In the May budget there were some changes announced that relate to our favourite CGT concession, the Small Business CGT Concessions in Division 152. At the time I had no idea what these changes would be but now we know.
The Government has released draft legislation to make these changes and they are designed to ensure that taxpayers cannot sell interests in either large businesses or passive entities and get these concessions.
First, the amendments only apply where the capital gain we want to reduce is as the result of selling a CGT asset that is a share in a company or an interest in a trust.
Where this is the case the taxpayer selling the share or the unit must own 20% of the shares or the units in the object entity, or be the spouse of someone who owns such a 20%, or be owned by these to people at least at 90%. This is the current rules
But there are are now four additional rules the Government wants to apply to avoid taxpayers inappropriately claiming the Small Business CGT Concessions when they sell a share or a unit.
The four additional test are:
- If the taxpayer does not satisfy the maximum net asset value test, meaning they must be a small business entity with turnover of less than $2 million, the relevant CGT small business entity must have carried on a business just prior to the CGT event. This means if the business has stopped, then they should not be able to get the Small BUSINESS CGT Concessions;
- The object entity, being the entity that the shares or the units are in, must have carried on a business just prior to the CGT event. Therefore if a taxpayer that is carrying on a business sells shares or units in an entity that is not carrying on a business, then they should not be able to get the Small BUSINESS CGT Concessions;
- The object entity must either be a CGT small business entity or satisfy the maximum net asset value test. If the object entity is massive and I sell my interest in it I should not be able to get the SMALL Business CGT Concessions
- The share or interest must satisfy a modified active asset test that looks through shares and interests in trusts to the activities and assets of the underlying entities to ensure the underlying assets at at least 80% active. If the underlying assets are passive, then they should not be able to get the Small BUSINESS CGT Concessions.