Share in a company or interest in a trust
If the capital gains tax (CGT) asset is a share in a company or an interest in a trust, there are additional conditions that must be satisfied.
The company or trust must satisfy the 80% test in order for the share or interest to be considered an active asset. This test will be satisfied if 80% of the assets owned by the company or trust are active assets (worked out by market value).
The other condition depends on whether the share or interest is owned by an individual or another company or trust.
Share or interest owned by individual – CGT concession stakeholder test
If the share or interest is owned by an individual, the CGT concession stakeholder test must be met just before the CGT event.
You are a CGT concession stakeholder if:
- you are an individual that holds interests, either directly or indirectly, in the company or trust that carry entitlements to at least 20% of the
- dividends, capital distributions or voting power (except for jointly owned shares) if the asset is a share in a company
- distributions of income or capital if the asset is an interest in a trust, or
- you are the spouse of an individual who holds at least 20% of the interests and you also hold a percentage of shares or trust interests – your percentage can be less than 20% but must be greater than zero.
Share or interest owned by company or trust – the 90% test
If the share or interest is held by a non-individual, the 90% test must be met just before the CGT event. This test will be met if the CGT concession stakeholders in the entity in which the shares or interests are held, between them (either directly or indirectly) hold 90% of the shares or interests in the company or trust that made the capital gain.
A discretionary trust sells shares in an operating company. Anna receives 90% of the distributions from the trust, and the trust has a 50% interest in the company.
The trust cannot be a CGT concession stakeholder in the company because it is not an individual.
However, Anna will be a CGT concession stakeholder in the company if she (or her spouse) has a direct or indirect interest in the company of at least 20%. She, together with other CGT concession stakeholders, must also have a combined interest in the trust of at least 90%.
The 90% test is satisfied because Anna’s indirect interest in the company is 45% (50% of 90%). Therefore, she is a CGT concession stakeholder in the company and her interest in the trust is 90%.
End of example
Spouses and children as affiliates
Where you own an asset that your spouse or child under 18 years uses in their business, they will be taken to be your affiliate.
This applies for the purposes of the:
- active asset test
- $6 million maximum net asset value test
- $2 million aggregated turnover test.
Your spouse or child under 18 years may also be taken to be your affiliate where an asset is owned by one entity but used in a business carried on by another entity. An entity may also be taken to be connected with you or with your entity.
Note: There have been some changes to the treatment of spouses and children as affiliates. If you would not be entitled to the concessions by treating your spouse or child under 18 years as your affiliate, there is a transitional rule that may apply for CGT events occurring on or before 18 March 2009.
Information about the CGT concessions available to small business. This information is current for the 2008-09 and later years.