Income Tax Act 2007 section 686

Excluded circumstances: fundamental change of ownership

Section 686 sets out the circumstances in which a transaction in securities involving a close company is excluded from the transactions in securities rules because there has been a fundamental change of ownership of that company.

• The exclusion applies where the party holds shares or a share interest in the close company immediately before the transaction, and a fundamental change of ownership results
• A fundamental change of ownership occurs when the original shareholders and their associates collectively retain no more than 25% of ordinary share capital, distribution entitlements, and voting rights
• An original shareholder is anyone who held ordinary share capital in the close company immediately before the transaction or the first in a series of transactions
• Shares held by a person controlled by one or more original shareholders are treated as held by those original shareholders for the purposes of this test