Private ruling: Interposed company, Subdivision 122-A
Date of advice: 22 August 2025
Published: 27 October 2025
Ruling period: DD MM YYY
Date scheme commenced: 22 August 2025

Ruling: Q1: Does Person A as a beneficiary of the deceased estate receive the shares in the Company with a cost base equal to their market value at the deceased's date of death, in accordance with section 128-15 of the Income Tax Assessment Act 1997 ? | A1: Yes | Q2: Is Person A eligible to choose a capital gains tax roll-over under Subdivision 122-A of the Income Tax Assessment Act 1997 on the transfer of their shares in the Company to their wholly owned company under the proposed arrangement? | A2: Yes

Relevant facts and circumstances: 1. The Company was incorporated in Australian and is a tax resident of Australia. 2. The Company was incorporated on DD MM YYYY, with xx shares issued. The Company has issued no further shares. 3. The shareholders of the Company are a. Person A holding x shares and b. Person B holding x shares. 4. Both shareholders are Australian residents for tax purposes. 5. The shareholders inherited their shares from the estate of their late parent. Their late parent passed on DD MM YYYY and had acquired the xx shares on DD MM YYYY. She had continually held the xx shares until her death. 6. Historically, the Company operated a xxx practice and acquired shares in publicly listed companies. 7. The Company now only holds cash and has a positive franking account balance. 8. The shareholders cannot agree on how to govern the Company's affairs going forward and they do not wish to be tied together via the Company. 9. The shareholders intend to restructure in accordance with the following steps: a. Both shareholders will establish separate new companies (Person A's NewCo and Person B's NewCo), wholly owned by each of them; b. Each shareholder will then transfer the x shares they own in the Company to their own new company, in exchange for non-redeemable ordinary shares in that new company; c. Immediately after the transaction each shareholder will own all the issued shares in their new company; d. The market value of the new company non-redeemable ordinary shares received by each of the shareholders (in exchange for their x shares in the Company) will be substantially the same as the market value of the x shares in the Company that each shareholder transfers to their new company. e. The Company will pay a dividend to the new companies with the corporate tax rates of both companies being 30%. The dividend will be franked. f. The new companies dividend entitlements from the Company will be satisfied by the Company paying cash to the new companies. g. The Company will be wound up and deregistered. Assumptions • There are no further steps in the proposed arrangement and there will be no further roll-overs or transactions/loans that would change the actual or beneficial ownership of the membership interests in the new companies. • Dividends paid by the Company will be paid to the two new companies only, and for the beneficial interest of those new companies. • Dividends, where paid by Person A's NewCo, will be payable directly to Person A in their capacity as an individual and holder of the membership interest.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 Subdivision 122-A | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 128-20

Reasons for decision: Summary: Yes, Person A as a beneficiary of the deceased estate received the shares in the Company with a cost base equal to their market value at the deceased's date of death, in accordance with section 128-15. | Detailed Reasoning - Relevant Legislation: Paragraph 128-15(1)(b) states what happens when a CGT asset you owned just before dying passes to a beneficiary in your estate. CGT asset is defined in section 995-1 to have the meaning given by section 108-5. Section 108-5 states that a 'CGT asset' is any kind of property or a legal or equitable right that is not property. Passes is defined in section 995-1, where it says that a CGT asset 'passes' to a beneficiary in an individual's estate in the way described in section 128-20. Paragraph 128-20(1)(a) provides that a CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset under your will or that will as varied by a court order. Subsection 128-15(2) provides that the beneficiary is taken to have acquired the asset on the day of death. Subsection 128-15(4) sets out the modifications to the cost base and reduced cost base of the CGT assets in the hands of the beneficiary. Item 4 of the table in Subsection 128-15(4) provides that for a CGT asset acquired before 20 September 1985, the first element of the asset's cost base is the market value of the asset on the day you died, and the first element of the asset's reduced cost base is the market value of the asset on the day you died. | Detailed Reasoning - Application to circumstances: In accordance with section 128-15, Person A as a beneficiary of their Parent's deceased estate received x shares in the Company with a cost base equal to their market value at the date of their Parent's death. The Company shares are not pre-CGT assets in Person A's hands. | Detailed Reasoning - Question 2: Is Person A eligible to choose a capital gains tax roll-over under Subdivision 122-A of the Income Tax Assessment Act 1997 on the transfer of their shares in the Company to their wholly owned company under the proposed arrangement? | Summary: Person A will be entitled to obtain a roll-over pursuant to Subdivision 122-A for the proposed share transfers to their wholly owned company. | Detailed Reasoning - Relevant Legislation: A roll-over can apply on the disposal of assets by an individual or trustee to a wholly owned company under Subdivision 122-A. Under section 122-15 an individual or a trustee can apply the roll-over if one of the CGT events specified happens involving the person and a company in the circumstances set out in sections 122-20 to 122-35. Subsection 122-20(1) relevantly provides that the consideration received for the trigger event happening must only be shares in a company. The shares cannot be redeemable shares, and the market value of the shares received for the trigger event happening must be substantially the same as the market value of the assets you disposed of. Section 122-40 provides that if a roll-over is chosen, a capital gain or capital loss made from the trigger event is disregarded. | Detailed Reasoning - Application to your circumstances: Section 122-15 provides that, where an individual disposes of a CGT asset to a wholly owned company (and CGT Event A1 happens to the individual as a result), the individual can choose to obtain a roll-over in the circumstances set out in sections 122-20 to 122-35. Person A will receive consideration for the disposal of their x shares in the Company to their new wholly owned company, and that consideration will only comprise shares in this new company. The shares received as consideration by Person A are not redeemable shares and have substantially the same market value as the x shares In the Company, they disposed of. Person A will own all the shares in their new company immediately after they dispose of their x shares in the Company. All parties to the proposed arrangement are Australian residents. Under section 122-40, Person A, upon choosing a roll-over under Subdivision 122-A can disregard the capital gain or capital loss made from the CGT trigger event. The cost base of the shares in their new company is worked out pursuant to subsection 122-40(2).

Does Part 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 . | Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 , unless otherwise specified.