Private ruling: CGT on disposal of shares
Date of advice: 21 January 2026
Published: 16 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 January 20XX

Ruling: Q1: Will the disposal of the Shares by the Taxpayer result in CGT event K6 occurring pursuant to section 104-230 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: In accordance with subsection 104-230(6) of the ITAA 1997, does a capital gain result from CGT event K6 happening? | A2: No.

Relevant facts and circumstances: 1. The Taxpayer holds XX ordinary shares in the Company acquired as follows: (a) X share acquired on X/XX/19XX (b) X share acquired on X/XX/19XX (c) X shares acquired on X/XX/19XX, and (d) X shares acquired on X/XX/19XX. (Collectively referred to as the Shares) 2. The Company's shareholders are: a) the Taxpayer who has beneficially owned a significant majority of X% fully paid ordinary shares since the dates noted above, and b) the Taxpayer's wife, who beneficially owns the remaining X% fully paid ordinary shares. 3. The Company's main activities are passive investments. The Company has retained earnings which it uses to loan to its related entities (Related Party Loans) or invest in term deposits. It has not conducted any trading activity or other business and has never paid dividends. 4. All CGT assets held by the Company are post-CGT assets. They are solely comprised of cash, term deposits, and related party loans receivable at the debtor's discretion (Related Party Loans) 5. There are no pre-CGT assets on the Company's balance sheet. 6. The Companies has liabilities owed to related parties. The current net asset value of the Company is $X and, by extension, the approximate current fair market value of the Shares is also circa $X. 7. The Taxpayer wishes to dispose of the Shares during his lifetime to a related entity, ensuring that the value associated with the Shares does not form part of his estate upon death but forms part of the trust fund of a newly established trust (the Trust). 8. The Trust has been established to specifically exclude one of the Taxpayer's adult children, and that individual's immediate family as well.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 104-10(5)(a) | Income Tax Assessment Act 1997 section 104-230 | Income Tax Assessment Act 1997 subsection 104-230(1) | Income Tax Assessment Act 1997 subsection 104-230(2) | Income Tax Assessment Act 1997 subsection 104-230(6) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise stated. | Detailed Reasoning - Question 1: Will the disposal of the Shares by the Taxpayer result in CGT event K6 occurring pursuant to section 104-230? | Summary: Yes. | Detailed Reasoning - Detailed reasoning: 1. The capital gains tax (CGT) regime was introduced on 20 September 1985. Pursuant to paragraph 2. 104-10(5)(a), any capital gain or loss from the disposal of an asset acquired before the introduction of CGT is disregarded. However, an exception applies if CGT event K6 occurs. 3. CGT event K6 serves as an anti-avoidance measure. It prevents the avoidance of CGT when owners dispose of pre-CGT interests in an entity that holds post-CGT assets, instead of the entity disposing of the post-CGT assets directly. 4. As summarised in 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 104-230 of the Income Tax Assessment Act 1997 (TR 2004/18): CGT event K6 can result in capital gains (but not capital losses) if certain CGT events happen to pre-CGT shares in a 'private' company or pre-CGT interests in a 'private' trust where the market value of its post-CGT property is at least 75% of its net value ('the 75% test'). 5. Subsection 104-230(1) deems CGT event K6 to happen if: (a) you own shares in a company or an interest in a trust you acquired before 20 September 1985 (pre-CGT shares or interest) (b) CGT event A1, C2, E1, E2, E3, ES, E6, E7, EB, J1 or K3 happens in relation to the pre-CGT shares or interest (referred to as the 'other CGT event') (c) there is no roll-over for the other CGT event' and (d) the 75% test in subsection 104-230(2) (75% Test) is satisfied. 6. In considering these requirements with the information provided, the following was determined: (a) the Shares were acquired before 20 September 1985, therefore satisfying the first requirement. (b) CGT event A1 happened under section 104-10 as you disposed of the pre-CGT Shares to another entity, therefore satisfying the second requirement. (c) there is no roll-over relief applicable to the other CGT event (being CGT event A1 that happened on disposal of the Shares), therefore satisfying the third requirement. 7. To determine if the fourth requirement in paragraph 104-230(1)(d) is satisfied, we need to consider whether the requirement in subsection 104-230(2) is satisfied. 8. Subsection 104-230(2) states: Just before the other CGT event happened: (a) the *market value of the property of the company or trust (that is not its *trading stock) that was *acquired on or after 20 September 1985; or (b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was *acquired on or after 20 September 1985; must be at least 75% of the *net value of the company or trust. 9. In examining whether the 75% test is satisfied, requires understanding the meaning of its key terms (as stated in TR 2004/18): (a) 'property' for the purpose of the 75% test has its ordinary legal meaning. As outlined in Example 5 of TR 2004/18 it is not restricted to CGT assets and can include cash, loans and debts owed to the company. (b) 'market value' is not defined in the Tax Acts. The generally accepted test of market value for tax purposes is the price that would be negotiated in an open and unrestricted market between knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm's length. (c) 'net value' is defined is subsection 995-1(1) to mean the amount by which the sum of the market values of the assets of the entity exceeds the sum of its liabilities. I. paragraph 20 of TR 2014/18 explains the word 'assets' to mean property and other economic resources of the company that the entity is capable of turning to account, even if they are not property. II. paragraph 21 of TR 2014/18 explains the word 'liabilities' to have their ordinary meaning and to extend to legally enforceable debts due for payment and to presently existing obligations to pay either a sum certain or ascertainable sums. | Detailed Reasoning - Application to your circumstances: 10. The post-CGT property of the Company comprises cash, term deposits and loans. The market values are deemed to be as follows: (a) cash is its face value; (b) term deposits the market value of which should be at least their book value as recorded in the accounts. (c) the loans are not secured and can be repaid at the debtor's discretion. There is no indication that any debtors would have issues in repaying the loans. As such the market value should be reflective of the book value record on the balance sheet as outlined at Examples 5 and 7 in TR 2004/18 where the cost base of loans is accepted to also be their market value. 11. The total value of the Company's post-CGT assets is therefore at least $X. 12. The net value of the Company is the sum of the market value of assets of the Company, reduced by its liabilities. 13. The liabilities of the Company solely comprise unsecured loans. Whilst not secured these loans represent existing obligations to pay a sum to various parties and therefore constitute liabilities for the purpose of this calculation. 14. The total net value of the Company is therefore $X. 15. The market value of the Company's post-CGT property represents at least 75% of the net value of the Company. Even where the term deposits are deemed to have a higher than book value market value this concluding position would remain the same. 16. Consequently, just prior to the disposal of the Shares, CGT event K6 will occur. | Detailed Reasoning - Conclusion: 17. The disposal of the Shares by the Taxpayer will result in CGT event K6 to happen under subsection 18. 104-230(1). | Detailed Reasoning - Question 2: In accordance with subsection 104-230(6), does a capital gain result from CGT event K6 happening? | Summary: No. | Detailed Reasoning - Detailed reasoning: 19. TR 2004/18 provides a procedure for working out the capital gain arising from CGT event K6. This is a 2 step process: (a) Step 1 involves determining how much of the capital proceeds relates to the post-CGT property. Specifically: = Capital proceeds x (Market value of post-CGT property / Market value of all property) (b) The capital proceeds (deemed by market value substitution or otherwise) of the Shares is the net value of the assets of the Company. The relevant values for this calculation are therefore: = $X x ($X / $X) = $X. (c) Step 2 involves determining how much of the capital proceeds from Step 1 corresponds to the 'market value excess' of the post-CGT property. This means the amount that the Step 1 figure exceeds the cost base of all property. The market value excess is considered to be nil, as the cost base of the property is $X (per their book value) and the Step 1 amount is lower. (d) Specifically: = Step 1 amount x (Market value excess / Market value of post-CGT property) = $X x ($0/$X) = $0 20. Including the Company's loans at their book value in the Step 2 calculation is consistent with TR 2004/18. In Example 5, the loans are included at market value, which equalled their book value. As the Company's loans are recorded at book value that reliably reflects their market value, and this approach aligns with the methodology applied by the Commissioner in TR 2004/18. 21. Consequently, there is no capital gain as the proceeds attributable to the Shares are equal to the sum of the cost base of the Company's property (cash and cash equivalents). | Detailed Reasoning - Conclusion: 22. Consequently, there is no capital gain arising when CGT event K6 happens under subsection 104-230(6), as the proceeds attributable to the Shares are equal to the sum of the cost base of the Company's property.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar.