Private ruling: Division 149 ITAA 1997
Date of advice: 10 December 2025
Published: 27 January 2026
Ruling period: 1 July XXXX to 30 June YYYY

Ruling: Q1: Did former section 160ZZN deem Unit Trust B to have acquired the shares in Company C before 20 September 1985? | A1: Yes | Q2: Did Subdivision 122-A deem Company D to have acquired its shares in Company C before 20 September 1985? | A2: Yes | Q3: Does Division 149 apply to stop the shares in Company C being pre-CGT assets? | A3: No | Q4: Does the Commissioner accept that the goodwill (of the business carried on by Company C) was acquired before 20 September 1985 for the purpose of applying section 104-230 (about CGT event K6)? | A4: Yes

Relevant facts and circumstances: Unit Trust B had acquired Business A's business goodwill before 1985. 1. A person in the XXX family established and carried on a business called Business A. 2. <Redacted for privacy reasons.> 3. <Redacted for privacy reasons.> 4. After some transfers between family members, Unit Trust B acquired the business goodwill some years before CGT. 5. All entities mentioned in this ruling were and are Australian residents for income tax purposes. 6. No entity mentioned in this ruling was exempt from income tax. The first transaction: Unit Trust B transferred the business to Company C. 7. In Year AAAA, Unit Trust B transferred the business to Company C. 8. Unit Trust B and Company C entered an agreement for the sale of the business. Unit Trust B disposed of all of the business assets to Company C, in exchange for Company C issuing X ordinary shares (in Company C) to Unit Trust B. The shares were provided as consideration for the business, including goodwill. 9. The business assets didn't include trading stock. 10. The business assets disposed of by Unit Trust B to Company C had been acquired by Unit Trust B before 20 September 1985. 11. The market value of the X fully paid ordinary shares in Company C was equal to the market value of the assets acquired, including goodwill. ($1 per share) 12. Unit Trust B owned all X ordinary shares in Company C after the transfer. 13. Company C doesn't (and didn't) have a constitution that prevents distributions to members. The second transaction: Unit Trust B transferred its shares in Company C to Company D. 14. In Year EEEE, Unit Trust B transferred shares in Company C to Company D. 15. The parties entered an agreement for the transfer. The effect of the relevant part of the agreement was that Unit Trust B would transfer the X shares in Company C to Company D, in exchange for Company D issuing Y ordinary shares (in itself) to Unit Trust B. 16. The Y fully paid ordinary shares in Company D were equal to the market value of the shares it acquired in Company C. 17. Unit Trust B owned all Y ordinary shares in Company D after the transfer. 18. Company D doesn't (and didn't) have a constitution that prevents distributions to members. Family Trust E has always been administered for the XXX family's benefit. 19. Family Trust E was established under a trust deed. 20. Family Trust E's beneficiaries include: • as 'primary beneficiaries', two named individuals in the XXX family, and any children or remoter issue of the parents of those named individuals • as 'general beneficiaries', various classes of relatives of the primary beneficiaries, corporations with shares beneficially owned or held by other beneficiaries, and trustees of trusts under which beneficiaries have an interest, or named people or corporations named by the trustee. 21. Family Trust E's trust deed has been varied three times. • A supplemental deed added Company F as an additional general beneficiary under clause x of the trust deed. • A deed of appointment replaced one corporate trustee with another corporate trustee. • A deed of variation amended the deed to allow the appointor to appoint a substitute or replacement appointor. 22. Company F has x shares, with Family Trust E holding x shares, and other entities in the XXX family holding the remaining shares. 23. For around two decades, Family Trust E distributed 100% of its income to Company F. 24. Since then: • all franked dividend income has been distributed to individual members of the XXX family, and • all other ordinary income has continued to be distributed to Company F. 25. The trustee continues to administer the trust for the benefit of the XXX family. Family Trust E and Person I had 75% of the units in Unit Trust B before CGT, and Person I transferred some units to Family Trust E on Person I's death. 26. Unit Trust B was established under a trust deed. 27. Unit Trust B issued an initial 100 units in the following proportions: • 25% to Person H • 25% to Person I • 50% to Family Trust E. 28. Some years after CGT, Unit Trust B issued another X units to the existing unit holders in proportion to their existing units. 29. When Person I died in Year BBBB, two thirds of Person I's interest in Unit Trust B was transferred to Family Trust E, and one third to Entity J. 30. Some years later, Family Trust E acquired one third of the units in Unit Trust B from Entity J. 31. Unit Trust B distributed to Family Trust E every year from Year A to Year B. 32. All units in Unit Trust B carry (and have always carried) equal and proportionate rights to distributions of both income and capital (including on winding up). Since at least 1985, the Business A business has run Industry K services in Region L. 33. Company C runs an Industry K business trading as Business A, operating in Region L. 34. <Redacted for privacy reasons.> 35. In 1985, Business A operated contracts for Industry K services in Region L. 36. In Year AAAA (the year of the first transaction), the business operations weren't materially different from 1985 (there may have been some extra contracts for the same types of customers). 37. Business A's operations are similar today, but they have expanded. Population growth in Region L has led to growth in Business A services since Year AAAA. 38. <redacted for privacy reasons> 39. Table 1 compares Business A's financial performance, size and scale, and locations in 1985, year AAAA (the year of the first transaction), and today. Table 1: comparing Business A in 1985, Year AAAA, and today <redacted for privacy reasons> 40. In the 1990s, Business A acquired the business operations of other smaller Industry K operators that operated in Region L. Business A bought Business M in Year CCCC. 41. In Year CCCC, Business A acquired the assets and contracts of a smaller local rival (Business M). 42. Before the acquisition, Business A held Industry K contracts for Region L. 43. <redacted for privacy reasons> 44. Business M mostly operated in a similar way to Business A, with some exceptions. It held contracts in Region L. It also provided services in Industry N (a related industry). 45. After acquiring Business M, Business A: • closed the Industry N operation • sold premises it had acquired from Business M • administered all acquired services from Business A's premises • integrated the remaining acquired services into the Business A business • integrated most of the Business M staff into Business A operations. 46. <redacted for privacy reasons> 47. Table 2 compares Business A and Business M at the purchase date. Table 2: Business A compared to Business B at Year BBBB <redacted for privacy reasons> Business A bought land alongside the main premises. 48. In Year DDDD, Business A bought freehold property. It includes partly vacant land and partly premises it leases to a commercial tenant. 49. <redacted for privacy reasons> 50. Business A is now storing assets on the vacant land. <paragraph partly redacted for privacy reasons> 51. <redacted for privacy reasons> Company D is considering selling shares in Company C. 52. Company D is considering selling its shares in Company C (and expects the sale to happen in the next few months).

Relevant legislative provisions: Income Tax Assessment Act 1936 former section 160ZZN | Income Tax Assessment Act 1936 former section 160ZZS | Income Tax Assessment Act 1997 section 104-230 | Income Tax Assessment Act 1997 section 122-15 | Income Tax Assessment Act 1997 section 122-20 | Income Tax Assessment Act 1997 section 122-25 | Income Tax Assessment Act 1997 section 122-40 | Income Tax Assessment Act 1997 section 122-70 | Income Tax Assessment Act 1997 section 149-10 | Income Tax Assessment Act 1997 section 149-15 | Income Tax Assessment Act 1997 section 149-30

Reasons for decision: Summary: 53. Former section 160ZZN relevantly allowed a roll-over, in qualifying circumstances, to a trustee who transferred assets to a company in exchange for shares in the company. When a trustee had acquired the transferred assets before CGT, the trustee was deemed to have acquired the replacement shares before CGT. 54. The first transaction qualified for the roll-over in former section 160ZZN for reasons we give in the full explanation. 55. Since Unit Trust B had acquired the business assets before CGT, and we accept that the business goodwill for Business A has remained the same pre-CGT asset, former section 160ZZN applied to treat Unit Trust B as having acquired the shares in Company C before CGT. | Detailed Reasoning - Explanation: 56. Former section 160ZZN relevantly allowed a roll-over where a trustee transferred assets to a company in qualifying circumstances: see subsection (4). 57. Under the first transaction, Unit Trust B transferred the business assets of Business A to Company C. 58. Where the rollover in section 160ZZN applied (as in force in Year AAAA), and the transferor was a trustee who had acquired the asset before CGT: • the former CGT rules in place at the time didn't apply to the disposal: subsection (4), trailing words after paragraph (d) • if the trustee acquired the asset before CGT, the relevant acquiring company was also deemed to have acquired the transferred assets before CGT: paragraph (4)(e) • the trustee was deemed to have acquired the shares or securities (that were consideration for the disposal) before CGT: paragraph (7)(a). 59. The first transaction met all the conditions in former section 160ZZN (as in force in Year AAAA) - see Table 3. | Detailed Reasoning - Table 3: former section 160ZZN conditions (relevant to trusts): 60. Former subsection 160H(3) contained the relevant definition of a 'resident unit trust'. It said a unit trust will be a unit trust if, at any time during the income year, it met conditions in paragraphs a) and b): • a) either any property of the unit trust was situated in Australia, or the trustee carried on business in Australia, and • b) either the unit trust's central management and control was in Australia, or residents held more than 50% of the beneficial interests in either income or property. 61. Unit Trust B was a resident unit trust just before the first transaction (in Year AAAA). Up until the transfer, Unit Trust B carried on a business in Australia (Business A) and also held depots situated in Australia, so it satisfied paragraph a). All its unitholders and its trustee were Australian residents, so it also satisfied paragraph b). 62. Since the transaction met the relevant conditions in former section 160ZZN, if Unit Trust B had acquired the goodwill before CGT, former section 160ZZN would apply so that: • Company C was deemed to have acquired the business goodwill before CGT • Unit Trust B was deemed to have acquired the shares in Company C before CGT. 63. We think the business goodwill for Business A has always been the same CGT asset since before CGT until today: see our answer and explanation to Question 4. 64. Therefore, former section 160ZZN applied so that Unit Trust B is deemed to have acquired its shares in Company C before CGT. | Detailed Reasoning - Question 2: Did Subdivision 122-A deem Company D to have acquired its shares in Company C before 20 September 1985? | Detailed Reasoning - Answer: Yes | Summary: 65. Like former section 160ZZN, Subdivision 122-A relevantly allows roll-over relief where a trustee transfers assets to a company in qualifying circumstances. 66. Company D qualifies for that roll-over for reasons we give in the full explanation. 67. Since former section 160ZZN treats Unit Trust B has having acquired the shares in Company C before CGT, Subdivision 122-A will also apply to treat Company D as having acquired the shares before CGT. | Detailed Reasoning - Explanation: 68. Subdivision 122-A, like the former section 160ZZN, relevantly allows a roll-over where a trustee transfers an asset to a company, in exchange for shares in a company, where the transfer met certain conditions. 69. Where the roll-over applies to a trust transferring pre-CGT assets to a company, Subdivision 122-A applies so that: • the trustee is taken to have acquired the shares before CGT: subsection 122-40(3) • the company is taken to have acquired the asset before CGT: subsection 122-70(3). 70. Here, the second transaction took place in Year EEEE, so we'll apply Subdivision 122-A as in force at that time. 71. The second transaction qualified for all relevant conditions for the Subdivision 122-A roll-over: see Table 4. | Detailed Reasoning - Table 4: Subdivision 122A rollover: 72. A unit trust will be a 'resident trust for CGT purposes' (see section 995-1) if, at any time during the income year: • either any property of the trust is situated in Australia, or the trust carries on a business in Australia, and • either the trust's central management and control is in Australia, or Australian residents held more than 50% of the beneficial interests in the trust's income or property. 73. Unit Trust B was a resident trust for CGT purposes. We accept that it had trust property situated in Australia, and all of Unit Trust B's units were owned by an Australian resident trustee (Family Trust E). 74. Since former section 160ZZN applied to treat an asset acquired under the roll-over as having been acquired before CGT (see our answer and explanation to Question 1), Subdivision 122-A would also apply to treat Company D's shares in Company C as having been acquired before CGT. | Detailed Reasoning - Question 3: Does Division 149 apply to stop the shares in Business A being a pre-CGT asset? | Detailed Reasoning - Answer: No | Summary: 75. Broadly, Division 149 stops an asset from being a pre-CGT asset when the ultimate owners who held 'majority underlying interests' in an asset before CGT no longer hold them. 76. ATO guidance in IT 2340 accepts that when assets are held by discretionary trusts, the mere exercise of the trustee's discretion won't cause a change in majority underlying interests, so long as the trustee continues to administer the trust for the benefit of the same family. 77. Division 149 won't apply here because: • we accept that Family Trust E has always been administered for the benefit of the family, and • for reasons we give in the full explanation, ultimate owners represented by Family Trust E are treated as having held majority underlying interests before and after CGT. | Detailed Reasoning - Explanation: Division 149 stops an asset from being a pre-CGT asset when there's a change in the ultimate owners who held majority underlying interests before CGT. 78. Section 149-10 says, in effect, that a CGT asset that an entity owns is a pre-CGT asset if a) the entity last acquired the asset before CGT, and b) the asset hasn't stopped being a pre-CGT asset under Division 149 or predecessor rules. 79. Subsection 149-30(1) stops an asset being a pre-CGT asset at the earliest time when majority underlying interests in the asset 'were not had' by the ultimate owners who had majority underlying interests in the asset before CGT. 80. Under subsection 149-30(2), if the Commissioner is satisfied (or thinks it reasonable to assume) that the ultimate owners who had majority underlying interests before CGT continued to have those interests at all times after CGT (up until the relevant time), then subsection 149-30(1) applies as if that were the case. 81. The general effect of section 149-15 is that 'majority underlying interests' in a CGT asset means more than 50% of the beneficial interests in both a) capital and b) ordinary income that may be derived from the asset, assuming the holding entity (and any interposed entities) distribute income and capital. 82. 'Ultimate owners' relevantly includes individuals and doesn't include trustees or for-profit companies: see subsection 149-15(3). 83. Subsections 149-30(3) and (4) relevantly deem a new ultimate owner, who acquires a percentage of underlying interests in the asset because of the death of a person, to have held their acquired percentage (or the former owner's percentage, whichever is less) when the former owner held them. The ATO accepts that a discretionary trust can maintain majority underlying interest if the trust is always administered for the benefit of the same family. 84. IT 2340 addressed how former section 160ZZS (a predecessor provision to Division 149) applied to assets held by discretionary trusts. • At paragraphs 6 and 7, it said that former section 160ZZS won't apply where a trustee continues to administer a trust for the benefit of a particular family (in such a case the Commissioner would find it reasonable to assume the majority underlying interests haven't changed). • A paragraph 8, it said the section will apply where the trustee exercises discretionary powers, or amends a trust deed, in a way that practically effects a change of 50% or more in the underlying interests in the trust assets. An example may be replacing current family members with members of a new family. The Commissioner will accept the ultimate owners with interests in Family Trust E have always held majority underlying interests in the trust assets because a) Family Trust E has always been administered for the benefit of the XXX family, and b) Family Trust E is treated as having held more than 50% of the units in Unit Trust B since before CGT. 85. Former section 160ZZN treated Unit Trust B's shares in Company C as being pre-CGT assets because the first transaction qualified for the roll-over: see our answer and explanation to Question 1. 86. Since Year AAAA, Unit Trust B has held all the shares in Company C (it held them outright up until Year EEEE, but held them indirectly through Company D since Year EEEE). 87. Therefore, to test whether Division 149 applied to stop the shares being a pre-CGT asset, we need to look at changes in ownership for Unit Trust B. 88. Since all units in Unit Trust B carried equal and proportionate rights to income and capital distributions, a group of ultimate owners will need to hold more than 50% of the units to have majority underlying interests. 89. Family Trust E doesn't qualify as an ultimate owner because it's a trustee. 90. As Family Trust E is a discretionary trust, distributions of income and capital depend on the trustee's discretion, so it isn't possible to calculate the percentages of beneficial interests that ultimate owners might have in Unit Trust B, via Family Trust E. 91. However, the approach in IT 2340 says the Commissioner will accept assets held by a discretionary trust won't trigger a change in majority underlying interests where the trust is administered for the benefit of the same family. 92. We accept that Family Trust E has always been administered for the benefit of the XXX family. Family Trust E has exercised discretions to distribute income to family members or a company owned and controlled by the family (Company F). We don't think the trustee's decision to nominate that company as a specified beneficiary amounts to a change in majority underlying interests because the company is mostly owned by Family Trust E, with the remaining shares held by other entities within the XXX family. The change didn't, in the words of IT 2340, practically effect a change of 50% or more of the underlying interests, by introducing members of a different family. 93. Since Family Trust E has always been administered for the benefit of the XXX family, the mere existence of trustee discretions won't trigger Division 149. The Commissioner will accept that the ultimate owners that had beneficial interests in CGT assets held by Unit Trust B, through Family Trust E's units in Unit Trust B, continued to hold those beneficial interests since before CGT. 94. Before CGT, and up until Year BBBB, Family Trust E had 50% and Person I had 25% of the units. 95. In Year BBBB, 2/3 of Person I's interests transferred to Family Trust E on Person I's death (or 16.67% of the total units). 96. Subsections 149-30(3) and (4) will treat the ultimate owners that (collectively) held interests in Family Trust E as having held the 16.67% acquired from Person I since before CGT. 97. This means that the ultimate owners that (collectively) held interests in Family Trust E are treated as having held 66.67% of the units in Unit Trust B since before CGT. 98. Given Family Trust E interests are treated as having held more than half the units, and all units had equal rights to capital and income, the Commissioner will accept that ultimate owners with interests in Family Trust E have had majority underlying interests in Unit Trust B's assets at all times both before and after CGT. 99. Therefore, Division 149 won't apply to stop the shares in Company C being a pre-CGT asset. | Detailed Reasoning - Question 4: Does the Commissioner accept that the goodwill for the business carried on by Business A was acquired before 20 September 1985 for the purpose of applying section 104-230 (about CGT event K6)? | Detailed Reasoning - Answer: Yes | Summary: 100. Broadly, ATO guidance says that: • goodwill of a business acquired before CGT will remain a single pre-CGT asset so long as a) the business has retained the same essential character, and b) the entity hasn't acquired post-CGT businesses that have a separate character to the original business • both questions (whether a business has retained the same essential character, and whether an acquired business is separate or has been subsumed within the original business), are questions of fact and degree. 101. Given the first transaction qualified for the former section 160ZZN roll-over (see Question 1), and Unit Trust B acquired the business before CGT, Company C is treated as having acquired the business goodwill since before CGT. 102. On these facts, we're satisfied that Business A has retained the same essential character since before CGT, and the businesses it has acquired have been subsumed within that business: it remains an Industry K service for Region L. 103. It follows that the business goodwill for Business A remains a single asset that was acquired before 20 September 1985. The ATO view is that for a business that started before CGT, the goodwill will remain the same pre-CGT asset so long as the business retains the same essential character. 104. CGT event K6 may happen if a CGT event happens to shares or units that you acquired before CGT, and at least 75% of the value of the company or trust's property is in property it acquired after CGT (see section 104-230). 105. TR 1999/16 is the ATO's view about when goodwill of a business continues to be the same CGT asset. 106. At paragraph 17, TR 1999/16 says that (subject to Division 149) the whole goodwill of a business that started before CGT remains the same pre-CGT asset, so long as the same business continues to be carried on. 107. Two of the scenarios it addresses are: • whether changes to an existing business cause the former business to cease and a new business to start, and • whether an acquired business or new undertaking a) is a separate business or b) is subsumed within an existing business. 108. We'll paraphrase a few relevant points from TR 1999/16. • Whether the same business is being carried on is a question of fact and degree that depends on the circumstances of each case. [paragraph 20] • The business will remain the same business (for goodwill purposes) if its essential nature or character hasn't changed. The business doesn't need to be identical, and the business may expand or contract or diversify so long as it retains the same essential nature or character. [paragraph 21] • Whether an increase in business operations or in the scale of activity constitutes an expansion of an existing business, or a new and separate business in its own right, is a question of fact depending on the circumstances. [paragraph 62] • Whether an additional business (purchased as a going concern) is subsumed within the existing business, or both remain separate businesses, is a question of fact that depends on the circumstances. [paragraph 63] • Relevant factors (in determining whether an activity is part of the existing business or a new business) include nature of operations; types of customers; whether all operations were subject to integrated management and control; the extent the business uses different trading names; the extent the acquired business was dependent on the existing business; location and size; the extent of changes in assets and resources; whether the activities constitute, or are treated as, constituting separate or distinct activities, enterprises, divisions, or undertakings; the way in which the business is structured, carried on, managed, and controlled. [Paragraphs 62 and 91]. Business A has retained the same essential character since before CGT: while it has expanded and acquired other businesses, it remains a single business that operates Industry K services in Region L. 109. We ruled in Question 1 that the first transaction qualified for the former section 160ZZN roll-over. 110. One thing that flows from the roll-over is that, since Unit Trust B had acquired the business before CGT, Company C is treated as having acquired the business goodwill since before CGT. 111. We think the essential character of the business hasn't changed. Applying TR 1999/16, we think Business A, from before CGT through to today, has been an Industry K business in Region L. • The contracts have mostly been in Region L. • The customer mix has been constant. • Despite expanding numbers of assets and employees, acquiring contracts, and growing revenue and profit, the business still has the same 'essential character' because the business is still mainly in Industry K in Region L. 112. The Business A business remains the same single business, despite acquisitions. The Business M acquisition (and the other small acquisitions) didn't amount to either a) a change in the essential character of the business, or b) starting to operate a new business with a separate character. All acquired assets and contracts were similar to existing Business A operations, and, post-acquisition, it operated and administered them as part of Business A, using the Business A branding rather than operating them as standalone businesses. Therefore, the acquired business assets were subsumed within Business A and any accretions to goodwill became part of the same pre-CGT asset. 113. We don't think acquiring property in Year DDDD has changed the essential character of the business. Business A used the property for purposes consistent with the existing business. We don't think leasing out part of the property to an industrial tenant was significant enough to change the character of the business. 114. Since we think it's still the same business, and Company C is treated as having acquired the Business A business assets before CGT, this means the business goodwill is still the same asset acquired before CGT.

Did former section 160ZZN deem Unit Trust B to have acquired the shares in Company C since before 20 September 1985?