Private ruling: Capital gains tax
Date of advice: 28 February 2020
Published: April 2020
Ruling period: Year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: With respect to the terms of former section 160ZZS of the Income Tax Assessment Act 1936 , will the Commissioner be satisfied, or consider it reasonable to assume, that, at all times from 19 September 1985 until immediately before the start of the 1998-99 income year, the majority underlying interests in the Original Parcel of land owned by the Company were held by natural persons who, immediately before 20 September 1985, held the majority underlying interests in the pre-CGT farm land? | A1: Yes. | Q2: With respect to the terms of Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997), does the Commissioner agree that following person A's death and person B inheriting the shares previously held by person A, the Original Parcel of land remains a pre-CGT asset of the Company? | A2: Yes. The Original Parcel of land remains a pre-CGT asset as the majority underlying interest in the asset has not changed since immediately before 20 September 1985. Even though there has been the death of the original shareholders, under subsections 149-30(3) and 149-30(4) of the ITAA 1997, person B, the new owner, stands in the shoes of the former owner, person A, and will be deemed to have held the relevant interest during the time that the former owner owned them.

Relevant facts and circumstances: The Company was incorporated before 1985, with person A and person C each holding one A Class share and both were directors of the Company. Pursuant to Clause x of the Articles of Association, person A was appointed the permanent governing director of the Company at incorporation. Before 1985 the Company acquired land (Original Parcel). On or after 20 September 1985, one ordinary share was issued to person D. The share was subsequently transferred to person A. After 1985 the Company also acquired two small adjacent parcels of land. In xxxx a new constitution was implemented, to allow a single director/single shareholder structure in line with modern provisions in the Corporations Act 2001 (Cth) . Sub-clauses xx and xx of the Constitution maintained the rights of the A Class shares and duplicated those rights as set out in the original Memorandum & Articles of Association. In xxxx, person C resigned as director of the Company but retained the one A Class share as originally allotted. In xxxx, person C died and the one A Class share passed to person A in accordance with the Will. Person A died on xxxx. The only significant asset of person A's estate is the three shares in the Company, with the remainder being comprised of their personal property only. At the time of their death they were the sole shareholder in the Company. Pursuant to the Will, all shares passed to person B personally. Person B has been the sole shareholder and sole director of the Company from person A's death until the sale of the Original Parcel of land in the 2019-20 income year. Person B is also executor of person A's estate. As a result of a judgement on xxxx concerning the construction of person A's Will, person B is required to sell the land (the Original Parcel and post-CGT land) and then distribute the proceeds of sale in certain shares to various persons specified in the Will. From 1991 onwards at least approximately fifty percent of the market value of the assets of the Company has been constituted by the Original Parcel. The A Class shares: · were the only shares in the Company which had a right to vote at shareholder meetings; and · upon a winding up of the Company, they ranked ahead of the ordinary shares for payment of capital and dividends declared prior to winding up, and for a return of their capital upon such winding up.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 149 | Income Tax Assessment Act 1997 Subsection 149-10(3) | Income Tax Assessment Act 1997 Subsection 149-10(4) | Income Tax Assessment Act 1936 Division 20 | Income Tax Assessment Act 1936 Section 160ZZS