CGT Event K6: ATO Clarifies Tax on Pre-CGT Shares and Trust Interests

The Australian Taxation Office (ATO) has released a significant Addendum to Taxation Ruling TR 2004/18, providing updated guidance on CGT event K6 under section 104-230 of the Income Tax Assessment Act 1997 (ITAA 1997). This update is highly relevant for taxpayers disposing of pre-CGT shares or trust interests, particularly when the underlying entity holds substantial post-CGT assets.

What Is CGT Event K6?

CGT event K6 applies when a person disposes of an asset acquired before 20 September 1985 (i.e. a pre-CGT asset), and the asset is an interest in a company or trust that holds mostly post-CGT property. Under this provision, a capital gain may still arise despite the asset being acquired before the introduction of capital gains tax in Australia.

Specifically, K6 is triggered if:

• A relevant CGT event occurs to pre-CGT shares or units
• The market value of the entity’s post-CGT property is 75% or more of its total net value

Key Update in the 2025 Addendum

The Addendum to TR 2004/18 clarifies how the 75% test under subsection 104-230(2) should be applied:

• Even if the 75% test is met twice — once under paragraph (a) (direct post-CGT property) and again under paragraph (b) (interests held through interposed companies or trusts) — only one capital gain can arise under CGT event K6.
• This avoids duplication and ensures fairness in the application of the rule.

This interpretation simplifies compliance and reduces potential double-counting of capital gains where multiple layers of ownership exist.

Effective Date and Transitional Relief

The Addendum has retrospective effect, applying to all relevant CGT events, including those in the past. However, for CGT event K6 transactions occurring before 23 July 2025, taxpayers can choose to rely on either:

• The original version of TR 2004/18, or
• The amended version with the 2025 Addendum

This transitional flexibility provides certainty for taxpayers and advisors who may have relied on the prior interpretation.

Why This Matters to Investors and Business Owners

This clarification has important implications for:

• Long-term shareholders of private or family companies
• Unit holders in trusts with pre-CGT status
• Taxpayers involved in restructures, sales, or succession planning

Misapplying CGT event K6 could lead to unnecessary capital gains tax, or even missed opportunities for exemption or deferral.

How Gavin M & Co Can Help

Our experienced tax professionals can:

• Review your current holdings for potential CGT event K6 exposure
• Analyse the underlying asset mix of companies or trusts to determine if the 75% test applies
• Model the tax consequences of a proposed sale or restructure
• Advise on the most favourable version of TR 2004/18 to apply if the transaction occurred before 23 July 2025

Whether you’re managing a complex investment structure or planning a business exit, Gavin M & Co can help you navigate capital gains tax with confidence.

Speak With Us Today

Call: 03 9557 3138
Email: info@gavinmaandco.com.au
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