CGT Implications Of The Death Of A Shareholder For Sale Of Shares

Q&A Tax
Ms C owns 100% of the shares in a private company.

The company owns pre-CGT rental properties. The shares in the company were acquired as follows:

50% by Ms C when the company was set up (pre-CGT e.g. Before 20 Sep 1985)

50% transferred to Ms C from the deceased husband when he died in 2006 (he held them pre-CGT
e.g. Before 20 Sep 1985)

Ms C is considering selling the property within the company and closing the company down.

Question :

1. Would the sale of the property be EXEMPT from CGT to the company as it is a pre-CGT
asset, or does the change in ownership in 2006 cause issues?

2. If Ms C liquidate the company, Ms C presumes that there would need to be a calculation to
work out the capital gain made on redemption/disposal of the shares held by Ms C which were
transferred to her by her husband in 2006 (i.e. we would need to get a valuation of the property
at DOD of the husband to determine the cost base of shares transferred to our client).

 

Answer :

1. A change in ‘majority underlying interests’ will not be taken to have occurred as a result of the death
of a person for Division 149 purposes.

Subsections 149-30(3) and 149-30(4) of the ITAA 1997 provide that, if an ultimate owner (new owner)
has acquired an interest in an asset because it was transferred to the new owner by way of a marriage
breakdown rollover or because of the death of a person (former owner), the ‘new owner’ is treated as
having held the underlying interest of the ‘former owner’ for the period the ‘former owner’ held them.

If the shares were transferred to the client resulting from the death of her husband, this event would
not trigger Division 149. As such, the pre-CGT asset of the company should retain its pre-CGT status
and the sale of the asset should be exempt from CGT.

2. If the shares acquired from the husband were pre-CGT shares of the husband, these shares would
be post-CGT shares in the hands of the client at a cost base equal to the market value of the shares at
the date of her husband’s death. You need to obtain a market valuation of the shares at the date of
the husband’s death for CGT purposes.

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