Here's a simpler version:
Q: A client, a private company named H, sold a property with seven townhouses to a property developer in March 2017. They're winding up the company before June 30, 2017. The property, bought in 1975 with a house on it, was later turned into townhouses. The husband and wife shareholders lived in one townhouse and rented out the rest. The wife passed away in 2006, transferring her shares to her husband. The husband moved out in 2012, turning his townhouse into a rental.
What are the CGT implications considering these changes? Does the 2006 share transfer affect CGT? Can small business CGT concessions apply? Can CGT be ignored since the property was bought before September 1985?
A:
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The husband inherited his wife's shares in 2006, which became post-CGT assets. The rental properties don't count as active assets under Div. 152.
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The construction of townhouses in 1987 on the original land creates separate assets. The sale involved both land and townhouses, so a fair division of the sale price is needed to calculate the capital gain on the townhouses.
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Div. 149 doesn't apply unless there's a significant change in the majority ownership rights. Since the shares were ordinary, the wife's death didn't trigger it.
Conclusion:
- The land sale is not subject to CGT because it's pre-CGT.
- The townhouses' sale requires calculating a capital gain.
- If the company is liquidated, the tax-free gain from the land sale can be distributed to shareholders as a liquidators' dividend, retaining its tax-free status. Make sure to record the land sale separately. The CGT status of the shares doesn't affect this.
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