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Edited version of your written advice
Authorisation Number: 1051343007853
Date of advice: 28 February 2018
Ruling
Subject: CGT – small business retirement exemption – not a CGT concession stakeholder
Question
Can you apply the small business retirement exemption to the capital gain you made on the sale of your shares in a private company?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2018
The scheme commenced on:
1 July 2017
Relevant facts and circumstances
You held shares in a private company.
The entire company was purchased.
You were entitled to a capital distribution of less than 20%.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 152-A
Income Tax Assessment Act 1997 section 152-10
Income Tax Assessment Act 1997 section 152-55
Income Tax Assessment Act 1997 section 152-60
Income Tax Assessment Act 1997 section 152-65
Income Tax Assessment Act 1997 section 152-70
Income Tax Assessment Act 1997 Subdivision 152-D
Reasons for decision
Small business retirement exemption
In order to access the small business retirement exemption contained in Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997) you must satisfy the basic conditions in Subdivision 152-A.
In addition, as the relevant CGT assets are shares in a company, you must have been a CGT concession stakeholder in the company just before the CGT event (paragraph 152-10(2)(a) of the ITAA 1997).
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 if the spouse has a small business participation percentage (SBPP) in the company at that time that is greater than zero (section 152-60 of the ITAA 1997).
Significant individual
An individual is a significant individual in a company if they have a SBPP in the company of at least 20% at that time. This 20% can be made up of direct and indirect percentages (section 152-55 of the ITAA 1997).
SBPP
Under section 152-65 of the ITAA 1997 an entity’s SBPP in another entity at a time is the percentage that is the sum of:
● the entity’s direct SBPP in the other entity at that time, and
● the entity’s indirect SBPP in the other entity at that time.
Under subsection 152-70(1) of the ITAA 1997 an entity’s direct SBPP in a company is the percentage of:
● voting power that the entity is entitled to exercise, or
● any dividend payment that the entity is entitled to receive, or
● any capital distribution that the entity is entitled to receive, or
● if they are different, the smallest of the three percentages above.
All classes of shares are taken into account.
In your case, you were entitled to a capital distribution of 15.34% just before the CGT event, and as such, you had a SBPP of 15.34%. As your SBPP was less than the required 20% you were not a significant individual in the company. Therefore, you were not a CGT concession stakeholder of the company and did not satisfy the basic conditions to be able to access the small business CGT concessions.
Accordingly, you cannot apply the small business retirement exemption to the capital gain you made on the disposal of your shares.