Private ruling: Pre-CGT goodwill
Date of advice: 26 February 2026
Published: 13 April 2026
Ruling period: 1 July 20YY to 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is the goodwill attached to the Business and owned by NewCo a pre-CGT asset? | A1: Yes.

Relevant facts and circumstances: Original operating business structure X is a discretionary trust established by deed in the 19YYs. X, prior to 20 September 19YY, commenced carrying on a business of manufacturing and selling a product (XYZ) and related products for industrial application. A patent for XYZ was filed in the 19YYs by the founder of the business (person Y). S acts as trustee for X. person Z and person X are the directors and shareholders of S. Growth of the Business Over time, the Business has built up a wide range of clients located in Australia and overseas. The Business' customer demographic has not changed since 19YY. The revenue of the Business has grown in recent years due to an expansion of marketing activities including greater advertising exposure and attendance at numerous Australian industry exhibitions each year. Commensurate with this, the number of employees of the Business has increased over time to meet customer demand. All employees are engaged in the manufacture XYZ. Although different manufacturing methods have been adopted over time, the production of XYZ and related products for industrial application, and the sale of the products, is the only operating business that has been carried on by the entities in the X group since commencement. Premises from which the Business operates The operations of the Business have been (and continue to be) conducted from the same business premises since the land's acquisition by X in the 19YYs ( Business Premises ). Licence Agreement In the 20YYs, X and M entered into a licence agreement ( Licence Agreement ) under which M agreed to license from X the goodwill, intellectual property rights, and other assets relating to the Business. person Z and person X are the directors and shareholders of M. Under the Licence Agreement: • X granted M license to conduct the Business and to enjoy the advantages and benefits of the goodwill attached to the Business and other intellectual property rights, including trademarks, (together referred to as the " Intangible Property Rights ") and certain assets including fixed assets of the Business. • X agreed to M registering the business name. • M agreed to pay X a licence fee. • The initial term of the license agreement was 5 years (Original Term), subject to the right of M to renew for a further period of 5 years by giving written notice to the X prior the expiry of the Original Term unless the Licence Agreement was terminated. • M agreed to not do anything that would diminish the name or reputation of the Business and agreed to effect any repairs or routine maintenance required to X's assets used in the Business at M's own expense. • M agreed to employ all staff and other employees used in carrying on the Business and agreed to assume liability for all salary, wages, annual leave and other benefits to which those employees were entitled. • It is stated in the agreement that nothing in the agreement constitutes M as the owner of the goodwill of the Business, the Intangible Property Rights or the Fixed Assets. • The right to operate and conduct the Business was to revert to X as the licensor on termination of the licence. • X made the Business Premises available to M for use in the business activities conducted by M under the Licence Agreement The intended effect of the Licence Agreement was not for X to dispose of the goodwill of the Business, and the main reason for entering the Licence Agreement was to protect the Business Premises from the risks associated with the Business. Termination of Licence Agreement and accompanying transactions Upon the expiration of Licence, the parties agreed to continue to observe the rights and obligations created under the Licence Agreement and to be bound by the Licence Agreement on the same terms up to the termination date. After the expiration of the Original Term, M and X continued to engage in the licensing arrangement on the same terms as the Licence Agreement up until termination in the 20YYs. In the 20YYs, the Licence Agreement was terminated by a Discharge Deed entered into between M and X with the effect that X would recommence carrying on the Business. In the 20YYs in conjunction with the termination of the Licence Agreement: • M transferred all trading stock and plant and equipment owned by M and associated with the Business to X for no consideration and the small business restructure roll-over under Subdivision 328-G of the ITAA 1997 was applied to this transfer. • All employees of M ceased to be employed by M and commenced to be employed by X on the same terms and conditions as their previous employment. Subsequent group structure from onwards Following the termination of the licence agreement in the 20YYs and accompanying transactions as set out above, a new structure for the group was set up in the 20YYs, and X ceased trading and NewCo commenced to carry on the Business. The new structure included the following steps: • NewCo was registered in the 20YYs. Person Z is the sole director of NewCo. • The sole shareholder of NewCo is TrusteeCo as trustee for NewTrust, being a discretionary trust. person Z and person X are the directors and shareholders of TrusteeCo. • In the 20YYs X transferred all trading stock, depreciating assets, the patent for the XYZ and goodwill to NewCo pursuant to the terms of a Business Sale Agreement. X also transferred registered trademarks to TrusteeCo as trustee for NewTrust. The small business restructure roll-over under Subdivision 328-G of the ITAA 1997 applied to the transfer of these assets. • TrusteeCo as trustee for NewTrust granted a licence to NewCo for the use of the trademarks. • X leased the Business Premises to NewCo for use in carrying on the Business. Reasons for termination of Licence Agreement and subsequent transfer of assets The reasons for the termination of the Licence Agreement and subsequent transfer of assets to NewCo and TrusteeCo as trustee for NewTrust are because it was believed that the licensing arrangement was too complex; and for asset protection purposes. Assumptions Subdivision 328-G of the ITAA 1997 applied to the transfer of the assets X to NewCo. Specifically, the conditions in section 328-430 of the ITAA 1997 were satisfied in respect of the transfer of the following assets under the Business Sale Agreement: • goodwill; • depreciating assets; • the patent for XYZ; and • trading stock. The conditions in section 328-430 of the ITAA 1997 were also satisfied in respect of the transfer of the registered trademarks from X to TrusteeCo as trustee for NewTrust. The majority underlying interests in the goodwill of the Business have been maintained and section 149-30 of the ITAA 1997 does not apply.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 Division 149 | Income Tax Assessment Act 1997 section 149-10 | Income Tax Assessment Act 1997 subsection 149-15(1) | Income Tax Assessment Act 1997 section 149-30 | Income Tax Assessment Act 1997 Subdivision 328-G | Income Tax Assessment Act 1997 section 328-430 | Income Tax Assessment Act 1997 section 328-455 | Income Tax Assessment Act 1997 subsection 328-455(1) | Income Tax Assessment Act 1997 section 328-460

Reasons for decision: Detailed Reasoning - Goodwill as a CGT asset: Section 108-5 of the ITAA 1997 provides as follows: (1) A CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. (2) To avoid doubt, these are CGT assets: (a) part of, or an interest in, an asset referred to in subsection (1); (b) goodwill or an interest in it;..... ' Section 149-10 of the ITAA 1997 sets out what a pre-CGT asset is: A * CGT asset that an entity owns is a pre - CGT asset if, and only if: (a) the entity last acquired the asset before 20 September 19YY; and....' Taxation Ruling 1999/16 Income tax: capital gains: goodwill of a business discusses the meaning of goodwill as a legal concept, which was established in Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at 611 (Murry's case): | Detailed Reasoning - 'Meaning of 'goodwill': 9. 'Goodwill' for the purposes of the definition of 'CGT asset' in section 108-5 has the meaning it bears under the general law. It is the legal definition of goodwill as explained by the High Court in the Murry case, rather than its accounting and business definitions, which applies.' | Detailed Reasoning - Goodwill as a single CGT asset: Pursuant to para. 17 of TR 1999/16, goodwill remains a single CGT asset if the same business continues: '17. The whole of the goodwill of a business that commenced before 20 September 19YY remains the same single pre-CGT asset (subject to Division 149 - about when an asset stops being a pre-CGT asset - see paragraph 90) provided the same business continues to be carried on. This is so even though: (a) the sources of the goodwill of a business may vary during the life of the business; or (b) there are fluctuations in goodwill during the life of the business.' If a business or the sources of its goodwill change so much it can no longer be said to be the same business as that previously conducted, in other words the old business ceases and a new business commences, the goodwill of the original business ceases to exist and a new CGT asset - being the goodwill of the new business - is acquired. As a single CGT asset, goodwill, as a whole, is either a pre-CGT asset or a post-CGT asset pursuant TR 1999/16: '25. The whole of the goodwill of a business is either pre-CGT goodwill (subject to Division 149 - about when an asset stops being a pre-CGT asset - see paragraph 90) or post-CGT goodwill. The goodwill of a particular business cannot be characterised as partly pre-CGT goodwill and partly post-CGT goodwill. Goodwill is a composite asset.' | Detailed Reasoning - 'Same business'underTR 1999/16: In accordance with TR 1999/16, whether the same business is being carried on is a question of fact and degree that ultimately depends on the circumstances of each particular case. The business does not need to be identical from its acquisition to its disposal, and TR 1999/16 at para 21. states the following: '...if the essential nature or character of the business is not changed, the business remains the same business for the CGT goodwill provisions. A business owner may expand or contract activities, or change the way in which a business is carried on, without ceasing to carry on the same business provided the business retains its essential nature or character. Organic growth, expansion or diversification of a business by, for example: (a) adopting new compatible operations; (b) servicing different clients; or (c) offering improved products or services does not of itself cause it to be a new business provided the business retains its essential nature or character.' Further: '23. If the types of customers a business attracts change as the business evolves over the years, this does not necessarily mean the business is no longer the same business as was originally carried on.' However, to be considered the same business, it must be a business of the same essential nature, and Para 24. of TR 1999/16 states: '24. It is not sufficient, however, if just a similar kind of business is carried on. It must be a business of the same essential nature or character that is carried on.' | Detailed Reasoning - Nature of goodwill: According to TR 1999/16: '12. It's more accurate to refer to goodwill as having sources than it is to refer to it as being composed of elements. Goodwill is a composite thing. It is one whole. It is an indivisible item of property that is legally distinct from the sources from which it emanates. It is something that attaches to a business and is inseparable from the conduct of a business. It cannot be dealt with separately from the business with which it is associated.' And; '13. What goodwill means depends on the character and nature of the business to which it is attached. Goodwill differs in its composition in different trades or industries and in different businesses in the same trade or industry. One or more sources of goodwill may preponderate in one business and another source or sources may be prominent in another business.' In terms of the difference between goodwill of a business and the assets, knowledge or information used in the business, TR 1999/16 states: '28. The get-up of a business - including its business or trade name, its logos, slogans, symbols, signs, colour schemes and visual images - is a source of goodwill and is not in itself goodwill. And; 29. Scientific, technical, industrial or commercial knowledge or information (such as know-how, mining, quarrying or prospecting information, a trade secret, secret process or formula) is also not goodwill. And; 30. Goodwill does not attach to assets of a business or to knowledge or information. Rather, it attaches to the business that uses the assets, knowledge or information. Proceeds of the sale of a business are reasonably attributed to the goodwill of the business and to the assets, knowledge or information.' | Detailed Reasoning - Sale of individual assets of a business: It follows that a sale of an individual asset does not involve a sale of goodwill, unless the asset is accompanied by or carries with it the right to conduct the business. If sufficient assets of the business are sold to a purchaser, so that the purchaser has the right to substantially carry on that same business, then the goodwill of the business may be considered to have been sold (as long as the business acquired by the purchaser is the "same business", the meaning of which is discussed above). It is noted in relation to a trademark asset that the majority of the court in Murry's case stated at 39 ATR at 140: '... the potential use of an asset which is transferred out of the business may give it a value which approximates to the value of the goodwill which the business derived from the use of the assets. Nevertheless, potential use is merely an attribute of an asset, while goodwill is property which is inseverable from a business. They are not to be equated for legal purposes, notwithstanding that in some cases the value of the goodwill of a business may be reliable evidence as to the value of the asset or the potential use.' | Detailed Reasoning - Subdivision 328-G - Restructures of small businesses: A rollover in relation to a restructure of a small business is available if the conditions as set out in section 328-430 of the ITAA 1997 are met. Subsection 328-455(1) of the ITAA 1997 sets out the effect of small business restructures on transferred cost of assets if the rollover conditions under section 328-430 of the ITAA 1997 are met. The acquisition time in relation to the roll-over cost for pre-CGT assets, including goodwill, is specified by section 328-460 of the ITAA 1997 as follows: 'For the purposes of applying subsection 328-455(1) to the asset as a * CGT asset (other than a * revenue asset) that is a * pre-CGT asset, a transferee is taken to have * acquired the asset before 20 September 19YY .' | Detailed Reasoning - Application of law to the transactions as set out in the Facts and Circumstances: The goodwill of the Business owned by the Taxpayer is a pre-CGT asset, based on the considerations outlined in the following paragraphs. | Detailed Reasoning - Essential nature and character of the Business: On the facts of this case: • the Business maintained its same essential nature or character; the Business being the manufacture and sale of XYZ and related products for industrial application. • Although the Business has expanded in size, the range of clients has grown, and some manufacturing methods have changed, this represents organic growth and therefore does not result in it becoming a new business. • The Business has retained its essential nature or character, specifically supported by the following facts, taken together and as a whole: • the Business has always been involved in the manufacture and sale of XYZ, utilising the patent filed in relation to the product, as well as related products for industrial application; • the same family has been involved in the Business since its commencement, being initially person Y, and later person Z and person X as directors/and or shareholders of each of the entities in the group of entities; • the primary customer demographic for the Business' products has remained consistent over time; and • the operations of the Business have since 19YY (and continue to be) conducted from the Business Premises. | Detailed Reasoning - Ownership of the Business: It is also acknowledged that the Business, established and owned by X prior to 20 September 19YY, was transferred to NewCo in the 20YYs, along with the associated goodwill. In this respect, it is noted that: • There was no change in ownership of the Business under the Licence Agreement between X and M. The Business and associated goodwill remained with X during the period in which the Licence Agreement was in place. As such, X retained ownership of the Business, including associated goodwill, throughout the operation of the licence agreement. The goodwill of the Business remained a pre-CGT asset owned by X. • The sale of the Business by X to NewCo in the 20YYs resulted in a change in the ownership of the Business, and therefore its associated goodwill. As a result, NewCo now owns the Business and associated goodwill, being the same business (and goodwill) that was established prior to 20 September 19YY. In this respect: • The Business Sale Agreement effected the sale of the Business from X to NewCo. This is because all the assets of the Business, apart from the trademark, were transferred to NewCo, allowing it to operate the Business. While the trademark was not transferred to NewCo (having been sold instead to NewTrust), it does not constitute the Business or the goodwill of the Business. TR 1999/16 at para. 27 states that: 'Goodwill is one CGT asset separate and distinct from other assets of the business such as plant, licences (whether exclusive or non-exclusive licences), statutory permits, quotas, entitlements, valuable contractual rights and items of intellectual property (for example, a trade mark, patent, copyright or registered design).' At paragraph 28, it states: 'The get-up of a business - including its business or trade name, its logos, slogans, symbols, signs, colour schemes and visual images - is a source of goodwill and is not in itself goodwill.' It further states, at paragraph 100: 'Although the Full Federal Court in FC of T v. Just Jeans Pty Ltd 87 ATC 4373; (1987) 18 ATR 775 referred to a name of a business, a trade mark, slogans or visual images as aspects of goodwill (87 ATC at 4382; 18 ATR at 786) or as manifestations or parts of goodwill of a business (87 ATC at 4383; 18 ATR at 786), the High Court in the Murry case stated that 'it makes no sense to describe goodwill... as composed of trade marks, land or price, as the case may be' (98 ATC at 4591; 39 ATR at 137-138). The High Court went on to state that 'it is more accurate to refer to goodwill as having sources than it is to refer to it as being composed of elements' (emphasis added - 98 ATC at 4591; 39 ATR at 138).' The exclusion of the trademark from the other assets sold to NewCo under the Business Sale Agreement does not displace the effect of the sale, which is to transfer the Business and associated goodwill to NewCo. • The application of the roll-over in Division 328-G of the ITAA 1997 has the effect that the goodwill of the Business, acquired prior to 20 September 19YY, is also taken to have been acquired by NewCo before 20 September 19YY, pursuant to section 328-460 of the ITAA 1997. For the reasons set out above, the pre-CGT status of goodwill is maintained. NewCo, the transferee, is therefore taken to have acquired the goodwill prior to 20 September 19YY under section 328-460 of the ITAA 1997.