The Australian Taxation Office (ATO) has initiated a public consultation on the updated draft taxation ruling, TR 2004/18DC, which addresses the application of “capital gains tax (CGT) event K6”. This revision clarifies and refines the ATO’s perspective on calculating capital gains when CGT event K6 occurs.
The Ruling addresses several key issues, including the definition of property and what constitutes property acquired on or after 20 September 1985, the application of the 75% test, the calculation of capital gains, and how these provisions interact with other sections of the ITAA 1997.
CGT event K6 can result in capital gains (but not capital losses) if certain CGT events happen to pre-CGT shares in a “private” company or pre-CGT interests in a “private” trust where the market value of its post-CGT property is at least 75% of its net value (the 75% test).
The 75% test is satisfied only if one or both of the following tests are met:
- the market value of property referred to in paragraph 104-230(2)(a) equals or exceeds 75% of the net value of the company;
- the market value of property referred to in paragraph 104-230(2)(b) equals or exceeds 75% of the net value of the company.
This Ruling also considers the application of CGT event K6 in the context of structures that comprise one or more companies. However, the views expressed in the Ruling also apply, adapted as necessary, to structures that comprise one or more trusts or a combination of companies and trusts.
The updated ruling applies before and after its issuance, but taxpayers can rely on either the original or amended ruling for K6 events before the final update’s issue date.
The consultation is set to conclude on 14 February 2025.
