Private ruling: Capital gains tax - shares - transfer - family trust
Date of advice: 6 April 2020
Published: May 2020
Ruling period: Year ended 30 June 20XX. | Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Will the transfer of a share in Company A by each of Individual 1 and Individual 2 (Individuals) to Company 2 as trustee for the Individuals Family Trust (Individuals FT) be the happening of a CGT event? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Before 20 September 1985 Company 2 was incorporated. Company 2 has never carried on a business or held assets in its own account. A short time later the Individuals Family Trust (the Individuals FT) was established by trust deed. The original trustee of the Individuals FT was and remains Company 2. The Individuals FT deed has been varied six times. Individual 1 was named appointer of the Individuals FT. Individual 1 now holds the two issued shares of Company 2. The primary beneficiaries of the Individuals FT are the children of Individual 1. Individual 1's children include Individual 2, Individual 3 and Individual 4. The secondary beneficiaries of the Individuals FT are Individual 1 and their spouse. Individual 1 is the child of the settlors of the Individuals FT. After 20 September 1985 Individual 1 decided to acquire assets in a company that was to be wholly owned by the Individuals FT. For family reasons Individual 1 wanted to keep the ownership of that company by the Individuals FT confidential. It was arranged to acquire a shelf company from Firm A. The company was called Company 1 which had been incorporated just prior to its purchase. The initial shareholders and directors of Company 1 were Director 1 and Director 2. Sometime after 20 September 1985 the shares in Company 1 were transferred to Director 3 and an associate of Director 4. Director 3 and an associate of Director 4 executed a deed of trust declaring they held the shares in Company 1 on trust for Company 2. At the same time Director 1 and Director 2 resigned and Director 3 and Director 4 were appointed directors in their place. Sometime later the share held by an associate of Director 4 was transferred to Individual 2 and Individual 2 executed a Deed of Trust declaring he held the share as trustee for Company 2. At the same time director 4 resigned as director of Company 1 and Individual 2 was appointed in their place. A few years later director 3 resigned as director of Company 1 and Individual 3 was appointed in their place. Around the same time Individual 1 and their spouse were appointed as additional directors of Company 1. A short time later the annual return for Company 1 shows that Individual 1 had become a shareholder in place of director 3 during the year. Despite extensive searches and enquires it has not been possible to locate a share transfer or deed of trust in respect of the share. After an extensive period of time Individual 3 and the spouse of Individual 1 ceased to be directors of Company 1. The sole shareholders and directors of Company 1 are now Individual 1 and Individual 2. Individual 1 and Individual 2 now wish to transfer one share each in Company 1 to Company 2 in Company 2's capacity as trustee for the Individuals FT. Other Relevant Information The Company Statutory records are held in a lever arch file labelled 'Company Register' with standard dividers for corporate volume. The records are incomplete but consistent with the facts stated above. The annual return prepared by the new Accountants shows the shares in Company 1 held by both Individual 1 and Individual 2 were held non-beneficially. All subsequent annual returns and company statements of Company 1 up until current year show the shares held in Company 1 were held by Individual 1 and Individual 2 non-beneficially. Full financial statements are available for Company 1 for a period of time. Full financial statements are available for the Individuals FT for a period of time. The full financial statements for the Individuals FT do not show an asset being the shares of Company 1. The initial cost of the shares in Company 1 was minimal. No dividends were received by the Individuals FT from Company 1 between 20XX and 20XX No dividends were paid by Company 1 between 20XX and 20XX. In 20XX Company 1 paid a dividend of $XXX,000. The dividend was paid to each of Individual 1 and Individual 2 in their capacity as trustees for Company 2 as trustee for the Individuals FT. For the 20XX financial year the financial statements for the Individuals FT show the receipt of a dividend of $XXX,000 being the amount of the dividend declared and paid by Company 1.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-25 | Income Tax Assessment Act 1997 section 104-10