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Edited version of private ruling
Authorisation Number: 1011504900391
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Ruling
Subject: Additional basic conditions for the small business CGT concessions
Question
Does the trust satisfy one the additional basic conditions in subsection 152-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) for the small business capital gains tax (CGT) concessions?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2009
The scheme commences on:
1 July 2008
Relevant facts and circumstances
The rulee trust is a discretionary trust.
The rulee individual is a beneficiary of the trust, and will receive 100 % of the distribution from the trust.
The trust owned 20 % of shares in a company which trades, and received dividends from this company.
The trust has sold the shares and has made a capital gain on the sale.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 152-10(2)
Income Tax Assessment Act 1997 Section 152-55
Income Tax Assessment Act 1997 Section 152-60
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.
Reasons for decision
As the CGT assets in your case are shares in a company, one of these additional basic conditions in subsection 152-10(2) of the ITAA 1997 must be satisfied just before the CGT event:
- you are a CGT concession stakeholder in the object company, or
- CGT concession stakeholders in the object company together have a small business participation percentage in the trust of at least 90%.
Section 152-60 of the ITAA 1997 provides the meaning of CGT concession stakeholder. An individual is a CGT concession stakeholder of a company at a time if the individual is:
- a significant individual in the company, or
- a spouse of a significant individual of the company, if the spouse has a small business participation percentage in the company at that time that is greater than zero.
An individual is a significant individual in a company if they have a small business participation percentage in the company of at least 20 % (section 152-55 of the ITAA 1997).
The trust can not be a CGT concession stakeholder in the company because it is not an individual and therefore can not satisfy additional basic condition (a) above. The trust will therefore need to satisfy additional basic condition (b).
The small business participation percentage of the individual beneficiary in the company is 20 % as they will receive 100 % of the distributions from the trust and the trust has a 20 % interest in the company. The individual is therefore a significant individual and CGT concession stakeholder of the company. The individual's small business participation percentage in the trust is 100 %.
This means that CGT concession stakeholders in the company together have a small business participation percentage in the trust of at least 90 %, and the trust satisfies additional basic condition (b) in subsection 152-10(2) of the ITAA 1997.