Private ruling: Capital gains tax - discount capital gains
Date of advice: 30 January 2026
Published: 23 March 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: July 20XX

Ruling: Q1: Do you satisfy the conditions to use the general capital gains tax (CGT) discount in Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) in connection with the sale of the Shares in the Company? | A1: Yes. | Q2: Do you satisfy the conditions to use the small business active asset reduction in Subdivision 152-C of the ITAA 1997 in connection with the sale of the Shares? | A2: Yes.

Relevant facts and circumstances: You purchased ordinary shares in the Company. You are the sole shareholder of the Company. You own the Shares in your own name. You have 100% of the voting power, 100% of the dividend entitlement and 100% of the capital distribution entitlement in the Company. The Company does not have any affiliated entities. The Company does not have a control percentage of at least 20% in any entities. As of June 20XX, the Company's total assets are less than $6 million. As of June 20XX, the Company has goodwill of more than 80% of the Company's total assets pursuant to an external valuation report. This is the Company's total market value of active assets. The goodwill was used or held ready for use throughout the ownership period of the Shares. You sold the Shares in the Company. You have an aggregated turnover of less than $2 million. The net value of your CGT assets, any entities connected with you and any affiliates or entities connected with affiliates of you, does not exceed $6 million. The Company has an annual turnover of less than $2 million. The net asset value of the Company is less than $6 million.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 115-10 | Income Tax Assessment Act 1997 section 115-15 | Income Tax Assessment Act 1997 section 115-20 | Income Tax Assessment Act 1997 section 115-25 | Income Tax Assessment Act 1997 section 115-100 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | 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 | Income Tax Assessment Act 1997 section 152-205

Reasons for decision: Summary: Division 115 of the ITAA 1997 provides for the general CGT discount which allows you to reduce your capital gain by 50%. Subdivision 115-A of the ITAA 1997 provides the general CGT discount can be applied to a capital gain that meets the requirements of section 115-10 of the ITAA 1997, section 115-15 of the ITAA 1997, section 115-20 of the ITAA 1997 and section 115-25 of the ITAA 1997. You can apply the general CGT discount if the following requirements are satisfied: • you are an individual, a trust or a complying superannuation entity, • a capital gains tax (CGT) event happens to an asset you own, • the CGT event happened after 11.45am (by legal time in the Australian Capital Territory) on 21 September 1999, • you acquired the asset at least 12 months before the CGT event, and • you did not choose to use the indexation method. Under the general CGT discount, you reduce your capital gain by the discount percentage. Section 115-100 of the ITAA 1997 provides the discount percentage for an individual is 50%. | Detailed Reasoning - Application to your circumstances: In this case, you held the Shares for more than 12 months and their sale occurred after September 1999. You will therefore be able to use the general CGT discount. | Detailed Reasoning - Question 2: Division 152 of the ITAA 1997 provides for CGT relief for small business. Subsection 152-C of the ITAA 1997 provides for the small business active asset reduction which allows you to reduce your capital gain by 50%. If that gain had already been reduced by the general CGT discount, this concession applies to that reduced again. To qualify for the small business active asset reduction, you only need to satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 as outlined below, in section 152-205 of the ITAA 1997. Basic conditions Subsection 152-10(1) of the ITAA 1997 sets out the basic conditions for relief as follows: a) a CGT event happens in relation to a CGT asset you own in an income year (excluding a CGT event D1), b) the event would have resulted in a gain (apart from Division 152 of the ITAA 1997), c) at least 1 of the following applies: i. you are a CGT small business entity for the income year being within the aggregated turnover threshold of $2 million, ii. you satisfy the maximum net asset value (MNAV) test in section 152-15 of the ITAA 1997, 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, or iv. the conditions in subsection 152-10(1A) of the ITAA 1997 and subsection 152-10(1B) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year, and d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. MNAV test Section 152-15 of the ITAA 1997 provides the MNAV test is satisfied if, just before the CGT event, the sum of the net value of the CGT assets owned by you and by any entities connected with you and by any affiliates of yours does not exceed a threshold of $6 million. The MNAV test treats you and your connected entities and affiliates as 1 economic unit. However, the assets which are assets of an entity that connects with you and your affiliates are not to be counted twice in calculating the assets' net value. Active asset test Subsection 152-35(1) of the ITAA 1997 provides a CGT asset satisfies the active asset test if: a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the relevant period, or b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7 ½ years during the relevant period. Subsection 152-35(2) of the ITAA 1997 provides the relevant period begins when you acquired the asset and ends at the CGT event. If the business ceases within 12 months before the CGT event (or such longer time as the Commissioner allows), the relevant period is from the acquisition of the asset until the business ceases. There is no requirement the asset be active just before the CGT event. Subsection 152-40(1) of the ITAA 1997 provides a CGT asset is an active asset of yours at a given time if, at that time: a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, while carrying on a business that is carried on (whether alone or in partnership) by you, your affiliate or another entity connected with you, or b) if it is an intangible asset, you own it and it is inherently connected with a business carried on (whether alone or in partnership) by you, your affiliate or another entity connected with you (e.g. goodwill). Subsection 152-40(3) provides a CGT asset is an asset of yours if, at that time you own it and: a) it is either a share in a company that is an Australian resident at that time or an interest in a trust that is a resident trust for CGT purposes for the income year in which that time occurs, and b) the total of: i. the market value of active assets of the company or trust, ii. the market value of any financial instruments of the company or trust that are inherently connected with a business the company or trust carries on, and iii. any cash of the company or trust that is inherently connected with such a business, is 80% or more of the market value of all the assets of the company or trust. Additional basic conditions Subsection 152-10(2) of the ITAA 1997 provides additional basic conditions if the CGT asset is a share in a company or an interest in a trust as follows: • just before the CGT event, either: ­ you are a CGT concession stakeholder in the company or trust, or ­ CGT concession stakeholders in the company or trust have a small business participation percentage in the entity claiming the concession of at least 90%, • you either: ­ carried on a business just before the CGT event, or ­ satisfy the MNAV test, • the company or trust must satisfy the modified connected entities test (e.g. either the company or trust must be a CGT small business entity or satisfy the MNAV test), and • the CGT asset satisfies a modified active asset test. CGT concession stakeholder Section 152-60 of the ITAA 1997 provides an individual is a CGT concession stakeholder of a company or trust at a time if the individual is: a) a significant individual in the company or trust, or b) a spouse of a significant individual in the company or trust, if the spouse has a small business participation percentage in the company or trust at that time is greater than 0%. Significant individual test Section 152-55 of the ITAA 1997 provides an individual is a significant individual in a company or trust at a time, if at that time, the individual obtains a small business participation percentage in the company or trust of at least 20%. Section 152-50 of the ITAA 1997 provides an entity satisfies the significant individual test if the entity had at least 1 significant individual just before the CGT event. The small business participation percentage is made up of direct and indirect percentages under section 152-70 of the ITAA 1997 and section 152-75 of the ITAA 1997. This means the significant individual test can be satisfied either directly or indirectly through 1 or more interposed entities. Direct small business participation percentage An entity's direct small business participation in a company, is the smallest percentage of: a) the voting power in the company the entity is entitled to exercise (except for jointly owned shares), b) any dividend payment the entity is entitled to receive, and c) any capital distribution the entity is entitled to receive. Indirect small business participation percentage An entity's indirect small business participation percentage in a company or trust is calculated by multiplying together the entity's direct participation percentage in an interposed entity, and the interposed entity's total participation percentage (both direct and indirect) in the company or trust. The 90% test only applies if there is an interposed entity between the CGT concession stakeholders and the company or trust in which the shares or interests are held. The interposed entity satisfies the test if 90% of the participation percentages in that entity are held by CGT concession stakeholders of the company or trust in which the shares or interests are held. Modified connected entity rule To be regarded as a modified small business entity, a company or trust must include the aggregated turnovers of its affiliates and entities connected with it. To satisfy the modified maximum net asset value test, a company or trust must include the assets of its affiliates and entities connected with it. Under the modified connected entity rule, an entity connects with another entity if it has a control percentage of at least 20% in that other entity (rather than at least 40%). Any determination by the Commissioner the entity is not connected with another entity (a control percentage at least 40% but less than 50%) is disregarded for the modified connected entity rule. Modified active asset test The modified active asset test is described in the following steps: Step 1 Work out the total market value of both: • the assets of the company or trust, and • the assets of any entity in which the company or trust has a small business participation percentage (a later entity), multiped by that percentage. In working out the total market value (Step 1 amount), exclude the market value of shares or interests held, directly or indirectly, by the company or trust. Step 2 Work out the total market value of both: • the active assets of the company or trust, and • the active assets of a later entity, multiplied by that percentage. Assets of a later entity are only active assets for the purposes of the modified test if both: • the later entity, when applying the modified connected entity rule, either: ­ is a small business entity, or ­ meets the maximum net asset value test in relation to a notional capital gain, and, • you either: ­ have a small business participation percentage of at least 20% in the later entity, or ­ are a CGT concession stakeholder of the later entity. Step 3 At least 80% of the Step 1 amounts must be made up of: • active assets (the Step 2 amount), or • cash or financial instruments that are inherently connected with a business carried on by the company or trust, or a later entity. | Detailed Reasoning - Application to your circumstances: The sale of the Shares will result in a CGT event A1 in section 104-10 of the ITAA 1997. The timing of the event is when you enter the contract for the disposal (subsection 104-10(3) of the ITAA 1997). You are a CGT small business entity being within the $2 million aggregated turnover threshold. The sum of the net value of the CGT assets owned by you and by any entities connected with you and by any affiliates of yours does not exceed the $6 million threshold. The assets owned by the Company include goodwill and property, plant and equipment. More than XXX% of the assets of the Company are active assets. You are entitled to XXX% of the voting powers within the Company, XXX% of any dividend payments from the Company and XXX% of any capital distributions from the Company. The smallest of these 3 percentages is XXX%, which is at least XXX%. Your direct small business participation percentage in the Company is therefore XXX%. As you own the Shares in your own name, there is no interposed entity between yourself and the Company. You therefore do not have an indirect small business participation percentage. Your small business participation percentage is therefore XXX%. You are therefore a significant individual in the Company with an interest (small business participation percentage) in the Company of at least XXX%. The Company's annual turnover is less than $2 million and its net asset value is less than $6 million. As there are no entities which are affiliates of the Company or for which the Company has more than a 20% interest, it is affirmed that by applying the modified connected entity rule, the Company is a CGT small business entity with an aggregated turnover of less than $2 million, being within the $2 million aggregated turnover threshold. It is also affirmed that by applying the modified connected entity rule, the sum of the net value of the CGT assets owned by the Company and by any entities connected with the Company and by any affiliates of the Company does not exceed the $6 million threshold. The total market value of the active assets in the Company, is more than 80% of the total market value of the company. Therefore, more than 80% of the assets of the business owned by the Company are active assets. There are no later entities applicable. Therefore, the modified active asset test is satisfied. You will satisfy the basic conditions and additional basic conditions as outlined in Subdivision 152-A of the ITAA 1997. Therefore, you can choose the small business active asset reduction to reduce the capital gain by 50%. As the capital gain has been reduced already by the general CGT discount, this concession will apply to that reduced gain allowing you a total of a 75% reduction of your capital gain.