Private ruling: CGT small business concessions
Date of advice: 14 April 2026
Published: 29 June 2026
Ruling period: Year ended 30 June 2026
Date scheme commenced: 1 July 2025

Ruling: Q1: Is the XXXXXXXXXXX ("XXX") able to access the CGT small business concessions contained within Division 152 of the ITAA 1997? In particular are the conditions of the maximum net asset value (MNAV) test contained within section 152-15 of the ITAA 1997 satisfied? | A1: Yes | Q2: Is the holiday home situated at XXXXXXXXXXXXXXXXXX ("XXXXXXX") excluded from the MNAV test in accordance with section 152-20(2)(b)(i) of the ITAA 1997? | A2: No | Q3: Are the loan/UPE balances owed by XXX to the beneficiaries classified as "the liabilities of the entity related to those assets" in accordance with section 152-20(1)(a), 152-40(1)(a)(iii) and 325-125 of the ITAA 1997? | A3: Yes | Q4: Are XXX and XXXXXXX (XXX) Pty Ltd (A.C.N XXX XXX XXX) ("XXXXXXX") connected parties for the purposes of the active asset test contained within section 152-35 of the ITAA 1997? | A4: Yes | Q5: Is the property situated at Units X and X, XXX-XXX XXXXXXXXXXXXX ("the Property") an active asset for the purposes of section 152-40 of the ITAA 1997? | A5: Yes | Q6: Are XXXXX XXXXXXXXXX ("XX") and XXXX XXXXX XXXXXXXXXX ("XXX") significant individuals for the purposes of section 152-55 of the ITAA 1997? | A6: Yes | Q7: Does XXX satisfy the conditions for the 15-year exemption in accordance with section 152-110 of the ITAA 1997? | A7: Yes

Relevant facts and circumstances: The XXX was established on XX September XXXX. The settlor of the trust is XXXXXXXXXX XXXXXXX XXXXXXXXXXXXX XXXXXXXXX Pty Ltd (A.C.N XXX XXX XXX) and the principles are XX and XXX. XX and XXX act as trustees and primary beneficiaries. The trust deed grants the trustees absolute discretion regarding income and capital. XXX acquired Units X & X, XXX-XXX XXXXXXXXXXXXX (the Property) on X October XXXX. The Property was leased to XXXXXXX (XXX) Pty Ltd, a company owned and controlled by XXand XXX and used exclusively in XXXXXXX's trading business from acquisition until XX July XXXX. XXXXXXX leased the entire property and there were no other parties sub leasing any portion of the premises. After XXXXXXX's business was sold, the Property was leased at arm's length to an unrelated business. XXXXXXX has only one class of shares (ordinary) and has issued and paid-up capital of $2. These shares are beneficially held as follows: • XX - 1 ordinary share of $1 • XXX - 1 ordinary share of $1 XXXXXXX operated a sign-manufacturing business from XXXX until its sale under contract dated XX July XXXX. The gain on that sale was treated as eligible for the small business CGT concessions, including the 15-year exemption, with both XX and XXX over 55 and retiring. The Trust put the Property on the market in late XXXX and a contract was signed on X March XXXX. The contract price was $X, XXX, XXX. Draft FYXX trustee resolutions allocate trust income and the Property's capital gain 50% to XX and 50% to XXX. Further, XX will receive 50% of the trust's income distributions, and XXX will receive the remaining 50%. Determination of income It is resolved that, in exercise of the power under clause 3.1 of the Trust Deed and every other power enabling it in that behalf, the Trustee determines that the income of the Trust for the year ending 30 June XXXX comprises all those amounts being income for the purposes of the accounting records of the Trust, less expenses and outgoings of the Trust. Distribution of income It is resolved that, in exercise of the power under clause 3.1 of the Trust Deed and every other power enabling it in that behalf, the income of the Trust for the year ending 30 June XXXX is hereby set aside for the benefit of the beneficiaries as follows: • XX - 50% • XXX - The remaining balance Determination of capital It is resolved that, in exercise of the power under clause 4.1 of the Trust Deed and every other power enabling it in that behalf, the Trustee determines that the capital gain arising from the disposal of the property situated at Units X and X, XXX-XXX XXXXXXXXXXXXX is set aside for the benefit of the beneficiaries as follows: • XX - 50% • XXX - The remaining balance Appendix materials provided include : The history of distributions made by the XXX has been provided from XXXX-XXXX. There is at least on individual in receipt of 20% of the distributions for all years from XXXX onwards. A summary of the market value of the assets of the XXX and relevant connected entities has been provided and lists the following: Table 1: market value of assets Asset description Ownership entity Net value XX XXXXXXXXXXXXXXXXXX XX X, XXX, XXX Shares and investments XX XX, XXX Cash at bank XX XX, XXX Beneficiary account - XXX XX XXX, XXX Cash at bank XX X, XXX Beneficiary account - XXX XX XXX, XXX Goodwill XXX 0 Bank XXX XXX, XXX Land and Buildings XXX X, XXX, XXX Deposits XXX (XX, XXX) GST XXX (X, XXX ) Other liabilities XXX (XX) Loans - XXXXXXX XXX (XXX, XXX) Beneficiary account - XX XXX (XXX, XXX) Beneficiary account - XX XXX (XXX, XXX) Beneficiary account - XXXXXXX XXX (XXX, XXX) Goodwill XXXXXXX X Cash on hand XXXXXXX X Equipment and machinery XXXXXXX X Loan - XXX XXXX XXXXXXX XX, XXX Loan - XXX XXXX XXXXXXX XX, XXX UPE - XXX - pre XX/XX/XXXX XXXXXXX XX, XXX The XXXXXXX property was acquired on XX March XXXX and has been utilised as follows: March XXXX - October XXXX - Rental property October XXXX - February XXXX - Private use and enjoyment March XXXX - June XXXX - Rental (short-term) July XXXX to date - Private use and enjoyment The balance sheet of XXX includes various beneficiary accounts in non-current liabilities as follows: Table 2: beneficiary accounts Non-current Liabilities XXXX XXXX Beneficiary Account - XX XXX,XXX.XX XXX,XXX.XX Beneficiary Account - XXX XXX,XXX.XX XXX,XXX.XX Beneficiary Account - XXXXXXX (XXX) Pty. Ltd. XX,XXX.XX XXX,XXX.XX Total Beneficiary Accounts XXX,XXX.XX XXX,XXX.XX The above amounts are not being held on sub-trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 152-10 | Income Tax Assessment Act 1997 152-15 | Income Tax Assessment Act 1997 152-20 | Income Tax Assessment Act 1997 152-35 | Income Tax Assessment Act 1997 152-40 | Income Tax Assessment Act 1997 152-50 | Income Tax Assessment Act 1997 152-55 | Income Tax Assessment Act 1997 152-70 | Income Tax Assessment Act 1997 152-75 | Income Tax Assessment Act 1997 152-110 | Income Tax Assessment Act 1997 152-115 | Income Tax Assessment Act 1997 328-110 | Income Tax Assessment Act 1997 328-125 | Income Tax Assessment Act 1997 328-130

Reasons for decision: Summary: The Commissioner accepts that the loan and UPE balances owed by CFT to the beneficiaries are properly classified as 'liabilities of the entity related to those assets' for the purposes of section 152-20(1)(a) of the ITAA 1997. However, the XXXXXXX property should be included in the maximum net asset value test (MNAV) test. Based on the information provided, the XXX satisfies the MNAV test under section 152-15 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 152-15 of the ITAA 1997 provides that a taxpayer satisfies the maximum net asset value (MNAV) test if the net value of their CGT assets, together with those of their affiliates and connected entities, does not exceed $6 million. The meaning of net value of the CGT assets is considered in section 152-20 of the ITAA 1997. Subsection 152-20(1) of the ITAA 1997 states: The net value of the CGT assets of an entity is 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: (c) provisions for annual leave; (d) provisions for long service leave; (e) provisions for unearned income; (f) provisions for tax liabilities. Unpaid present entitlements Taxation Ruling TR 2015/4: Income tax: CGT small business concessions: unpaid present entitlements and the maximum net asset value test outline how a UPE of a beneficiary connected with a trust is treated for working out whether the trust satisfies the MNAV test. Table 1, paragraph 3 of TR 2015/4 states that a UPE is: A connected beneficiary's right to receive an amount of trust income and/or capital that: (a) arises as a result of the beneficiary having been made presently entitled to that amount, and (b) has not been satisfied (including by being paid to or as directed by the beneficiary, or by being effectively converted to a loan from the beneficiary) or effectively disclaimed. Paragraph 4 states that: "Where a connected beneficiary has a UPE to receive an amount of income or capital from a trust, the value of that UPE will be included once, and only once, in determining whether or not that trust satisfies the maximum net asset value test in section 152- 15. The way in which the value of the UPE is so included will vary depending on the character of the beneficiary's entitlement and the way that funds representing the UPE are held." Paragraph 6 states: Where funds representing the connected beneficiary's UPE have not been set aside on sub trust, the net asset value calculation for the main trust will include the following: • in the net value of the CGT assets of the trust - the value of the funds representing the UPE are included in the trust's assets, but for the purpose of paragraph 152-20(1)(a) ITAA 1997 are reduced by the corresponding liability of the trustee to pay the amount of that entitlement, and • in the net value of the CGT assets of the connected beneficiary - the UPE is an asset of the beneficiary that is not disregarded under paragraph 152-20(2)(a) ITAA 1997. Assets to be disregarded Assets that are disregarded from the test are set out in subsection 152-20(2) of the ITAA 1997. Paragraph 152-20(2)(b)(i) of the ITAA 1997 allows an individual to disregard an asset from the MNAV test if it is used solely for personal use and enjoyment. The legislation does not define this expression or specify when the personal use requirement must be assessed. Although the Full Federal Court in FCT v Byrne Hotels Qld Pty Ltd [2011] FCAFC 127 confirmed the MNAV test is applied at the time of the CGT event, this does not determine how an asset is characterised for the purposes of paragraph 152-20(2)(b)(i). The timing of the MNAV calculation is separate from the question of what an asset is, based on its nature and usage over time. In Altnot Pty Ltd v FCT [2013] AATA 140, the Tribunal held that determining whether an asset is used "solely for personal use and enjoyment" requires consideration of the broader pattern of use, including duration of use, changes in use and how the owner regarded the property. This supports the Commissioner's view in ATO ID 2011/37, which states that the entire ownership period must be examined. Any non-personal or income producing use prevents an asset from being characterised as used solely for personal enjoyment. | Detailed Reasoning - Application to your circumstances: The balance sheet of XXX includes various beneficiary accounts in non-current liabilities as follows: Table 3: beneficiary accounts | Detailed Reasoning - XXXX: Beneficiary Account - XX XXX,XXX.XX XXX,XXX.XX Beneficiary Account - XXX XXX,XXX.XX XXX,XXX.XX Beneficiary Account - XXXXXXX (XXX) Pty. Ltd. XX,XXX.XX XXX,XXX.XX | Detailed Reasoning - Total Beneficiary Accounts: XXX,XXX.XX XXX,XXX.XX In each case, these amounts effectively represent the balance of historic unpaid present entitlements (UPEs) due to the beneficiaries. The loan/UPE balances are properly classified as liabilities of XXX related to those assets within section 152-20(1)(a) ITAA 1997. They are therefore subtracted from the market value of XXX's CGT assets when applying the MNAV test, with the corresponding UPE values recognised once overall in accordance with TR 2015/4. The Nautica property was acquired on DD MM YYYYY and was: • rented from MM YYYY to MM YYYY • used privately from MM YYYY to MM YYYY • rented short-term from MM YYYY to MM YYYY • used privately from MM YYYY onwards This history shows mixed personal and rental use over multiple years, including recent income producing use. Under the Commissioner's approach in ATO ID 2011/37, the property cannot be characterised as being used solely for personal use and enjoyment during the ownership period. Accordingly, the XXXXXXX property cannot be disregarded under section 152-20(2)(b)(i) and its value must be included Based on the information provided, the XXX satisfies the MNAV test under section 152-15 of the ITAA 1997. | Detailed Reasoning - Question 4: The Commissioner accepts that XXX and XXXXXXX (XXX) Pty Ltd (ACN XXX XXX XXX) are connected entities for the purposes of the active asset test in sections 152-35, 152-40(1)(a)(iii) and 328-125 of the ITAA 1997 | Summary: You control a company if you and/or your affiliates have shares and other interests in the company that together give you the right to: • 40% or more of any distribution of income (e.g. dividends) or capital of the company (section 328-125(2)(a) of the ITAA 1997); or • Exercise or control 40% or more of the voting power of the company (s 328-125(2)(b) of the ITAA 1997). XXXXXXX has only one class of shares (ordinary) and has issued and paid-up capital of $2. These shares are beneficially held as follows: • XX - 1 ordinary share of $1 • XXX - 1 ordinary share of $1 Accordingly, XX and XXX are each in control of XXXXXXX. Control of a discretionary trust There are 2 tests to determine if you control a discretionary trust: Distribution test . In accordance with s 328-125(4) of the ITAA 1997, you meet the distribution test if: In any of the previous 4 income years, you and your affiliates together were paid or had applied for you or your affiliate's benefit 40% or more of either: • The income of the trust applied or paid in that year. • The capital of the trust applied or paid in that year. It is required that you are not a tax-exempt entity or deductible gift recipient (section 325-125(5)(a) and (b) of the ITAA 1997). Your control percentage is the highest of the percentages of income or capital of the trust paid to, or applied for you, or your affiliates benefit in the prior 4 years. Based on the relevant distribution for 2025, XXX is controlled by XX and XXX. Influence over trustee test Section 328-125(3) ITAA 1997 provides: An entity (the first entity) controls a discretionary trust if a trustee of the trust acts, or could be reasonably be expected to act, in accordance with directions or wishes of the first entity, it affiliates, or the first entity together with its affiliates. It is necessary to consider all the relevant circumstances to work out whether an entity and its affiliates together, or alone satisfy this test, including: • The terms of the trust deed. - The manner in which the trustee has acted in the past, including how it has responded to any directions, instruction or wishes you or your affiliates have given it, whether directly or indirectly. • The nature of the relationships between the entity, its affiliates and the trustee. • The amount of property or services an entity or its affiliates (or both) transferred or provided to the trust. • Any arrangement or understanding between an entity and any person who has benefited under the trust in the past who may have influence over the trustee. | Detailed Reasoning - Application to your circumstances: As the trustees are XX and XXX and based on the manner in which the trustees have acted in the past, it is evident that the influence over the trustee test is met. Based on the circumstances detailed above, XXX and XXXXXXX are connected entities as they are under common control. XX and XXX are connected to XXX as they control this entity. | Summary: Is the property situated at Units X and X, XXX-XXX XXXXXXXXXXXXX ("the Property") an active asset for the purposes of section 152-40 of the ITAA 1997? | Detailed Reasoning - Detailed reasoning: Section 152-40(1) of the ITAA 1997 provides that a CGT asset is an active asset at a particular time if the taxpayer owns the asset, and the asset is used, or held ready for use, in the course of carrying on a business by either: • the taxpayer (section 152-40(1)(a)(i) of the ITAA 1997), • an affiliate (section 152-40(1)(a)(ii) of the ITAA 1997), or • an entity that is connected with the taxpayer (section 152-40(1)(a)(iii) of the ITAA 1997). Section 152-35 of the ITAA 1997 sets out the active asset test, which requires an asset to have been an active asset for at least half of the ownership period, or for at least 7½ years where the ownership period exceeds 15 years. As confirmed in Re Vaughan and FCT [2011] AATA 758 , the active-use period is effectively capped at 15 years, meaning once an asset has been active for 7½ years, it retains its status regardless of subsequent use. The periods of active use can be aggregated and need not be continuous. The wording in section 152-35 of the ITAA 1997 and section 152-40 of the ITAA 1997 indicates that once an asset has met the active asset test, it retains this character even if business use later ceases. The 12-month cessation rule in section 152-35(2)(b)(ii) of the ITAA 1997 applies only for establishing active asset status, not for retaining it. Consistent with this, where an asset is used or held ready for use by a taxpayer's affiliate or connected entity, it is taken to be used in the course of carrying on a business for the purposes of section 152-40 ITAA 1997. | Detailed Reasoning - Application to your circumstances: In this case, the property at Units X and X, XXX-XXX XXXXXXXXXXXXX, was used exclusively in the business carried on by XXXXXXX (XXX) Pty Ltd, a connected entity of XXX as defined under section 328-125 of the ITAA 1997. This satisfies the requirement in section 152-40(1)(a)(iii) of the ITAA 1997 because the property was used in the course of carrying on a business by an entity connected with the taxpayer. The property was used for business purposes for a period of approximately XX years and XX months, which significantly exceeds the minimum period required under section 152-35 of the ITAA 1997. Accordingly, the property situated at Units X and X, XXX-XXX XXXXXXXXXXXXX is an active asset for the purposes of section 152-40 of the ITAA 1997. | Summary: Are XX and XXX significant individuals for the purposes of section 152-55 of the ITAA 1997? | Detailed Reasoning - Detailed reasoning: Under section 152-55 of the ITAA 1997, an individual is a significant individual of a company or trust at a particular time if they have a small business participation percentage (SBPP) of at least 20% in that entity. An individual's SBPP consists of their direct and indirect small business participation percentages, as set out in section 152-65 of the ITAA 1997. Direct small business participation percentage - discretionary trust Where beneficiaries do not have fixed entitlements to all income or capital, such as in a discretionary trust, the direct SBPP is determined under item 3 of the table in section 152-70(1) of the ITAA 1997. A beneficiary's direct SBPP is the percentage of trust income or capital distributions to which they are beneficially entitled in the relevant income year. If different percentages apply to income and capital, the lower percentage is used. | Detailed Reasoning - Application to your circumstances: Under section 152-50 of the ITAA 1997, the significant individual test is applied just before the CGT event. The CGT event occurred during the income year ending 30 June XXXX. In that year: • AC will receive 50% of the trust's income distributions, and • GPC will receive the remaining 50%, • both will also receive 50% of any capital distributions. This means each individual has a direct small business participation percentage of 50% for the purposes of item 3 of section 152-70(1) of the ITAA 1997. As 50% exceeds the required 20% threshold in section 152-55 of the ITAA 1997, each individual qualifies. There are no interposed entities, so each individual's indirect SBPP is 0%, and their total SBPP remains 50% each. XX and XXX both hold 50% small business participation percentages in the trust and each is a significant individual for the purposes of section 152-55 of the ITAA 1997. | Summary: The XXX is eligible to access the 15-year exemption in Division 153 of the ITAA 1997 | Detailed Reasoning - Detailed reasoning: The basic conditions for relief under Division 152 of the ITAA 1997 are contained in section 152-10 of the ITAA 1997. A capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain: (a) a CGT event happens in relation to a CGT asset of yours in an income year; (b) the event would (apart from this Division) 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 mention in subsections (1A) or (1B) are satisfied in relation to the CGT asset is an interest in an asset of the partnership (d) The CGT asset satisfies the active asset test XXX has sold a property causing a CGT event which will result in a capital gain. As XXX is not carrying on a business, eligibility must be obtained by satisfying the MNAV test. In calculating the net value for this test, section 152-20 of the ITAA 1997 applies - assets are taken at market value and reduced by "liabilities of the entity related to those assets." The valuation of $6 million is applied to the total combined net value of CGT assets (just before the CGT event for which the concession is being claimed) owned by: • The entity claiming the relief (i.e., XXX). • Any entities connected with XXX. An entity is connected with another where it controls the other entity, or is controlled but the other entity, or both are under common control (section 328-125 of the ITAA 1997). • Any 'affiliates' or their connected entities. An affiliate is any entity that acts or could reasonably be expected to act in accordance with the entity's directions or wishes, or in concert with the entity in relation to the affairs of the business of that entity (section 328-130 of the ITAA 1997). In addition to meeting the basic conditions, XXX must also satisfy the further requirements in section 152-110 of the ITAA 1997 to access the 15-year exemption. Section 152-110(1) of the ITAA 1997 states the following: An entity that is a company or trust can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: (a) the basic conditions in Subdivision 152-A are satisfied for the gain; (b) the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event; (c) the entity had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which the entity owned the CGT asset; (d) an individual who was a significant individual of the company or trust just before the CGT even either: (i) was 55 or over at that time and the event happened in connection with the individual's retirement; or (ii) was permanently incapacitated at that time. | Detailed Reasoning - Application to your circumstances: Based on the information provided, the combined net value of CGT assets owned by XXX, its connected entities, and any affiliates (and their connected entities), did not exceed $6 million just before the CGT event. Accordingly, XXX satisfies the MNAV test required under section 152-15 of the ITAA 1997. As discussed at question 4, the property satisfies the active asset test and therefore the basic conditions have been satisfied.