Private ruling: CGT concessions
Date of advice: 17 April 2026
Published: 13 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the shares held by you in Company A an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purposes of applying the small business CGT concessions under Division 152 of the ITAA 1997 to a proposed share sale in the relevant income year? | A1: Yes.

Relevant facts and circumstances: Company A is a company incorporated in Australia. Company A was set up to hold shares in Company B as a risk management tool. Company A owns all shares in Company B. You own shares in Company A which represents X% of the issued capital in Company A. Each year, Company B pays a dividend to Company A, which it subsequently pays, with Company A then loaning the money back to Company B under a secure loan facility. It does this as Company B requires the money to run its business operations. Company B operates multiple business lines and often requires large cash reserves for income-producing purchases. You are a CGT concession stakeholder in Company A. The aggregated Annual turnover test is not satisfied as Company B's turnover is above $2 million. You satisfy the maximum net asset value test. You are planning on selling your shares to another entity in the current year based on the valuation of Company A.

Relevant legislative provisions: Income Tax Assessment Act 1997 s ection 152-10 | Income Tax Assessment Act 1997 s ection 152-15 | Income Tax Assessment Act 1997 s ection 152-20 | Income Tax Assessment Act 1997 s ection 152-40 | Income Tax Assessment Act 1997 s ection 328-125

Reasons for decision: Summary: To apply the small business CGT concessions under Division 152 of the ITAA 1997, the basic condition under section 152-10 must be satisfied. Under paragraph 152-10(1)(d) the CGT asset must satisfy the active asset test under section 152-35. Section 152-40 of the ITAA 1997 provides the meaning of an active asset for the purpose of section 152-35. An active asset, under section 152-40, is a CGT asset owned by you that is used, or held ready for use, in the course of carrying on a business that is carried on by • you, • your affiliate, or • another entity that is connected to you. Further to this, where the asset is an intangible asset, then the asset needs to be inherently connected with a business being carried on as outlined above. The relevant CGT asset in your case are the shares in Company A and therefore intangible. Subsection 152-40(3) of the ITAA 1997 will be relevant. The first criteria to be satisfied under paragraph 152-40(3)(a) is the share needs to be a share in a company that is an Australian resident at the time. Company A was incorporated in Australia and has continued to be an Australian resident for tax purposes. Therefore, paragraph 152-40(3)(a) will be satisfied. Paragraph 152-40(3)(b) requires the total of the market values of the active assets of the company and the market value of any financial instruments or cash of the company that is inherently connected with a business that the company carries on, is 80% or more of the market value of all the assets of the company. For the 80% test to be satisfied, it will be necessary for the shares held in Company B to be active and the loan provided to Company B will need to be inherently connected with a business carried on by Company A. In the first instance, consideration will be given to the loan provided by Company A to Company B first. 'Inherently connected' is not defined in the ITAA 1997 or the Income Tax Assessment Act 1936 . An inherent connection requires something more than just some form of connection between the financial instrument and the business. A thing might be regarded as inherently connected to a business when it's a permanent or characteristic attribute of the business. A financial instrument must be inherently connected with the business that the owner of the financial instrument carries on, rather than any business a related entity carries on. It needs to be determined whether Company A is carrying on a business. Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? (TR 2019/1) sets out the Commissioner's views on when a company carries on a business within the meaning of section 328-110 of the ITAA 1997. Example 6 of TR 2019/1 involves a holding company that holds shares in a profitable trading business. It also provides interest free loans and rent-free plant and capital equipment to the business. The income derived by the company consists of dividend income derived from shares it holds in the business. In this example the holding company's activities are carried on with a purpose and prospect of profit and reflect a normal commercial business structure. Additionally, while it does not derive a direct return on the loan or provision of equipment, these enhance the profitability of the business and improve the return on the shares held in the business. The example indicates in such circumstances the holding company is likely to be carrying on a business. Further to this, The Commissioner of Taxation of the Commonwealth of Australia v Total Holdings (Australia) Pty Ltd [1979] FCA 53 (Total Holdings) showed that a holding company with an expectation of receiving dividends from its subsidiaries where it made interest-free loans to those subsidiaries was held to being carrying on a business. Considering the relevant factors, Company A will be taken to be carrying on a business. As such, the loan to Company B will be a financial instrument that is inherently connected with a business that Company A carries on. Consideration will now turn to the shares held in Company B. These shares will need to also be active to allow Company A to meet the 80% test in section 152-40 of the ITAA 1997. It is necessary to note there are further additional conditions under subsection 152-10(2) that must be satisfied where the CGT asset is a share in a company. Paragraph 152-10(2)(a) requires the CGT asset to still satisfy the active asset test if the assumptions in subsection 152-10(2A) were made. The first assumption under paragraph 152-10(2A)(a) refers to null-in-voiding financial instruments and cash on the basis that the company or trust acquired that asset for the purpose that included assisting an entity to otherwise satisfy paragraph (2)(a). The financial instrument (loan to Company B) was acquired as a means of business operations, not to meet paragraph (2)(a) so paragraph 2A(a) is not applicable. Under the second assumption at paragraph 152-10(2A)(b), paragraph 152-40(3)(b) does not cover an asset that is a share in a company (later entity) and is held at the test time by the object entity (Company A) directly or indirectly (152.10(2A)(b)). The shares in Company B would be excluded under paragraph 152-40(3)(b) as the object entity (Company A) holds shares in later entity (Company B). The third assumption at paragraph 152-10(2A)(c) includes assets held at the test time by the later entity (Company A) where the asset is an asset of a kind referred to in subparagraph 152-40(3)(b)(i), (iii) or (iii), as modified by paragraph (a) and (b) of subsection 152-10(2A). This has the effect of including the applicable assets of Company B as if they were Company A's own assets to the extent your small business percentage in Company B is 20% or you are a CGT concession stakeholder in Company B and Company B would satisfy the maximum net asset value test with the modifications under subsection 152-10(2B)(b). You are a significant individual for Company A holding more than 20% of issued shares. Therefore, your small business percentage share in Company B is equal to the share ownership in Company A (as Company A holds all shares in Company B). Company B would meet the maximum net asset value test and as such this criteria would be met. Paragraph 152-10(2B)(b) states the later entity (Company B) would have to be a CGT small business entity for the income year that includes the test time, or the entity would satisfy the maximum net asset value test for a notional CGT event taken to have happened if the following assumption were made: • Only CGT assets or annual turnovers considered were those of Company B and of the entities referred to in subparagraph 152-10(2)(c)(iii) - These being Company A and its affiliates and each entity controlled by Company A in a way described in section 328-125 of the ITAA 1997. • Each reference in section 328-125 to 40% was a reference to 20%. • No determination under subsection 328-125(6) of the ITAA 1997 were in force. Company B would not be a CGT small business entity as its turnover is above $2 million. Based on the assumption that Company B would meet the maximum net asset value test the above would be satisfied and the assets of Company B would be included in the 80% test as if they were Company A's. As such the 80% test would be met and the shares held by you in Company A would be an active asset.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .