Private ruling: Whether goodwill is the same pre-CGT asset for the purposes of CGT event K6 (in section 104-230 of the Income Taxation Assessment Act 1997)
Date of advice: 4 March 2026
Published: 28 April 2026
Ruling period: A two-income year period.

Ruling: Q1: Does Company X's goodwill remain a single pre-CGT asset, acquired before 20 September 1985, for the purposes of section 104-230 (about CGT event K6)? | A1: Yes.

Relevant facts and circumstances: 1. Company X is an Australian resident company incorporated sometime before CGT. 2. Sometime before CGT Company X began operating in Industry Y. 3. Redacted for privacy reasons. 4. Sometime before CGT Company X began selling Product A systems. 5. Company X became a franchisor some years after CGT, starting a franchising network across Australia and New Zealand. 6. Company X's shareholders are considering selling their shares. 7. Company X has described various changes in its business between before CGT and today. See the table below. Table 1: changes in Company X's business between 1985 and today. Aspect of Company X's business Details Types of products sold • Company X sold Product A systems from before CGT until XXXX. • Changes in Industry Y practices and regulations caused Company X to change to a new variety of Product A system. • From XXXX onwards, Company X has sold its own variety of Product A system. • Company X has always on-sold ancillary materials to installers/franchisees to support the installation of Product A systems. Manner it designed, developed, or acquired products • Originally, Company X worked in collaboration with a Product A provider to develop and manufacture its Product A system. • From XXXX, Company X undertook its own research into developing its own Product A system. • Company X decided to develop its own Product A system. • By YYYY, Company X had developed and was manufacturing a new Product A system. • Company X has always purchased ancillary products (for installation) from third parties. Types of services provided • From before CGT to XXXX, Company X provided installation service for its Product A system. (This changed from manufacturing the product in the factory and then installing at the required site, to manufacturing where possible on site.) • In Region B, Company X continued to install the Product A system until XXXX. • In XXXX, Company X set up a licensing system that enabled individual operators in different regions throughout Australia to use and install Product A systems. (It describes this as 'outsourcing' the installation operations.) • In YYYY, the licensing agreement morphed into a franchisee model whereby the systems and processes are still Company X's, but the installation is now performed by the various franchisees in the relevant states. • Company X also sends out auditors to audit the installation work performed by the franchises as part of their quality assurance processes. Customers and markets • Company X have a customer base of builders who use the Product A system. • Market has grown from individual builders in Region B to operations throughout several states.. • Company X began outsourcing the installation, initially via licensing model, and then altered to a franchise model. • X% of builders using the Product A system are corporate customers. The remaining portion are builders that the franchisees bring on board. • Company X employs a sales manager that goes with the various franchisees to sell the Product A system to the corporate customers. Suppliers • When Company X used the old system, most of its acquisitions were from a single third-party supplier, with the remainder being ancillary supplies from other third parties. • After it developed a new Product A system in XXXX, a Company X subsidiary supplies all Product A manufactured products. The ancillary suppliers remain. Size/ scale • Details about turnover redacted for privacy reasons. • Selling the Product A system has remained a revenue stream throughout the life of the business. Management • Staff numbers have grown as Company X expanded. Business names • No change in the Company X business name. Franchise model • Franchising model established in XXXX works the same way as the licensing model established some years earlier. • Company X established the arrangement to accommodate geographic expansion. • Company X changed from a licensing model to a franchise model on legal advice. • Franchisees are responsible for finding their sales through local builders in their allocated area. • Company X assists these franchisees in acquiring the larger builders for them to install for. • This is reflected in the fact that X% of sales are conducted to corporate clients who are sourced by Company X with the assistance of the Company X employed sales manager. • While franchisees are responsible for invoicing the work completed by them, Company X assists by issuing invoices in the franchisees name & the debt collection of these invoices. All invoices for sale of the Product A system are payable to Company X. • All franchisees are then paid their share (for the installation work) by Company X. • Company X ensure quality assurance over the work completed by these franchisees by sending out auditors to review and audit the work completed. Assumption There will be no significant changes to the essential nature or character of Company X's business, as described in the facts and circumstances of this ruling, during the ruling period.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-230

Reasons for decision: Summary: 8. Company X's goodwill remains a single item of property acquired before CGT for CGT event K6 purposes. Applying ATO guidance about goodwill, we think Company X has continued to carry on the same Product A business since before CGT. Therefore, the business goodwill will be a single CGT asset acquired before CGT. We don't need to determine if Division 149 applies (to stop the goodwill being a pre-CGT asset) because the ATO view is that Division 149 isn't relevant to determining acquisition dates for CGT event K6 purposes. | Detailed Reasoning - Explanation: 9. CGT event K6 may happen if another CGT event [1] happens to shares in a company [2] (that you acquired before CGT) in specified conditions. 10. Relevantly, subsection 104-230(2) requires that, just before the other CGT event happened, the market value of company property acquired after CGT must be at least 75% of the net value of the company. [3] 11. TR 1999/16 [4] gives the ATO view about the CGT treatment of goodwill, including whether changes to a business cause goodwill to stop being the same CGT asset. We'll list a few relevant propositions from this ruling. • Goodwill is a species of intangible property. [15] • If an entity continues to carry on the same business that started before CGT, the whole goodwill of the business remains the same, single, pre-CGT asset. [17] • If a business changes so much that it can no longer be said to be the same business, the goodwill of the original business ceases to exist, and the entity acquires a new CGT asset (goodwill of the new business). [18] • Whether a business continues to be the same business is a question of fact and degree that depends on the circumstances. [20] • The business remains the same business if it retains the same essential nature or character. Organic growth, expansion, or diversification may be consistent with being the same business (e.g. by adopting new compatible operations, servicing different clients, or offering improved products or services.) However, planned or systemic change within a reasonable period, or sudden and dramatic change on a considerable scale, may mean a business is no longer the same business for goodwill purposes. [21 and 24] 12. Considering the ATO guidance in TR 1999/16, we think that Company X has continued to carry on the same business of selling Product A systems since before CGT. • We characterise changing from selling Product A systems acquired from a 3 rd party manufacturer to developing Company X's own Product A system as natural evolution in response to changing market and industry expectations. • In this situation, we don't think switching to first a licensing and then a franchising model meant Company X ceased to carry on the same business. We think it's significant that (under thesearrangements) Company X invoices the ultimate customer for the Product A system sale (i.e. Company X is selling products directly to the ultimate customer), and the licensee or franchisee is essentially just responsible for installation. [5] • In our view, all changes (including the two just mentioned) were natural and gradual developments, consistent with carrying on the same business of selling Product A systems. 13. Since we think Company X has continued to carry on the same business since before CGT, it follows that Company X's goodwill remains the same pre-CGT asset. 14. Where Division 149 applies, a CGT asset may stop being a pre-CGT asset. 15. The ATO view is that Division 149 isn't relevant to CGT event K6. TR 2004/18 [6] at paragraph 15 says that where a CGT asset is treated as having been acquired post-CGT because of Division 149, the item of property continues to be treated as having been acquired pre-CGT for the purposes of CGT event K6. 16. This means that we don't need to determine if Division 149 applies when determining if Company X's goodwill will be treated as a pre-CGT asset (or rather, property that wasn't acquired after CGT) for the purposes of determining if CGT event K6 happens. Company X's shareholders may treat Company X's goodwill as being a single item of property acquired before CGT when applying section 104-230. [1] CGT event K6 only applies to specified CGT events, including CGT event A1. See paragraph 104-230(1)(b). [2] CGT event K6 also applies to interests in trusts. [3] This calculation excludes trading stock and includes interests owned through interposed entities. [4] Taxation Ruling TR 1999/16 Income tax: capital gains: goodwill of a business. [5] Whether adopting any licensing or franchising model would be consistent with carrying on the same business would depend on the facts and circumstances. In some situations, such as where a business that originally sold a product directly to customers now merely derives fees or royalties from franchisees, adopting a franchise model may mean that the same business is no longer being carried on. [6] Taxation Ruling TR 2004/18 Income tax: capital gains: application of CGT event K6 (about pre-CGT shares and pre-CGT trust interests) in section 102-230 of the Income Tax Assessment Act 1997.

Subject: Whether goodwill is the same pre-CGT asset for the purposes of CGT event K6 (in section 104-230 of the Income Taxation Assessment Act 1997 ): In this ruling and reasons: | • legislative provisions are in the Income Tax Assessment Act 1997, except for Division 149, which is in the Income Tax Assessment Act 1936 | • 'before CGT' means before 20 September 1985 | • 'after CGT' means on or after 20 September 1985 | • square brackets [x] denote paragraph numbers in TR 1999/16.