Private ruling: Small Business CGT Concessions
Date of advice: 20 September 2018
Published: October 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Did you satisfy the basic conditions in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) to access the small business CGT concessions in relation to the capital gain from the sale of the shares? | A1: Yes | Q2: Will the Commissioner allow further time under paragraph 103-25(1)(b) of the ITAA 1997 for you to choose to apply the small business concessions under Division 152 of the ITAA 1997 to a capital gain that arose in the year ended 30 June 2016? | A2: Yes

Relevant facts and circumstances: You were over the age of 55 years at the date you lodged your tax return for the relevant year. You owned part of a company (the Company) which operated a business. During the year ended 30 June 2016 you sold your shares in the Company. The Company has operated an active business since its inception. All assets held in the Company were active assets used in the operation of its business. The shares in the Company passed the active asset test under section 152-35 of the ITAA 1997. You were a CGT concession stakeholder in the Company for the entire period in which you held the shares. When preparing your 2016 tax return your former tax agent did not consider your eligibility for the small business CGT concessions on the sale of the shares. As a result, the small business CGT concessions in Division 152 of the ITAA 1997 were not claimed. You only claimed the 50% CGT discount. This capital gain was declared in your 2016 tax return which was lodged on XX/XX/2017. You appointed a new tax agent. In reviewing your 2016 return, it came to the new tax agent’s attention that you would have been able to access the small business CGT concessions on the sale of the shares. The new tax agent has sought further advice which confirmed that you should pass the basic conditions to be able to access the small business CGT concessions to reduce the capital gain from the sale of the shares. This has prompted your tax agent to apply for a private ruling to the Commissioner on this matter. You had not made a written choice to apply the retirement exemption in your 2016 tax return. Had you considered the small business CGT concessions, you would have made a choice to apply this concession. You provided financial documents which showed that your net asset value for the purposes of the maximum net asset value test (including the net value of assets of any connected entities and affiliates) just before the CGT event occurred was less than $6 Million.

Relevant legislative provisions: Division 152 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Question 1 Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) sets out some basic conditions for capital gains tax relief. If the basic conditions are satisfied, an entity may be able to reduce its capital gains using the small business concessions in this Division. The 3 major basic conditions are: a) the entity must be a CGT small business entity or a partner in a partnership that is a CGT small business entity, or the net value of assets that the entity and related entities own must not exceed $6,000,000; b) the CGT asset must be an active asset; c) if the asset is a share or interest in a trust, there must be a CGT concession stakeholder just before the CGT event, and the entity claiming the concession must be a CGT concession stakeholder in the company or trust or CGT concession stakeholders in the company or trust must have a small business participation percentage in the entity of at least 90%. In applying your circumstances to the conditions: a) You satisfied the maximum net asset value test as your net asset value was less than $6 Million. b) When the CGT asset is a share in an Australian resident company the “80% test” needs to be satisfied in order for the share to be an “active asset”. The “80% test” requires that the summation of the market values of the company’s active assets, financial instruments and cash totals 80% of more of the company’s market value. You have provided documentation that shows that this is the case and as such the share is an active asset. As the share was an active asset for at least half of the period for which the business was operating the requirements of the active asset test will be met. c) You are a CGT concession stakeholder. As you meet the basic conditions under subdivision 152-A of the ITAA 1997 you are able to access one or more of the small business CGT concessions. Question 2 You did not make a valid choice at the time you lodged your income tax return for the relevant year. Having considered your circumstances, it is reasonable to grant an extension of time to make a choice to utilise the small business CGT concessions.