Private ruling: Maximum net asset value test
Date of advice: 9 March 2021
Published: May 2021
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does Company X satisfy the maximum net asset value (MNAV) test in section 152-15 of the Income Tax Assessment Act 1997 (ITAA 1997) upon the sale of its business to an unrelated third party? | A1: Yes.

Relevant facts and circumstances: Background Company X carries on a business. A trust is the sole shareholder of Company X. The trust is also the sole shareholder of numerous other subsidiary companies. Company X entered into a contract to sell its entire business. The purchaser listed is an unrelated third party, they are a competitor in the same industry and will continue to operate the business after the sale. Based on a valuation of the business and the information provided in support of the ruling application the net value of the CGT assets as defined in section 152-20 of the ITAA 1997 of Company X, all the entities that are connected with Company X, any affiliates of Company X or entities connected with its affiliates, that have been disclosed to the Commissioner of Taxation (the Commissioner) by the taxpayer, is less than $X million.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 152-10 | Income Tax Assessment Act 1997 Section 152-15 | Income Tax Assessment Act 1997 Subsection 152-20(1) | Income Tax Assessment Act 1997 Subsection 152-20(2) Summary | Company X satisfies the MNAV test in section 152-15 of the ITAA 1997 upon the sale of its business to an unrelated third party. | Detailed reasoning | The basic conditions for relief under the small business CGT concessions in Division 152 of the ITAA 1997 are outlined in section 152-10. One of these conditions is that you satisfy the MNAV test in section 152-15 of the ITAA 1997 | Section 152-15 of the ITAA 1997 provides that you satisfy the MNAV test if, just before the CGT event, the sum of the following amounts does not exceed $X million: | (a) The *net value of the CGT assets of yours; | (b) The net value of the CGT assets of any entities *connected with you; | (c) The net value of the CGT assets of any *affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)). | The net value of the CGT assets is defined in subsection 152-20(1) of the ITAA 1997 as the amount (whether positive, negative or nil) obtained by subtracting from the sum of the market values of those assets the sum of: | (a) the liabilities of the entity that are related to the assets; and | (b) the following provisions made by the entity: | (i) provisions for annual leave; | (ii) provisions for long service leave; | (iii) provisions for unearned income; | (iv) provisions for tax liabilities. | Certain assets are also excluded from the calculation, however these exclusions are not relevant in this situation. | It is considered that the valuation provided is acceptable for taxation purposes just before the sale of the business. | However, to determine whether the MNAV test has been satisfied, the net value of the CGT assets of any entities connected with Company X, any affiliates of Company X or entities connected with its affiliates must also be included as required by section 152-15 of the ITAA 1997. | Based on the information provided in support of the ruling application it is accepted that the net value of the CGT assets as defined in section 152-20 of the ITAA 1997 of Company X, all the entities that are connected with Company X, any affiliates of Company X or entities connected with its affiliates, that have been disclosed by the taxpayer to the Commissioner, is less than $X million. | Accordingly, Company X satisfies the MNAV test in section 152-15 of the ITAA 1997 upon the sale of its business.