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Edited version of private advice
Authorisation Number: 1051637071163
Date of advice: 15 June 2020
Ruling
Subject: Capital gains tax and small business concessions
Question 1
Will 'A' as trustee for 'B' meet the basic conditions for the Capital gains tax small business concessions in respect to the sale of the 'C' shares?
Answer
Yes. The Commissioner considers that the sale of the shares meets the requirements for the basic capital gains tax small business concessions. Further information about whether the additional conditions required when the CGT asset is a share or trust interest can be found on ato.gov.au by searching "QC 52283".
This ruling applies for the following periods:
Year ending 30 June 2020
Year ending 30 June 2021
The scheme commenced on:
1 July 2019
Relevant facts
'A' acts as trustee a Trust. ('B')
The Trust is a discretionary Trust.
'A' as trustee holds XX percent shares in 'C'. Therefore, the Trust has a small business participation percentage of this amount in 'C'.
The Directors of 'A' are 'D' and 'E'. The shares are held equally.
'D' is also a Director of 'C'.
The Trust's only income is dividend income from the 'C' shares. The Trust does not carry on any business activity. The Trust does not own any assets other than the 'C' shares.
The dividend income is distributed to 'D' and 'E'.
The Trust meets the maximum net asset value test (after considering its affiliates and the entities connected with it).
'C' carries on a business, is a small business entity for the relevant income year and meets the maximum net asset value test. 'C' would still meet the maximum net asset value test if the assumptions in paragraph 152-10(2)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) were made.
'A' as trustee of the Trust will sell the 'C' shares and make a capital gain.
The 'C' shares meet the active asset test in section 152-35 of the ITAA 1997 and that test as modified by subsection 152-10(2A).
The Trust 'B' will ensure that distributions occur in such manner as to ensure that CGT concession stakeholders in 'C' together have a small business participation percentage in it of at least 90% for the relevant income year.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Division 152
Income Tax Assessment Act 1997 Section 152-10
Income Tax Assessment Act 1997 Section 152-35
Income Tax Assessment Act 1997 Section 152-40
Income Tax Assessment Act 1997 Paragraph 152-10(1)(c)
Income Tax Assessment Act 1997 Subsection 152-10(1A)
Income Tax Assessment Act 1997 Paragraph 152-10(2)(A)
Income Tax Assessment Act 1997 Subsection 328-110(1)
Income Tax Assessment Act 1997 Subsection 328-110(3)