Some interests in connected entities
When calculating net value, you should exclude the shares, units and other interests (apart from debt) that you hold in an entity connected with you or your affiliate. This is because the net value of the CGT assets of the connected entity is already included in the test.
However, include any liabilities relating to these excluded interests in connected entities.
Non-business assets of affiliates or entities connected with affiliates
Include the net value of assets of your affiliates, and entities connected with your affiliates, only if the assets are used, or held ready for use, in a business carried on by you or an entity connected with you. However, don’t include an asset of your affiliate or an entity connected with your affiliate if it is used, or held ready for use, in the business of an entity that is connected with you only because of your affiliate.
Personal use and superannuation assets
If you are an individual, you should also disregard the following assets when working out the net value of your CGT assets:
- assets being used solely for your personal use and enjoyment, or that of your affiliate
- your own home, to the extent that you use it for private purposes (also, if your only other use is some incidental income-producing use, exclude your home from the net asset value test). If you have used part of the home to produce assessable income, you must make a reasonable apportionment having regard to the length of time and the percentage of income producing use. You multiply the percentage of private use by the current market value and do not include this amount.
- rights to amounts payable out of a superannuation fund or an approved deposit fund
- rights to an asset of a superannuation fund or an approved deposit fund
- insurance policies on your life.
Where an asset is disregarded, any related liability is also disregarded because these liabilities are not related to an asset included in the net asset value calculation.
Example: calculating the net value of assets
The market value of Lana’s CGT assets is:
Land used in business Business goodwill Trading stock Plant Boat (used solely for personal use) Home |
$50,000 $200,000 $100,000 $50,000 $50,000 $600,000 $ 1,050,000 |
Lana borrowed $20,000 to buy the boat.
When working out the net value of her CGT assets, Lana does not include:
- the market value of her boat ($50,000)
- the liability for the boat.
Lana used her home 50% of the time for income producing activity. She includes 50% of the value of her home, representing the income producing percentage and does not include the other 50% ($300,000).
Therefore, the net value of her CGT assets is:
$1,050,000 – $350,000 = $700,000End of example
Even though gains from depreciating assets may be treated as income rather than a capital gain, depreciating assets are CGT assets and you must consider them for the maximum net asset value test.
Example: the maximum net asset value test
For the maximum net asset value test, Lana includes the market value of the land and building owned by her affiliate, Max ($500,000), less any related liability ($400,000 mortgage). She does this because she uses the land and building in her manufacturing business.
However, she does not include:
- Max’s other assets (those he uses in his florist business) because she does not use them in her manufacturing business
- Maxaco’s assets because she does not use the assets in her business and she is only connected to the company because of her affiliate, Max.
Accordingly, the net value of Max’s CGT assets Lana includes is:
$500,000 – $400,000 = $100,000
There are no other entities connected with Lana.
As the net value of Lana’s CGT assets and those of her affiliates and connected entities does not exceed $6 million, she satisfies the maximum net asset value test.
End of example