Section 686 — Income Tax Act 2007: Excluded circumstances: fundamental change of ownership

Excluded circumstances: fundamental change of ownership 686 1 Circumstances are excluded by this section if—

a immediately before the transaction in securities (or the first of the transactions in securities) the party holds shares or an interest in shares in the close company, and b there is a fundamental change of ownership of the close company.

2 There is a fundamental change of ownership of the close company if, as a result of the transaction or transactions in securities, the condition in subsection (3) is met.

3 The condition in this subsection is that the original shareholder or original shareholders taken together with any associate or associates—

a do not directly or indirectly hold more than 25% of the ordinary share capital of the close company, b do not directly or indirectly hold shares in the close company carrying an entitlement to more than 25% of the distributions which may be made by the close company, and c do not directly or indirectly hold shares in the close company carrying more than 25% of the total voting rights in the close company.

4 In this section “ original shareholder ” means a person who, immediately before the transaction in securities (or the first of the transactions in securities), held any ordinary share capital of the close company.

5 For the purposes of this section, shares of or share capital in the close company which are held by a person controlled by an original shareholder, or by two or more original shareholders taken together, count as shares or share capital held by that original shareholder or those original shareholders.