There are several provisions in the ITAA97 that can “freshen-up” the status of pre-CGT assets. These provisions need to be considered before making a conclusion that because an asset was prima-facie acquired prior to 19 September 1985, there is no CGT payable on any capital profit made on the disposal of the property.
Subdivision 108-D of the ITAA97
Subdivision 108-D of the ITAA97 can artificially separate post-CGT buildings / capital improvements that are constructed on pre-CGT landholdings.
In relation to capital improvements specifically, these will only be treated as separate assets if the value of the capital improvements exceed the ATO prescribed capital improvements threshold.
Having regard to the application of Subdivision 108-D of the ITAA97, on disposal of pre-CGT landholdings, a taxpayer may be required to allocate a component of the proceeds received to post-CGT buildings / capital improvements constructed on the land to determine whether there is any assessable capital gain in relation to the disposal of that asset.
Section 104-230 of the ITAA97
Section 104-230 of the ITAA97 applies to shareholdings and unitholdings.
Effectively, section 104-230 of the ITAA97 can trigger an assessable capital gain on the disposal of pre-CGT shareholdings / unitholdings where the market value of “post-CGT property” (excluding trading stock) within the company / unit trust represents at least 75% of the “net value” of the company or trust.
In undertaking the above calculation, TR 2004/18 confirms that “post-CGT property” includes all property including assets such as PP&E, debtors and cash, while the “net value” of the company represents the value of all assets of the company / unit trust less presently existing liabilities.
Where section 104-230 of the ITAA97 is triggered, TR 2004/18 provides a formula for the calculation of the assessable capital gain on the disposal of the pre-CGT shares / units.
Division 149 of the ITAA97
Division 149 of the ITAA97 can result in pre-CGT assets held in a company or unit trust becoming post-CGT assets.
Division 149 is triggered where there is a change in the majority underlying ownership of the company or unit trust post-19 September 1985 such that those majority underlying owners of the company / unit trust as at 19 September 1985 cease to hold majority underlying ownership in the company / unit trust post-19 September 1985. Where there is a change in majority underlying ownership, the pre-CGT assets in the company / unit trust will become post-CGT assets as from that date.
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