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Edited version of your private ruling
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Ruling
Subject: Significant individual test
Question and answer
Do you satisfy the significant individual test for the purposes of the small business CGT concessions?
Yes
This ruling applies for the following period
Period ended 30 June 2009
Period ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts and circumstances
You held 100% of the ordinary shares of a company.
You held less than 25% of the A class share of the same company.
All of the ordinary issued shares you held have:
1. full voting rights (you hold about 70% of the voting rights in the company); and
2. rights to participate in the surplus assets of the company on winding up; and
3. rights to participate in dividends declared or paid if the directors declare or pay a dividend in respect of the ordinary class of shares.
The A class shares you held were not dividend bearing.
Relevant legislative provisions
Income Tax Assessment Act 1997
Section 152-10
Section 152-50
Section 152-55
Section 152-60
Reasons for decision
For small business CGT events that happen in the 2006/07 income year or later income years, section 152-50 of the ITAA 1997 prescribes a "significant individual test" in consideration to the small business concessions. This is one of the basic requirements for relief set out in section 152-10(2) of the ITAA 1997 that must be satisfied before you are entitled to the small business relief under Div 152 of the ITAA 1997.
The significant individual test qualifies you as a CGT concession stakeholder in respect to your shareholdings in a company (section 152-60 of the ITAA 1997). A company satisfies the significant individual test if the company had at least one significant individual just before the CGT event. "Significant individual" is defined in s 152-55 of the ITAA 1997 as:
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%.
As you personally hold shares in the company, your participation in the company falls under the direct participation guidelines tabled in section 152-70 of the ITAA 1997.
Your direct small business participation percentage in your company is the percentage that you have from the holding of the legal and equitable interests in the company's shares, as determined by:
(a) the percentage of the voting power in the company
(b) the percentage of any dividend that the company may pay
(c) the percentage of any distribution of capital that the company may make.
If these amounts are different, the smallest amount is used.
You have indicated that your voting power of your total shareholding in the company is greater than 20% at about 70%.
You have indicated that your entitlements, as an ordinary shareholder, to the company's dividend are greater than 20% of the company's dividend.
You have indicated that your entitlements to the distribution of the company's capital is proportional to your ordinary shareholdings which is greater than 20%.
Your voting power in the company represents the smallest participation percentage of the three participation percentage measures, therefore, making this the determining measure. As your voting power was greater than the 20% requirement tabled in section 152-70 of the ITAA 1997 your small business participation percentage is more than 20% in the company, therefore making you a significant individual of that company.