Advanced guide to capital gains tax concessions for small business 2010-11

Distributions out of concession amounts: tax consequences

Where a company or trust chooses a concession and then distributes an amount out of the capital gain to a shareholder or beneficiary, there are varying tax consequences for the shareholder or beneficiary depending on which concession the company or trust chooses. For some concessions the amounts received by the individuals are exempt, while for other concessions the amounts are not exempt.

15-year exemption

If a company or trust chooses the 15-year exemption and satisfies certain further conditions relating to the distribution of the exempt amount, the amount received by the shareholder or beneficiary is not included in their assessable income. (For more information see Consequences of applying the exemption.)

50% active asset reduction

The tax consequences for distributions made out of 50% active asset reduction amounts will depend on, among other things, the type of entity involved. A distribution by a fixed trust could give rise to a capital gain (after firstly reducing the cost base of the beneficiary's interest in the trust to nil). However, there are no such consequences for distributions by non-fixed trusts. (For more information see Fixed trust distributions and the 50% active asset reduction.) A distribution by a company out of a 50% active asset reduction amount is likely to be assessable to the shareholder as an unfranked dividend.

Retirement exemption

If a company or trust chooses the retirement exemption and satisfies the requirements for the retirement exemption, the payment received by the shareholder or beneficiary is not included in their assessable income.

Rollover

If a company or trust chooses the rollover for a capital gain and then distributes an amount out of the gain to a shareholder or beneficiary, the distribution is not exempt. That is, the concession does not flow through to the individuals. The consequences of such distributions are similar to those noted above for the 50% active asset reduction.

Sections within How do you apply losses, concessions and the discount?

• Applying capital losses
• Applying the discount and concessions
• The order in which to apply the discount and concessions
• Depreciating assets
• Choosing the small business concessions
• Distributions out of concession amounts: tax consequences
• Complying superannuation funds and the concessions
• Extensions of time