• Consequences of applying the exemption

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    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Distributions of the exemption amount

    If a capital gain made by a company or trust is disregarded under the small business 15-year exemption, or would have been except that the capital gain was disregarded anyway because the relevant CGT asset was acquired before 20 September 1985, any distributions made by the company or trust of that exempt amount to a CGT concession stakeholder is:

    • not included in the assessable income of the CGT concession stakeholder, and
    • not deductible to the company or trust

    if certain conditions are satisfied.

    The conditions are:

    • the company or trust must make a payment within two years after the CGT event that resulted in the capital gain
    • the payment must be made to an individual who was a CGT concession stakeholder of the company or trust just before the CGT event, and
    • the total payments made to each CGT concession stakeholder must not exceed an amount determined by multiplying the CGT concession stakeholder's control percentage by the exempt amount.

    The stakeholder's control percentage is:

    • for a company, the percentage of the legal and equitable interests in shares (other than redeemable shares) in the company that carry voting and distribution rights held by the CGT concession stakeholder just before the CGT event
    • for a fixed trust, the percentage of the income and capital of the trust to which the CGT concession stakeholder was beneficially entitled just before the CGT event, or
    • for a discretionary trust
      • 100% if there was one CGT concession stakeholder just before the CGT event, or
      • 50% each if there were two CGT concession stakeholders just before the CGT event.
       

    Example

    Joe is a controlling individual of Company X, owning 60% of the shares in the company. Joe's wife Anne owns the remaining 40% of shares in the company. The company makes a capital gain of $10,000, which it can disregard under the small business 15-year exemption as Joe is 56 and both Joe and Anne are planning to retire.

    Six months after the CGT event, the company distributes the amount of the exempt capital gain to the shareholders. As CGT concession stakeholders, Joe and Anne both qualify for the small business 15-year distribution exemption. The amount that is exempt is calculated as follows:

    For Joe: 60% of $10,000 = $6,000

    For Anne: 40% of $10,000 = $4,000

    If it is decided to distribute $8,000 each to Joe and Anne, they can exclude from their assessable incomes for the income year an amount of $6,000 and $4,000 respectively. The balance is likely to be assessable as a dividend.

    Example

    The beneficiaries of the M family discretionary trust are the members of the M family and two employees of the family business carried on by the trustee of the trust. Mrs M and Mr M are the controlling individuals of the discretionary trust, and are therefore CGT concession stakeholders. Their three children are treated as small business affiliates.

    The trustee of the trust sells a CGT asset of the business and makes a capital gain of $50,000. The gain qualifies for the small business 15-year exemption as Mr M is 58 and plans to retire from the family business. In the next income year the trustee distributes that amount equally to Mrs M and Mr M and to the three children.

    As CGT concession stakeholders, Mrs M and Mr M are each able to treat the distribution of $10,000 as an exempt amount. Their three children must include the distribution in their assessable income for the year.

    Impact on superannuation benefits

    A distribution of an exempt amount does not affect an individual's superannuation reasonable benefit limit.

    Last modified: 10 Sep 2007QC 27357