Private ruling: Capital gain on the sale of a share with preferential voting rights
Date of advice: 27 October 2025
Published: 15 December 2025
Ruling period: 30 June 20YY

Ruling: Q1: Will the Proposed Amendments to the articles of YZ Co be CGT event A1 to B and C, pursuant to section 104-10? | A1: No. | Q2: Will the Proposed Amendments to the articles of XYZ Co be CGT event A1 to B and C, pursuant to section 104-10? | A2: No. | Q3: Will the Proposed Amendments to the articles of YZ Co give rise to a capital gain to B and C, pursuant to CGT event H2 in section 104-155? | A3: No. | Q4: Will the Proposed Amendments to the articles of XYZ Co give rise to a capital gain to B and C, pursuant to CGT event H2 in section 104-155? | A4: No. | Q5: Will A make a capital gain on the disposal of X share in XYZ Co, pursuant to CGT event A1 in section 104-10? | A5: No. | Q6: Will the Proposed Amendments to the articles of YZ Co give rise to CGT event C2 to A, pursuant to section 104-25? | A6: No. | Q7: Will the Proposed Amendments to the articles of XYZ Co give rise to CGT event C2 to A, pursuant to section 104-25? | A7: No. | Q8: Will the Proposed Amendments to the articles of YZ Co cause the direct value shifting rules in Division 723 to apply to reduce any capital loss arising on the future disposal of A's shares in YZ Co? | A8: No. | Q9: Will a direct value shift happen pursuant to Division 725 when the Proposed Amendments to the articles of YZ Co are made? | A9: No. | Q10: Will the Proposed Amendments to the articles of XYZ Co cause the direct value shifting rules in Division 723 to apply to reduce any capital loss arising on the future disposal of As' shares in XYZ Co? | A10: No. | Q11: Will a direct value shift happen pursuant to Division 725 when the Proposed Amendments to the articles of XYZ Co are made? | A11: No. | Q12: Will the Proposed Amendments to the articles of YZ Co give rise to CGT event D1 to YZ Co, pursuant to section 104-35? | A12: No. | Q13: Will the Proposed Amendments to the articles give rise to CGT event D1 to XYZ Co & Co, pursuant to section 104-35? | A13: No.

Relevant facts and circumstances: YZ Co and XYZ Co are Australian private holding companies of the YZ Co Group. A is the current Chairman and CEO of the YZ Co Group. B and C are shareholders in YZ Co. YZ Co and XYZ Co have various classes of shares on issue with varying share rights (i.e. dividend, voting, and winding-up rights). Since X, YZ Co and XYZ Co have granted shareholders with XX Rights. The XX Rights entitle their holders to X% of the voting power at any meeting of members of both these companies. YZ Co In X, the business sought to amend the articles of YZ Co to provide for XX Rights to be granted to A in respect of all their shares upon the death or earlier resignation of X. At this time, A did not hold the XX Rights, but A would have XX Rights upon the earlier of Xs' passing or resignation. X passed away and their XX Rights ceased to exist. The amended clause came into effect providing A with the benefit of XX Rights which attached to all their shares in YZ Co and entitled them to X percent of the voting power at any meeting of members in this company. XYZ Co The XX Rights have always been attached to an X class share in XYZ Co. On X, the X class share category was created and an X class share was issued jointly to X and X2. On the same date, a clause was inserted into the articles which provided that on the death or earlier resignation of X, A would hold XX Rights attached to their X class share which were held personally by A such that the XX Rights could only be exercised by A as the holder of that X class share. X passed away and their XX ceased to exist. At this time, clause X came into effect providing A with the benefit of XX Rights which attached to the X class share and entitled them to X percent of the voting power at any meeting of members of XYZ Co. There are no limitations on the types of decisions that may be put to a vote of members in this company. A's XX Rights The XX Rights held by A in YZ Co are connected to all the shares held by A. The XX Rights held by A in XYZ Co relate to the X class share as part of a bundle of rights held by A. The XX Rights are held personally by A and are not transferrable with the relevant shares. Proposed Amendments It is proposed that B and C will be jointly granted XX Rights which will be held personally by them. There will be no consideration in the form of cash or other property provided by them as a payment for the grant of these XX Rights. These XX will be inserted into the articles of YZ Co and XYZ Co at the Proposed Amendment date. Currently, B and C hold no shares in YZ Co and hold some X class shares in XYZ Co. Prior to the insertion of the Proposed Amendments in YZ Co's articles, it is proposed that A will partially dispose of their holding in the X class share to B and C for nil consideration and the XX Rights will be attached to this new share issued to B and C. At the disposal date, the market value of the X class share will be no more than $x (or nil or nominal). At the disposal date, the X class share will then be held jointly by A, B and C in YZ Co.

Relevant legislative provisions: lncome Tax Assessment Act 1997 section 6-5(2) | lncome Tax Assessment Act 1997 section 104-10 | lncome Tax Assessment Act 1997 section 104-25 | lncome Tax Assessment Act 1997 section 104-35 | lncome Tax Assessment Act 1997 section 104-155 | lncome Tax Assessment Act 1997 section 116-30(1) | lncome Tax Assessment Act 1997 Division 723 | lncome Tax Assessment Act 1997 Division 725 | Income Tax Assessment Act 1997 subsection 995-1

Reasons for decision: Summary: The Proposed Amendments does not involve a disposal and is not CGT event A1. | Detailed Reasoning - Detailed reasoning: Subsection 104-10(1) provides that CGT event A1 happens if you dispose of a CGT asset. A CGT asset has the meaning given by section 108-5, where subsection 108-5(1) defines a CGT asset. The X class shares held by B and C in YZ Co is a CGT asset and the rights attaching to these shares will be varied. In paragraph 32 of Taxation Ruling (TR 94/30) Income tax: capital gains tax implications of varying rights attaching to shares provides ... that the rights attaching to shares cannot be dealt with separately from the share itself. Therefore, the rights attaching to X class shares are not separate CGT assets. The variation in rights, on the facts, is not a disposal of the X class shares and CGT event A1 will not occur. | Detailed Reasoning - Question 2: Will the Proposed Amendments to the articles of XYZ Co be CGT event A1 to B and C, pursuant to section 104-10? | Summary: The Proposed Amendments does not involve a disposal and is not CGT event A1. | Detailed Reasoning - Detailed reasoning: For the reasons outlined in Q1, the variation of the rights of the X class shares is not a disposal of the X class share and CGT event A1 will not occur. | Detailed Reasoning - Question 3: Will the Proposed Amendments to the articles of YZ Co give rise to a capital gain to B and C, pursuant to CGT event H2 in section 104-155? | Summary: A capital gain will not arise for B and C as a result of the Proposed Amendments for YZ Co as a consequence of CGT event H2 happening to those X class shares. | Detailed Reasoning - Detailed reasoning: CGT event H2 can only happen if no other CGT event happens under subsection 102-25(3). The variation of rights attached to the X class shares held by B and C is an act, transaction or event in relation to those X class shares and results in CGT event H2 happening in respect to those shares. A capital gain is made if the capital proceeds because of the CGT event are more than the incidental costs that are incurred that relate to the event. A capital loss is made if those capital proceeds are less than the incidental costs under subsection 104-155(3). There are no capital proceeds to be received by B and C, or incidental costs incurred. The capital proceeds modification rules contained in Division 116 will not apply to modify the nil capital proceeds receivable, and the market value substitution rules will not apply to modify the capital proceeds under CGT event H2. CGT event H2 will occur as result of the variation attaching to the X class shares. However, there will be no capital gain for B or C. | Detailed Reasoning - Question 4: Will the Proposed Amendments to the articles of XYZ Co give rise to a capital gain to B and C, pursuant to CGT event H2 in section 104-155? | Summary: The Proposed Amendments will not result in a capital gain to B and C as a consequence of CGT event H2. | Detailed Reasoning - Detailed reasoning: For the reasons outlined in Q3 CGT event H2 will occur as a result of the variation attaching to the X class share with no capital gain for B or C. | Detailed Reasoning - Question 5: Will A make a capital gain on the disposal of X share in XYZ Co, pursuant to CGT event A1 in section 104-10? | Summary: A will not make a capital gain on the disposal of the X class share as the capital proceeds will be nil or nominal. | Detailed Reasoning - Detailed reasoning: Section 104-10 is about disposal of a CGT asset. The disposal X class share by A will be a disposal and result in CGT event A1. In subsection 116-30(1) you are taken to have received the market value of the CGT asset if you received no capital proceeds that is subject of CGT event. A will not receive any capital proceeds on the disposal of the X class share. At the time of the CGT event, the market value of the X class share is proposed to be either nil or nominal as there are minimal rights to capital and income for the partial interest in the X class share. | Detailed Reasoning - Question 6: Will the Proposed Amendments to the articles of YZ Co give rise to CGT event C2 to A, pursuant to section 104-25? | Summary: The Proposed Amendments to the articles of YZ Co will not result in CGT event C2 to A. | Detailed Reasoning - Detailed reasoning: Section 104-25(1) provides that CGT Event C2 happens if your ownership of an intangible CGT asset ends by the asset: a) being redeemed or cancelled; or b) being released, discharged or satisfied; or c) expiring; or d) being abandoned, surrendered or forfeited; or e) if the asset is an option - being exercised; or f) if the asset if a convertible interest - being converted. As outlined in Question 1, the rights attaching to shares cannot be dealt with separately from the share itself. The rights attaching to X class shares are not separate CGT assets and the shares held by A in YZ Co will continue to exist following the insertion of the Proposed Amendments to the articles for the variation of the share rights of YZ Co. Accordingly, CGT event C2 will not occur under section 104-25(1) by varying the rights attaching to those shares. | Detailed Reasoning - Question 7: Will the Proposed Amendments to the articles of XYZ Co give rise to CGT event C2 to A, pursuant to section 104-25? | Summary: The Proposed Amendments to the articles of XYZ Co will not result in CGT event C2 to A. | Detailed Reasoning - Detailed reasoning: For the reasons outlined in Question 7, the partial interest in the X class share held by A in XYZ Co will continue to exist following the insertion of the Proposed Amendments to the articles of XYZ Co. Accordingly, CGT event C2 will not occur under section 104-25(1). | Detailed Reasoning - Question 8: Will the Proposed Amendments to the articles of YZ Co cause the direct value shifting rules in Division 723 to apply to reduce any capital loss arising on the future disposal of A's shares in YZ Co? | Summary: The Proposed Amendments to the articles of YZ Co for the variation of the rights to the shares will not result in the direct value shifting rules in Division 723 to apply to reduce any capital loss happening on the future disposal of A's shares in YZ Co as all of the requirements of subsection 723-10(1) will not be satisfied. | Detailed Reasoning - Detailed Reasoning: Division 723 applies to a realisation event happening to certain non-depreciating assets where value has been shifted by creating a right over that asset. Subsection 723-10(1) provides a loss that would, apart from this Division, be realised for income tax purposes by a realisation event is reduced by the amount worked out under subsections (3) and (4) if ...: The disposal of the shares that A owns will represent the disposal of a CGT asset, that is not a depreciating asset, trading stock or a revenue asset. This disposal is a CGT event A1 as outlined in Question 5. As the requirements of subsection 723-10(1) will not be satisfied the direct value shifting rules in Division 723 will not apply. | Detailed Reasoning - Question 9: Will a direct value shift happen pursuant to Division 725 when the Proposed Amendments to the articles of YZ Co are made? | Summary: A value shift will not happen when the Proposed Amendments are made to the articles of YZ Co. | Detailed Reasoning - Detailed Reasoning: Under Division 725 there is a direct value shift under a scheme involving equity or loan interests in an entity where there is a decrease in the market value of some equity or loan interest (down interest) and an increase or issue at a discount of other equity or loan interests (up interest). In subsections 725-145(1) and 725-145(3): 1) There is a direct value shift under a scheme involving equity or loan interests in an entity (the target entity) if: (a) there is a decrease in the market value of one or more equity or loan interests in the target entity; and (b) the decrease is reasonably attributable to one or more things done under the scheme, and occurs at or after the time when that thing, or the first of those things, is done; and (c) either or both of subsections (2) and (3) are satisfied.... (3) Or, there must be an increase in the market value of one or more equity or loan interests in the target entity. The increase must be reasonably attributable to the thing, or to one or more of the things, referred to in paragraph (1)(b). It must also occur at or after the time referred to in that paragraph. A, B and Cs' X class shares in YZ Co will constitute equity interests. The Proposed Amendments to Articles for the rights variation would constitute a scheme for the purposes of subsection 995-1. Paragraphs 725-145(1)(a) or (b) will not be satisfied. Subsection 725-145(2) has no application and subsection (3) is not considered. Accordingly, the direct value shifting rules in Division 725 will not apply and section 725-50 which sets out when a direct value shift has consequences under Division 725 will not have any application. | Detailed Reasoning - Question 10: Will the Proposed Amendments to the articles of XYZ Co cause the direct value shifting rules in Division 723 to apply to reduce any capital loss arising on the future disposal of A's shares in XYZ Co? | Summary: The Proposed Amendments to the articles of XYZ Co will not result in the direct value shifting rules in Division 723 to apply to reduce any capital loss arising on the future disposal of A's shares in XYZ Co. | Detailed Reasoning - Detailed Reasoning: Question 8 reasoning above on the application of the direct value shifting provisions in Division 723 to the Proposed Amendments of YZ Co similarly applies to the Proposed Amendments to the articles of XYZ Co. The requirements in subsection 723-10(1) will not be satisfied upon a future disposal of A's shares in XYZ Co. Therefore, the direct value shifting rules in Division 723 will not apply to reduce any associated capital loss. | Detailed Reasoning - Question 11: Will a direct value shift happen pursuant to Division 725 when the Proposed Amendments to the articles of XYZ Co are made? | Summary: A value shift will not happen when the Proposed Amendments to the articles of XYZ Co are made. | Detailed Reasoning - Detailed Reasoning: Question 9 reasoning above on the application of the direct value shifting provisions in Division 725 to the Proposed Amendments to the articles of YZ Co similarly applies to the Proposed Amendments to the articles of XYZ Co. Accordingly, Paragraphs 725-145(1)(a) or (b) will not be satisfied. The direct value shifting rules in Division 725 will not apply and section 725-50 which sets out when a direct value shift has consequences under Division 725 will not have application. | Detailed Reasoning - Question 12: Will the Proposed Amendments to the articles of YZ Co give rise to CGT event D1 to YZ Co, pursuant to section 104-35? | Summary: The Proposed Amendments will not result in CGT event D1 to YZ Co. | Detailed Reasoning - Detailed Reasoning: Subsection 104-35(1) provides that CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity. The Proposed Amendments will vary the rights attaching to the YZ Co shares held by B and C. It will not create a contractual, legal or equitable right in another entity (i.e. B and C). CGT Event D1 does not happen if a company resolves to vary the rights attached to its shares according to TR 94/30. Therefore, the Proposed Amendments to the articles of YZ Co will not give rise to CGT event D1 to YZ Co. | Detailed Reasoning - Question 13: Will the Proposed Amendments to the articles give rise to CGT event D1 to XYZ Co & Co, pursuant to section 104-35? | Summary: The Proposed Amendments to the articles will not give rise to CGT event D1 to XYZ Co. | Detailed Reasoning - Detailed Reasoning: Question 12 reasoning above on when CGT event D1 will not arise similarly applies to the Proposed Amendments to the articles of XYZ Co. Accordingly, the Proposed Amendments to the articles XYZ Co will not give rise to CGT event D1 to XYZ Co.

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 . | Reasons for decision: All references are to the Income Tax Assessment Act 1997 unless otherwise stated.