Private ruling: Capital gains tax - small business concessions - significant individual
Date of advice: 2 April 2020
Published: May 2020
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Has Person A been a significant individual of the Company, pursuant to section 152-55 of the Income Tax Assessment Act 1997 , from XX XXX XXXX onwards? | A1: Yes. It is considered Person A has held a small business participation percentage in the Company of at least 20% from XX XXX XXXX through direct ownership in the B Class shares; accordingly, person A is a significant individual of the Company for the relevant period. More information on the significant individual test can be found on ato.gov.au

Relevant facts and circumstances: The Companywas incorporated on XX XXX XXXX. Person A and spouse are the directors of the company. The property was acquired by the Company before the introduction of CGT. The property was deemed to be a post-CGT asset of the Company at XX XXX XXXX due to a change in the majority underlying ownership of the Company. On XX XXX XXXX Person A's parents, acquired 1 A Class share each, whilst Person A and siblings, acquired 22,000 B Class shares each. Dividend rights attached to each class of share in proportion to the amount paid up on the share. Person A's parents had ultimate control of the Company as they were the only class of shares with voting entitlements, as the holders of the A Class shares. On XX XXX XXXX the Family Trust acquired 44,000 B Class shares from Person A's siblings. Person A and spouse are specified beneficiaries of the Family trust, the appointers of the Family Trust and are the directors and shareholders of the Trustee. At this time Person A's parents resolved to transfer indirect control of the Company over to Person A. A meeting was held where it was agreed that the Articles of Association would be amended by the deletion of an article that provided that only A Class shares were entitled to voting rights. This amendment left all shares in the Company with equal voting rights. This is consistent with the transfer of indirect ownership and control of the Company to Person A when the Family Trust purchased the B Class shares from Person A's siblings. The amendment was duly signed by the Chairman of the meeting and dated XX XXX XXXX. A further meeting was held where it was agreed that a new article would be included to give certainty to the voting entitlements of the B Class shares, in light of the fact that there was no other reference to the voting rights of the B Class shares in the existing Articles of Association. This amendment concluded that 'the holders of B Class shares shall be entitled to one vote for each share' The amendment was duly signed by the Chairman of the meeting and dated XX XXX XXXX. Person A's parents passed away and the A Class shares were cancelled. Following the cancellation of the A Class shares, the B Class shares now hold 100% of the voting, dividend and capital rights. On XX XXX XXXX a contract was signed and the property was sold. At the time of the CGT event, the individual has a small business participation percentage in the company of at least 20%.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 152-A | Income Tax Assessment Act 1997 section 152-50 | Income Tax Assessment Act 1997 section 152-55 | Income Tax Assessment Act 1997 section 152-60 | Income Tax Assessment Act 1997 section 152-65 | Income Tax Assessment Act 1997 section 152-70