Private ruling: Income Tax - Capital Gains Tax - Small Business Concessions
Published: September 2017
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Can the trust and its beneficiaries apply the aggregated turnover test to access the small business concessions? | A1: Yes.

Relevant facts and circumstances: The trust is a discretionary trust. The trustee of the trust disposed of the property in the 2XXX financial year. The trust does not carry on a business so is not a small business entity. The property was an active asset used in a business carried on by a small business entity that is connected with the trust. The aggregated turnover of the connected and affiliated entities is less than $2 million. The trust distributed the profits from the sale of the property to the beneficiaries. The trust and the beneficiaries do not believe they will pass the maximum net asset value test.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 152-10(1) | Income Tax Assessment Act 1997 Subsection 152-10(1A) | Income Tax Assessment Act 1997 Subsection 152-35

Reasons for decision: Summary: Subsection 152-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) contains the basic conditions you must satisfy to be eligible for the small business CGT concessions. These conditions are: (a) A CGT event happens in relation to a CGT asset in an income year. (b) The event would have resulted in the gain (c) At least one of the following applies: (i) You are a small business entity for the income year; (ii) You satisfy the maximum net asset value test; (iii) You are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership; (iv) The conditions mentioned in subsection (1A) or (1B) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year. (a) The CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. As the trust is not a small business entity, does not satisfy the requirements of the maximum net asset value test and is not a partner in a partnership the conditions in subsection (1A) or (1B) of the ITAA 1997 must be satisfied. The conditions in subsection (1A) are satisfied in relation to the asset in the income year if: (a) Your affiliate, or an entity that is connected with you, is a small business entity for the income year; and (b) You do not carry on a business in the income year (other than in partnership); and (c) If you carry on a business in partnership--the CGT asset is not an interest in an asset of the partnership; and (d) In any case-the small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b)) in relation to the CGT asset. You have advised that the asset was used in a business carried on by a small business entity connected with the trust and meets the active asset test. A requirement to be a small business entity is that the aggregated turnover of all connected and affiliate entities must be less than $2 million; if the aggregated turnover is more than $2 million you will be unable to apply the small business concessions. It is not a requirement that you pass both the maximum net asset value test and the aggregated turnover test. The facts you have presented satisfy all of the basic conditions, therefore the trust and the beneficiaries qualify for the small business CGT concessions provided that any other conditions specific to the particular concessions are satisfied. You should note that if the actual facts are materially different than those on which this private ruling is based, then the private ruling will not apply.