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

Basic conditions for the small business CGT concessions

Basic conditions

The basic conditions are contained in subdivision 152-A - Income Tax Assessment Act 1997.

To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the 'basic conditions'.

Each concession also has further requirements that you must satisfy for the concession to apply (except for the small business 50% active asset reduction which applies if the basic conditions are satisfied).

Follow the steps below to determine whether you satisfy the basic conditions:

Step 1

You must first satisfy one of the following:

• you are a small business entity
• you do not carry on business (other than as a partner) but your asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you (passively-held assets)
• you are a partner in a partnership that is a small business entity, and the CGT asset is
• an interest in a partnership asset (partnership assets) or
• an asset you own that is not an interest in a partnership asset (partner's assets)
• you satisfy the maximum net asset value test.

In the 2008-09 Budget the government announced that it will increase access to the small business CGT concessions with effect from the 2007-08 income year for: taxpayers who own a CGT asset used in the business of an affiliate or connected entity (passively-held assets), and partners who own a CGT asset used in the partnership business (partner's assets). These changes became law in June 2009 and apply for 2007-08 and later income years. For a summary of these and other changes see Capital gains tax (CGT) concessions for small business - more changes for the 2007-09 years.

Step 2

The asset in question must satisfy the active asset test.

Step 3

This step is only applicable if the CGT asset is a share in a company or interest in a trust. Where this is the case one of these additional basic conditions must be satisfied just before the CGT event

• 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 together have a small business participation percentage in the interposed entity of at least 90% (the 90% test).

Sections within Basic conditions for the small business CGT concessions

• Small business entity
• Working out whether you are a small business entity
• Passively-held assets
• Partner in a partnership: using the small business entity test
• Businesses that are winding up
• Maximum net asset value test
• Who an affiliate is
• When an entity is connected with you
• Active asset test
• Additional conditions if the CGT asset is a share or trust interest
• CGT concession stakeholder
• Significant individual test
• The 90% test