Private ruling: Small business capital gains tax concessions
Date of advice: 2 September 2020
Published: October 2020
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does Trust X satisfy the basic conditions for small business capital gains tax relief in section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the sale of the shares in Company Y? | A1: Yes. Based on the facts provided, all the basic conditions have been met as: · Trust X satisfies the maximum net asset value test because the total net value of the CGT assets owned by Trust X and its connected entities did not exceed $X million just before the CGT event (Trust X had no affiliates); · The active asset test is met in relation to Trust X's shares in Company Y because during at least half the period of ownership, the market value of Company Y's active assets represented 80% or more of the market value of all of Company Y's assets; · The modified active asset test is also met in relation to Trust X's shares in Company Y because none of the modifications are applicable (Company Y did not acquire financial instruments or cash for the purpose of meeting the test and Company Y did not own any interests in a company or trust so had no 'later entities'); · Company Y meets the modified maximum net asset value test that applies to the object entity. Only Company Y's CGT assets are included in the test as Company Y had no affiliates or an ownership interest in any other entity. Company Y's net asset value just before the CGT event did not exceed $X million; and · Just before the CGT event, CGT concession stakeholders in Company Y had a small business participation percentage in Trust X of at least 90%. A beneficiary's direct small business percentage in a discretionary trust at any time during an income year is the percentage of the trust's distributions for that income year that the beneficiary is entitled to (subsection 152-70(1) of the ITAA 1997). Individual Z was entitled to 90% of all of Trust X's distributions for the income year of the CGT event. Therefore, Individual Z had a small business participation percentage in Trust X of 90% just before the CGT event. As Trust X owned a third of Company Y, Individual Z had a small business participation percentage in Company Y of at least 20% (90% x 1/3) and consequently was a CGT concession stakeholder in Company Y just before the CGT event.

Relevant facts and circumstances: Trust X is a discretionary trust established in Australia that acquired a third of the issued shares in Company Y in the 20XX-XX income year. Other Shareholders, who are not affiliates of, or connected with, Trust X, held the balance of the shares in Company Y. Individual Z was the sole director of Company Y prior to its sale. By contract dated and settled XX/XX/XXXX, all the shares in Company Y were sold by Trust X and the Other Shareholders to an independent third party for consideration of less than $X million. Individual Z is the sole shareholder and sole director of the corporate trustee of Trust X. Individual Z and certain other entities are connected with Trust X. No companies or individuals are affiliates of Trust X. Individual Z received 90% of all of Trust X's distributions for the 20XX-XX income year. Just before the CGT event, the total of the net value of the CGT assets of Trust X, Individual Z and the other entities connected with Trust X was less than $X million. For at least half the period of Trust X's ownership of its shares in Company Y, the market value of Company Y's active assets represented 80% or more of the market value of all of Company Y's assets. There are no affiliates of, or entities connected with, Company Y. Company Y has not owned an interest in any company or trust. Company Y's net asset value just before the CGT event for the purposes of paragraph 152-10(2)(c) of the ITAA 1997 did not exceed $X million.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 subsection 152-10(2) | Income Tax Assessment Act 1997 subsection 152-10(2A) | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-40(3)