Tax Laws Amendment (2006 Measures No. 7) Act 2007 (55 of 2007)

Schedule 1   Small business relief for CGT events

Income Tax Assessment Act 1997

39   Sections 152-50, 152-55 and 152-60

Repeal the sections, substitute:

152-50 Significant individual test

An entity satisfies the significant individual test if the entity had at least one *significant individual just before the *CGT event.

152-55 Meaning of significant individual

An individual is a significant individual in a company or a trust at a time if, at that time, the individual has a *small business participation percentage in the company or trust of at least 20%.

CGT concession stakeholder

152-60 Meaning of CGT concession stakeholder

An individual is a CGT concession stakeholder of a company or trust at a time if the individual is:

(a) a *significant individual in the company or trust; or

(b) a spouse of a significant individual in the company or trust, if the spouse has a *small business participation percentage in the company or trust at that time that is greater than zero.

Small business participation percentage

152-65 Small business participation percentage

An entity’s small business participation percentage in another entity at a time is the percentage that is the sum of:

(a) the entity’s *direct small business participation percentage in the other entity at that time; and

(b) the entity’s *indirect small business participation percentage in the other entity at that time.

152-70 Direct small business participation percentage

(1) An entity holds a direct small business participation percentage at the relevant time in an entity equal to the percentage worked out using this table:

An entity’s direct small business participation percentage

 

In this entity:

Is:

1

A company

This percentage that the entity has because of holding the legal and equitable interests in *shares in the company:

(a) the percentage of the voting power in the company; or

(b) the percentage of any *dividend that the company may pay; or

(c) the percentage of any distribution of capital that the company may make;

or, if they are different, the smaller or smallest.

2

A trust (where entities have entitlements to all the income and capital of the trust)

This percentage:

(a) the percentage of any distribution of income that the trustee may make to which the entity would be beneficially entitled; or

(b) the percentage of any distribution of capital that the trustee may make to which the entity would be beneficially entitled;

or, if they are different, the smaller.

3

A trust (where entities do not have entitlements to all the income and capital of the trust)

This percentage:

(a) if the trustee makes distributions of income during the income year (the current year ) in which that time occurs - the percentage of the distributions to which the entity was beneficially entitled; or

(b) if the trustee makes distributions of capital during the current year - the percentage of the distributions to which the entity was beneficially entitled;

or, if 2 different percentages are applicable, the smaller.

(2) For item 1 in the table, ignore *redeemable shares.

152-75 Indirect small business participation percentage

(1) Work out the indirect small business participation percentage that an entity (the holding entity ) holds at a particular time in another entity (the test entity ) by multiplying:

(a) the holding entity’s *direct small business participation percentage (if any) in another entity (the intermediate entity ) at that time; by

(b) the sum of:

(i) the intermediate entity’s direct small business participation percentage (if any) in the test entity at that time; and

(ii) the intermediate entity’s indirect small business participation percentage (if any) in the test entity at that time (as worked out under one or more other applications of this section).

Note: When testing an intermediate entity’s indirect small business participation percentage in another entity, the intermediate entity becomes the holding entity.

(2) If there is more than one intermediate entity to which paragraph (1)(a) applies at that time, the holding entity’s indirect small business participation percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate entities.

Example: The individual mentioned in the diagram has an indirect small business participation percentage in the unit trust.

diagram of an individual with an indirect small business participation percentage in the unit trust

Multiplying the percentages as mentioned in subsection (1) produces small business participation percentage of 43.2%.

If the individual had a direct small business participation percentage of 10% in the unit trust, that would be added to the individual’s indirect small business participation percentage to produce a small business participation percentage in the trust of 53.2%.

CGT event happens to asset held by legal personal representative or beneficiary

152-80 CGT event happens to asset held by legal personal representative or beneficiary within 2 years of death of individual

(1) This section applies if:

(a) a *CGT asset forms part of the estate of a deceased individual; and

(b) the asset devolves to the individual’s *legal personal representative or *passes to a beneficiary of the individual; and

(c) the individual would have been entitled to reduce or disregard a *capital gain under this Division if a *CGT event had happened in relation to the CGT asset immediately before his or her death; and

(d) a CGT event happens in relation to the CGT asset within 2 years of the individual’s death.

(2) The *legal personal representative or the beneficiary is entitled to reduce or disregard a *capital gain under this Division in the same way as the individual would have been entitled to as if:

(a) paragraph 152-105(d) only required the individual to have been 55 or over, or permanently incapacitated, at the time of the *CGT event referred to in paragraph (1)(c) of this section; and

(b) paragraph 152-305(1)(b) did not apply.

(3) The Commissioner may extend the time limit in paragraph (1)(d).