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Edited version of your written advice
Authorisation Number: 1051235429254
Date of advice: 14 June 2017
Ruling
Subject: CGT – Small business concessions – maximum net asset value test
Question 1
Are the assets of the Trust included (in full or in part) for the purposes of the maximum net asset value test under Section 152-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following periods:
The year ending 30 June 2017.
The scheme commences on:
1 July 2016.
Relevant facts and circumstances
You are selling your shares in a private company (the company).
The company is a small business entity for the purposes of the Small Business Concessions.
You currently hold and will be selling 100% of shares in the company.
You are assessing whether you meet the maximum net asset value test in relation to the share sale.
You are one of a number of joint trustees to a discretionary trust (the Trust).
You are one of a number of potential capital beneficiaries to the Trust.
You are one of a number of potential income beneficiaries to the Trust.
You have never received either an income or capital distribution from the Trust.
Trustees are able to resign, remove or appoint additional trustees.
All decisions regarding the management of the Trust are made jointly by the trustees.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 152
Income Tax Assessment Act 1997 Section 328-125
Income Tax Assessment Act 1997 Section 328-130
Reasons for decision
A taxpayer will satisfy the maximum net asset value test if, just before the CGT event that results in the capital gain, the net value of the capital gains tax (CGT) of the taxpayer and the following entities does not exceed $6 million under section 152-15 of the ITAA 1997:
a) the net value of the CGT assets of any entities connected with you,
b) the net value of the CGT assets of any affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)).
An entity controls the discretionary trust if the trustee either acts, or might reasonably be expected to act, in accordance with the directions or wishes of the entity/or the entity’s affiliates, or both the entity and its affiliates.
The level of actual distributions made by a discretionary trust is used to determine who controls the trust. A beneficiary is taken to control a discretionary trust only if, for any of the four income years before the year for which relief is sought for a CGT event:
● the trustee paid to, or applied for the benefit of, the beneficiary or their affiliates, or both the beneficiary and any of its affiliates, any of the income or capital of the trust, and
● the amounts paid or applied were at least 40% (the control percentage) of the total amount of income or capital paid or applied for that income year (subject to the Commissioner's discretion where the control percentage is between 40% and less than 50%).
Application to your situation
You have not received any distributions from the Trust and you are not considered to control the Trust as a beneficiary. It is considered that you do not exercise control along with the joint trustees over the Trust. It is accepted that the joint trustees are not considered to be your affiliates as they do act, in accordance with the directions or wishes. Therefore, you are not connected with the Trust and are not required to include the net assets of the Trust in your maximum net asset value test calculation for the purposes of the sale of your shares in the company.
Further issues for you to consider
This ruling has not fully considered your eligibility for the small business CGT concessions. You should ensure that you satisfy the relevant conditions for the concessions. More information is available in the publication Capital gains tax concessions for small business, which is available on our website www.ato.gov.au
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