Edited version of private advice

Authorisation Number: 1051814240786

Date of advice: 9 March 2021

Ruling

Subject: Maximum net asset value test

Question

Does Company X satisfy the maximum net asset value (MNAV) test in section 152-15 of the Income Tax Assessment Act 1997 (ITAA 1997) upon the sale of its business to an unrelated third party?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Background

Company X carries on a business.

A trust is the sole shareholder of Company X. The trust is also the sole shareholder of numerous other subsidiary companies.

Company X entered into a contract to sell its entire business.

The purchaser listed is an unrelated third party, they are a competitor in the same industry and will continue to operate the business after the sale.

Based on a valuation of the business and the information provided in support of the ruling application the net value of the CGT assets as defined in section 152-20 of the ITAA 1997 of Company X, all the entities that are connected with Company X, any affiliates of Company X or entities connected with its affiliates, that have been disclosed to the Commissioner of Taxation (the Commissioner) by the taxpayer, is less than $X million.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 152-10

Income Tax Assessment Act 1997Section 152-15

Income Tax Assessment Act 1997Subsection 152-20(1)

Income Tax Assessment Act 1997Subsection 152-20(2)

Summary

Company X satisfies the MNAV test in section 152-15 of the ITAA 1997 upon the sale of its business to an unrelated third party.

Detailed reasoning

The basic conditions for relief under the small business CGT concessions in Division 152 of the ITAA 1997 are outlined in section 152-10. One of these conditions is that you satisfy the MNAV test in section 152-15 of the ITAA 1997

Section 152-15 of the ITAA 1997 provides that you satisfy the MNAV test if, just before the CGT event, the sum of the following amounts does not exceed $X million:

(a)  The *net value of the CGT assets of yours;

(b)  The net value of the CGT assets of any entities *connected with you;

(c)   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)).

The net value of the CGT assets is defined in subsection 152-20(1) of the ITAA 1997 as the amount (whether positive, negative or nil) obtained by subtracting from the sum of the market values of those assets the sum of:

(a) the liabilities of the entity that are related to the assets; and

(b) the following provisions made by the entity:

(i) provisions for annual leave;

(ii) provisions for long service leave;

(iii) provisions for unearned income;

(iv) provisions for tax liabilities.

Certain assets are also excluded from the calculation, however these exclusions are not relevant in this situation.

It is considered that the valuation provided is acceptable for taxation purposes just before the sale of the business.

However, to determine whether the MNAV test has been satisfied, the net value of the CGT assets of any entities connected with Company X, any affiliates of Company X or entities connected with its affiliates must also be included as required by section 152-15 of the ITAA 1997.

Based on the information provided in support of the ruling application it is accepted that the net value of the CGT assets as defined in section 152-20 of the ITAA 1997 of Company X, all the entities that are connected with Company X, any affiliates of Company X or entities connected with its affiliates, that have been disclosed by the taxpayer to the Commissioner, is less than $X million.

Accordingly, Company X satisfies the MNAV test in section 152-15 of the ITAA 1997 upon the sale of its business.

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