Capital Gains Tax Event K6 applies when someone disposes of a pre-CGT share or trust interest, and the underlying entity holds mostly post-CGT property. This can trigger a taxable gain, even if the original interest was acquired before 20 September 1985.
CGT Event K6 surprises many business owners. It often arises during restructures, intergenerational transfers, or sales of long-held private company shares or trust units. The Australian Taxation Office finalised new guidance on this event in July, changing how a capital gain is calculated under this rule.
Understanding when K6 applies and how to calculate your tax liability helps avoid penalties and unnecessary disputes.
When does CGT Event K6 apply to pre-CGT shares or units?
CGT Event K6 applies when three conditions are met:
- A person disposes of a share or trust interest acquired before 20 September 1985.
- The underlying entity holds property that was acquired on or after 20 September 1985 (post-CGT property).
- The market value of post-CGT property equals or exceeds 75% of the entity’s net value.
A “disposal” includes selling, gifting, or transferring the share or unit, such as during succession planning or a restructure. K6 does not apply unless a CGT event happens.
Bonus shares or restructures do not automatically trigger K6. The tax event must result in a disposal under standard CGT rules like Event A1, C2, or E5.
What counts as post-CGT property in the 75% test?
Post-CGT property includes any asset the company or trust acquired on or after 20 September 1985. This often includes:
- Land, buildings, and real estate
- Goodwill and brand value
- Intellectual property or software
- Business assets or plant acquired after that date
The 75% test compares the market value of post-CGT assets to the net value of all assets (total assets minus liabilities). If post-CGT property equals or exceeds 75%, the test is satisfied and K6 may apply.
If the entity has subsidiaries or interposed trusts, their assets are also included. You must trace values through the group structure.
How does interposed ownership affect the 75% test?
Interposed entities, such as subsidiaries or family trusts, must be included when applying the 75% test. Their post-CGT assets are treated as part of the parent entity’s value.
You need to trace ownership through these layers and allocate value proportionately. This increases compliance complexity, especially for private groups with multi-tier structures.
Failing to trace these values accurately can lead to underreported gains and ATO scrutiny.
What changed in the ATO’s latest CGT Event K6 guidance?
In July, the ATO finalised an addendum to Taxation Ruling TR 2004/18. This clarified how CGT Event K6 applies and how capital gains are calculated.
Key changes include:
- Only one capital gain can arise under CGT Event K6, even if both direct and indirect post-CGT tests are satisfied.
- Taxpayers must use a two-step attribution method to calculate the gain.
- Transitional choice applies to disposals before 28 July; use either the old or new method.
These changes prevent double taxation across tiers and standardise the treatment of complex structures.
Blackwattle Tax uses the updated ATO method to guide clients in restructures, sales, and business succession events involving pre-CGT holdings.
How do you calculate a capital gain under CGT Event K6?
Capital gains under CGT Event K6 are calculated using a two-step method outlined in TR 2004/18:
Step 1: Identify the portion of proceeds attributable to post-CGT property. This is based on the proportion of post-CGT property value to total net asset value.
Step 2: Subtract the cost base (if any) of the pre-CGT interest from the Step 1 amount. The excess is the taxable capital gain.
Example:
A founder sells pre-CGT shares for $1 million. The company has:
- Post-CGT property worth $3 million
- Total assets of $3.6 million
- Liabilities of $600,000
→ Net value = $3M
→ Post-CGT proportion = 100%
Step 1: 100% of proceeds ($1M) is attributable
Step 2: Cost base is $0 (pre-CGT), so the full $1M is a capital gain
No capital loss can occur under K6, even if the disposal results in a lower amount than expected.
Can you apply for the CGT discount or small business concessions?
Yes, if the eligibility criteria are met.
CGT discount: Available to individuals, trusts, and SMSFs that have held the asset for over 12 months. Companies cannot claim the discount.
Division 152 small business concessions: Available if:
- Aggregated turnover is under $2 million or net assets under $6 million
- The interest is in an active business
- Other standard eligibility rules are met
K6 gains can still access these concessions if the underlying business qualifies. However, additional care is needed with structures involving interposed entities or trusts.
Blackwattle Tax advises on applying the 15-year exemption, 50% active asset reduction, and retirement exemption under Division 152 in K6 scenarios.
What types of businesses are commonly affected by CGT Event K6?
CGT Event K6 often affects:
- Family-owned companies or trusts with assets acquired after 1985
- Private company restructures where shares are transferred between family or holding companies
- Businesses with foreign investment or international expansion
- Founders selling or transferring ownership in startups with goodwill or IP
Many SME owners believe pre-CGT assets are always tax-free. That assumption becomes risky once post-CGT property dominates the balance sheet.
What records should you keep for a CGT Event K6 analysis?
Accurate records are essential. You should maintain:
- A historical asset register showing acquisition dates
- Market valuations for all assets and liabilities
- Ownership charts for group entities
- Trust deeds or company constitutions
- Documentation for any restructuring steps
ATO audits often focus on valuation evidence and correct attribution. Blackwattle clients receive a structured checklist and support for K6 recordkeeping and tax return reporting.
How do you report CGT Event K6 in a tax return?
CGT Event K6 is reported under capital gains disclosures in the relevant tax return:
- For individuals or trusts, use labels G and H on the CGT schedule.
- For companies, disclose in the company return CGT worksheet.
- Include supporting documentation for asset valuations, calculation method, and entity structure.
Errors in reporting K6 gains can trigger ATO reviews. It’s important to apply the correct attribution method and reference the updated ATO ruling.
Blackwattle’s tax advisory team ensures K6 calculations are reflected properly in year-end lodgements.
Can CGT Event K6 be avoided or deferred?
K6 cannot be “avoided” in the traditional sense, but it can be planned for.
Tax may be reduced or deferred if:
- You restructure before the 75% threshold is met
- Post-CGT property is reduced or sold beforehand
- You qualify for CGT rollovers or small business concessions
Timing and valuation are critical. A business may sit at 74% post-CGT property one year, and 76% the next, tipping it into K6 territory on a later transaction.
Clients often engage Blackwattle for strategic reviews before ownership transfers to assess K6 exposure.
Does goodwill count toward the 75% post-CGT threshold?
Yes. Goodwill is a post-CGT asset if it arose from business growth or acquisitions after 20 September 1985.
This is common in:
- Startups that developed valuable brands
- Family businesses that scaled operations
- Merged or restructured companies with refreshed goodwill
Many businesses hit the 75% test simply because of goodwill value, even if no physical assets were acquired post-1985.
An independent valuation is often required to calculate this proportion accurately.
What are common misunderstandings about CGT Event K6?
- Pre-CGT interests are always tax-free: False. K6 overrides this if the post-CGT property dominates.
- Bonus share issues trigger K6: False. Only a disposal (sale or transfer) of the original interest triggers K6.
- K6 results in capital losses: False. K6 can only generate a gain.
- Listed shares are always affected: Not necessarily. Exceptions exist for widely held companies.
These misconceptions can lead to incorrect structuring or surprise tax bills. Blackwattle Tax provides proactive reviews to identify and mitigate K6 risks.
How is CGT Event K6 different from A1, C2, and E5?
CGT Event | Trigger | K6 Difference |
A1 | Sale of an asset | A1 triggers disposal; K6 overlays if pre-CGT and the 75% test applies |
C2 | Ending of right | Can also trigger K6 on certain trust interests |
E5 | Trust units transferred | May invoke K6 if the unit is pre-CGT and trust holds post-CGT property |
K6 works alongside these CGT events. It doesn’t replace them, but reclassifies the gain on pre-CGT disposals if the conditions are met.
How can business owners check if K6 might apply?
Use this self-check:
- Did you acquire shares or units before 20 Sept 1985?
- Is your business now asset-heavy (goodwill, property, IP)?
- Are you planning a succession, sale, or restructure?
- Do you have interposed entities in the ownership chain?
- Has your advisor ever reviewed your CGT exposure?
If three or more apply, K6 may apply at the next ownership event.
Book a CGT review with Blackwattle Tax to model the outcome in advance and understand your options.
What should you do if CGT Event K6 might apply?
Review asset acquisition dates and values
Assess the 75% post-CGT property threshold
Prepare entity structure diagrams
Obtain professional market valuations
Seek tax advice before proceeding with any ownership change
Blackwattle Tax supports business owners with clear guidance, valuation coordination, and tax-effective planning. Clients rely on our team when navigating complex CGT events like K6, A1, and Division 152.
Final thoughts
CGT Event K6 affects more Australian business owners than expected, especially those with legacy shareholdings, growing asset bases, or complex structures. Even if your interest is pre-CGT, the presence of post-CGT property can lead to significant tax consequences.
Understanding this rule is the first step. Planning for it is the next step.
Speak with Blackwattle Tax to review your risk and build a strategy that minimises tax, not just reacts to it.
Disclaimer: This article provides general information only and does not constitute legal or tax advice. Please consult a registered tax agent for advice relevant to your specific circumstances.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.