-making by sale. Then, if the asset be not a revenue asset on other grounds, the profit made is capital because it proceeds from a mere realisation. But it is quite another thing if the decision to sell is taken by way of implementation of an intention or purpose, existing at the time of acquisition, of profit-making by sale, at least in the context of carrying on a business or carrying out a business operation or commercial transaction. [5] Therefore, as paragraph 16 of TD 2011/21 says: If a taxpayer not carrying on a business makes a profit, that profit is income if: (a) the intention or purpose of the taxpayer in entering into the profit-making transaction or operation was to make a profit or gain; and (b) the transaction or operation was entered into, and the profit was made, in carrying out a business operation or commercial transaction. Was the intention or purpose of the taxpayer in entering into the transaction to carry out a commercial transaction to make a profit or gain from later sale? 7. The relevant intention or purpose of the taxpayer (of making a profit or gain) is not the subjective intention of the taxpayer but rather it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. [6] If the taxpayer is a company, the purposes of those who control it are its purposes. [7] It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering the transaction; that it is a significant purpose is sufficient. [8] The taxpayer usually must have the requisite purpose at the time of entering into the relevant transaction (e.g. at the time of acquiring the property). [9] 8. For the transaction to be characterised as a commercial transaction, it is sufficient if the transaction is commercial in character and this is determined by the circumstances of the case. [10] In very general terms, a transaction has the character of a commercial transaction if it would constitute the carrying on of a business except that it does not occur as part of a repetitious or recurring transactions. [11] Some matters which may be relevant in considering whether an isolated transaction amounts to a commercial transaction are the following: (a) the nature of the entity undertaking the operation or transaction; [12] (b) the nature and scale of other activities undertaken by the taxpayer; (c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; (d) the nature, scale and complexity of the operation or transaction; (e) the manner in which the operation or transaction was entered into or carried out; [13] (f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction; (g) if the transaction involves the acquisition and disposal of property, the nature of that property; and (h) the timing of the transaction or the various steps in the transaction. [14] 9. It is not necessary that the profit be obtained by a means specifically contemplated (on its own or as one of several possible means) when the taxpayer enters the transaction. It is sufficient that taxpayer enters the transaction with the purpose of making a profit in the most advantageous way and that profit is later obtained by any means. It is also sufficient if a profit is made by a means different to that originally contemplated. [15] 10. The Full Court of the Federal Court recently followed the Myer Emporium principle in Greig v Commissioner of Taxation [16] (Greig) confirming that shares acquired by a taxpayer in a 'business operation or commercial transaction' were on revenue account, based on the activities off the taxpayer that demonstrated a profit-making intention. 11. In Greig , the Full Court noted that an example of a transaction that is unlikely to be part of a business operation or commercial transaction is an investment in shares to hold over time for their dividend yield. 12. To determine whether the intention here in entering into the transaction was to make a profit or gain, it is necessary to look to the intention of the controlling mind, the individual. It is necessary to look to his intention or purpose at the time the Trustee acquired the Shares discerned from an objective consideration of the facts and circumstances. The Trust was established by the individual at the time of acquiring the Shares as a special purpose investment vehicle for the purpose of acquiring and holding the shares. 13. The opportunity to acquire the Shares was presented to the individual by an investment adviser. The investment adviser was the individual's neighbour and was previously an executive at A Bank. A Statement of Advice was not provided for this investment advice. The Applicant states the individual had historically invested heavily in a particular industry and was looking for opportunities for their private group to diversify away from this industry. 14. No formal due diligence was undertaken in terms of the acquisition of the shares. The Applicant states the individual took comfort from the fact that A Pty Ltd had also recently invested and done its own due diligence and from the fact that their neighbour had previously worked at A Bank and the individual had a high level of trust in them. The Applicant acknowledges that it may seem unusual for a significant investment such as this to be made without preparation of more formal reports. However, they submit that whilst the investment was for a significant sum in general terms, for a person of the individual's wealth, this represented a relatively modest sum and accordingly he was willing to undertake the investment without formal reports. 15. The Deed of Accession named private equity business entities as the holders of the X Class and Ordinary shares. The tag along rights under the Shareholder Deed meant that the Shares had to be sold should the private equity business entities sell their X Class and Ordinary shares. 16. The Applicant states the motivating factor in the Trustee's acquisition was to diversify the private group's holdings away from a particular industry and to hold with a purpose of deriving an annual dividend which at the time of acquisition was forecast to be X% per annum. 17. That annual dividend never materialised during the holding period. The Applicant explains that the Trustee was a minority shareholder, with no board position and no influence over the board. Accordingly, the Trustee had no influence over the decision to declare dividends. 18. The Applicant has not advised of any connection between the individual or any of their advisors with the private equity business entities. 19. The Applicant has not advised of any knowledge of the individual regarding the purposes of the private equity business entities at the time of the Trustee's acquisition of the shares in terms of a short-term liquidation of those holdings to release profit. 20. The Applicant has not advised of any companion motivating factor held by the Trustee involving an anticipated short-term profit from a forced sale due to the private equity business entities liquidating their holdings and enforcing the tag along rights. 21. The Commissioner rules on the basis of the statements made by the Applicant regarding the Trust's purpose. In that regard the Applicant has asserted and maintained there was no purpose by the Trustee at the time of acquisition involving a resale at a profit. 22. In the event a purpose existed by the Trustee at the time of acquisition of the shares that involved an anticipated realisation of profit in the short to medium term which derived from an anticipation or knowledge of the intentions of the private equity business entities, then the actual facts and circumstances are materially different to those disclosed. As this private ruling is based on the facts and circumstances as set out, if your facts and circumstances are different, this private ruling has no effect, and you cannot rely on it. 23. On the basis of the Applicant's statements made regarding purpose, the Commissioner rules that the profit or gain on disposal of the shares is on capital account and is dealt with under the capital gains regime in Part 3-1 of the ITAA 1997. [1] TD 2011/21, paragraph 1. [2] TD 2011/21, paragraph 2. [3] TD 2011/21, paragraphs 3 and 4. [4] See TD 2011/21, footnotes 3 and 4. [5] 163 CLR 213; 87 ATC 4367 at p 4369; 18 ATR 699-700. [6] TR 92/3, paragraph 7. [7] TR 92/3, paragraph 39 referencing Whitfords Beach at 150 CLR 370; 82 ATC 4031 at p 4039; 12 ATR 701. [8] TR 92/3, paragraph 8. [9] TR 92/3, paragraph 9. [10] TR 92/3, paragraph12. [11] TR 92/3 paragraph 49. [12] Paragraph 49 of TR 92/3 says: ".... if the taxpayer acts in the capacity of trustee of a family trust, the inference that the transaction was commercial or business in nature may not be drawn so readily;" [13] Paragraph 49 of TR 92/3 says: ".... This factor would include whether professional agents and advisers were used and whether the operation or transaction took place in a public market;" [14] Paragraph 49 of TR 92/3 says: ".... the holding of the property for many years may indicate that the transaction was not business or commercial in nature." [15] TR 92/3, paragraph 14. [16] [2020] FCAFC 25.