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

The 90% test

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.

Example

The discretionary trust sells the units in Unit Trust.

Catherine, a significant individual and a CGT concession stakeholder of Unit Trust, has a 72% participation percentage in Discretionary Trust.

80% x 90% = 72%

If the other interests in Discretionary Trust are held by people who are not CGT concession stakeholders, Discretionary Trust will not satisfy the ownership requirement and will not be able to access the concessions.

Example

Based on the ABC Trust example:

• Jennifer, a significant individual and CGT concession stakeholder of Operating Co, has an 80% small business participation percentage in ABC Trust
• Bill, a CGT concession stakeholder of Operating Co, has a 15% small business participation percentage in ABC Trust, and
• Nicky, who is not a CGT concession stakeholder of Operating Co, has a 5% small business participation percentage in ABC Trust.

At least 90% of the participation percentages in ABC Trust are held by CGT concession stakeholders of Operating Co. Therefore, ABC Trust satisfies the ownership requirement if it sells its shares in Operating Co and can access the concessions on those shares, provided the other conditions are met.

As with the significant individual test, the participation percentage can be held directly or indirectly through multiple interposed entities.

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