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17 Mar 1111 CGT and "No goodwill" incorporated professional practices - TD 2011/D3

On 16 March 2011, the ATO released draft Taxation Determination TD 2011/D3 for public comment by 15 April 2011.

Its full title is "Income tax: capital gains tax: will the Commissioner accept that the shares in a ‘no goodwill’ incorporated professional practice have a market value of nil when considering the application of s 116 30(1) of ITAA 1997 to an admission or exit of a practitioner shareholder from the practice for no consideration?"

The answer given to the question posed is:

"1.Yes, where the conditions set out in paragraph 2 of this draft Determination are satisfied the Commissioner will accept when applying subsection 116 30(1) of ITAA 1997 that the shares in a ‘no goodwill’ incorporated professional practice have a market value of nil.

2.Where a 'no goodwill' professional partnership has incorporated or a new 'no goodwill' incorporated practice has commenced the following conditions must be satisfied for this approach to be adopted by shareholders in a professional practice company:

(a) The original shareholders in the company are all natural person practitioners who previously held a fractional interest in the ‘no goodwill’ partnership prior to the restructure (or would have been eligible to hold a fractional interest had the practice operated as a partnership);
(b) The provision of a share or shares at the time of incorporation and in the post incorporated environment must be reflective of that person’s status as an active practitioner in the practice;
(c) The company holds no other assets and has a paid up capital which reflects an immaterial value for goodwill and which is generally kept intact such that all of its distributions of income or profits will be dividends within the meaning of s 6(1) of ITAA 1936;
(d) The company adopts a constitution or shareholder agreement or both that regulate the basis for admission to shareholding and surrender or transfer of shares in the company and the amount that is paid for it; and
(e) The constitution or shareholder agreement or both provide that no or an immaterial payment is to be made for acquiring a share, disposing of a share or any change to the profit distribution entitlements attached to a share in the company."


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