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CGT event K6 never happens alone.
CGT Event K6
CGT event K6 only ever gets triggered in conjunction with another CGT event. So if you have no CGT event, you don’t have a K6 problem.
In this episode, Andrew Henshaw of Velocity Legal in Melbourne will walk you through the ins and outs of CGT event K6. Here is what we learned but please listen in as Andrew explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
CGT Event K6
K6 never happens alone. You need another CGT event to trigger K6. And K6 only happens if you have pre-CGT shares but the actual company holds post-CGT assets.
Think of a bucket full of stuff. The bucket is old and pre-CGT but the stuff inside is new post-CGT.
K6 is to stop you from selling the post-CGT stuff hidden inside by selling the pre-CGT bucket.
And so K6 says that if there is enough post-CGT stuff in the bucket (ie company), then part of the bucket will be treated as post-CGT when you sell the bucket including the stuff inside.
That is K6 in a nutshell.
TR 2004/18 and s104-230 ITAA97
CGT event K6 is governed by TR 2004/18 CGT and s104-230 ITAA 1997.
“The purpose of CGT Event K6 is to tax the disposal of pre-CGT shares or units where the company or trust has property acquired after 20 September 1985 (post CGT property) with a market value that represents at least 75% of the net value of the company or trust.” ATO website
Generous K6
At first sight, K6 looks very generous. A 75% threshold is a high threshold. But it isn’t necessarily.
K6 looks at the market value of post-CGT assets in comparison to the net asset value of the company. And this net asset value might be very low if the company has liabilities. And hence it can be very easy to exceed the 75% threshold.
Avoiding K6
One easy way to avoid K6 is to sell or transfer post-CGT assets out of the pre-CGT company before you sell the company. Then you stay clear of K6. But of course, the sale or transfer will trigger the capital gain that K6 would trigger as well. So you don’t avoid the realisation of the capital gain as such. You just simplify the tax paperwork.
These are just some very brief thoughts. Please listen to Andrew Henshaw in this episode since Andrew goes into a lot more detail than we do here.
MORE
Pre-CGT Company Assets After Death
Pre-CGT Shares and Company Assets
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 14 February 2022
Tax Talks spoke to Andrew Henshaw - Director at Velocity Legal - for more details.
