Edited version of private advice

Authorisation Number: 1051728383887

Date of advice: 28 July 2020

Ruling

Subject: Date of acquisition of goodwill, capital gains tax on goodwill, small business CGT exemption

Question 1

Has ABC owned the goodwill since commencement of its business?

Answer

Yes

Question 2

Will the sale of the goodwill by ABC Pty Ltd be a capital gain event pursuant to Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 3

If the gain from the sale of goodwill is assessable as a capital gain, will the small business CGT concessions in Division 152 of the ITAA 1997 be available to ABC and its shareholders?

Answer

The small business 15-year exemption applies to allow ABC to disregard the capital gain from the disposal of the goodwill.

Any distribution by ABC of the disregarded capital gain to Shareholder A will not be included in its assessable income if the conditions in section 152-125 are satisfied.

Any distribution by ABC of the disregarded capital gain to Shareholder B will not be included in its assessable income if the conditions in section 152-125 are satisfied.

This ruling applies for the following period(s)

Year ended 30 June 2019

The scheme commences on

1 July 2018

Relevant facts and circumstances

ABC was incorporated in 2002.

The shareholders of ABC have always been, and are, Shareholder A and Shareholder B. Each hold 50% of the shares in ABC. Their percentage of share ownership has not changed since ABC was incorporated. Shareholder B and Shareholder A both have the right to at least 40% of the voting power in ABC by virtue of their shareholdings in ABC.

ABC has operated the business of supplying products since its incorporation. The business purchases products to manufacture into other products. Depending on the demand and market condition, the business also sources other products from other producers.

The business initially commenced as both a wholesale and retail business but over time as the wholesale business grew, ABC continued to focus only on the wholesale business.

The business commenced in a single retail store selling products at both retail and wholesale level. The single premises housed both the retail and the wholesale businesses. The retail part of the business was sold to enable the business to focus on growing its wholesale operations. The expansion of the wholesale operations resulted in the business moving to a larger premise and eventually to its current premise. The business location has moved to accommodate for the growth in the business to a location that has the requisite space and access to reliable transport and logistic support for delivery of its products to its customers.

The business employs employees who mainly work in processing the products including process workers and packers. The business is also supported by employees who work as drivers, management and administration staff.

The business sells its products to various retail outlets. The business operated principally on word of mouth in its early days. Over time its reputation grew and is now established. In keeping with the change in technology it also has an online presence that facilitates the ordering of its products.

The business processes have been fine-tuned over time, but the general principles have remained the same. That is, the business operates by adding value to products purchased from other producers and sells the products wholesale to various retail businesses.

Shareholder B and Shareholder A are both over the age of 55 years. Their children have been working in the business. It is intended that Shareholder B and Shareholder A will retire from the business and their children will take over the business.

ABC has an annual turnover of more than $2 million.

Immediately prior to the sale by ABC, the aggregate net value of the relevant CGT assets of ABC, Shareholder B and Shareholder A do not exceed $6 million.

No other entities are connected with, or an affiliate of, ABC.

The goodwill of ABC has been created from its own business operations. ABC did not purchase goodwill.

Restructure

ABC will sell all of its business assets including all the elements that make up the goodwill of ABC (e.g. business name, customer lists, supplier references, etc.) to XYZ at market value.

The sale will result in a gain for ABC.

On completion of the restructure, XYZ will own all assets and goodwill (Goodwill) necessary for the operation of the business previously owned by ABC. ABC will no longer have the requisite assets for the operation of the business. Shareholder B and Shareholder A will retire from the business and will eventually liquidate ABC.

It is anticipated that initially Shareholder B and Shareholder A will remain involved in the early days of the business of XYZ to facilitate transition of the business. Shareholder B was initially the Director of XYZ only to facilitate transition of the business. Shareholder B has recently resigned from that position as part of Shareholder B and Shareholder A's progressive steps towards full retirement.

It is the intention of Shareholder B and Shareholder A that their activities will be reduced significantly following the transfer of the business to XYZ. Over time Shareholder B and Shareholder A's involvement will only be on an ad hoc basis, in that they may be consulted from time to time on any strategic or significant events or issues and may not be required at all.

The day to day operation and running of the business will be the responsibility of Shareholder B and Shareholder A's children. Their children have progressively been involved in the business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 subsection 102-25(1)

Income Tax Assessment Act 1997 section 104-5

Income Tax Assessment Act 1997 subsection 104-10(1)

Income Tax Assessment Act 1997 subsection 104-10(4)

Income Tax Assessment Act 1997 subsection 108-5(1)

Income Tax Assessment Act 1997 subsection 108-5(2)

Income Tax Assessment Act 1997 paragraph 108-5(2)(b)

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 subsection 152-10(1)

Income Tax Assessment Act 1997 subsection 152-10(1AA)

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 subsection 152-35(1)

Income Tax Assessment Act 1997 subsection 152-35(2)

Income Tax Assessment Act 1997 section 152-40

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 subsection 152-70(1)

Income Tax Assessment Act 1997 section 152-110

Income Tax Assessment Act 1997 subsection 152-110(1)

Income Tax Assessment Act 1997 section 152-125

Income Tax Assessment Act 1997 section 328-110

Income Tax Assessment Act 1997 section 328-115

Income Tax Assessment Act 1997 section 328-120

Income Tax Assessment Act 1997 section 328-125

Income Tax Assessment Act 1997 section 328-130

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise indicated.

Question 1

Summary

The goodwill of ABC was acquired in 2002.

Detailed reasoning

Taxation Ruling TR 1999/16: Income tax: capital gains: goodwill of a business (TR 1999/16) discusses how the provisions of Part 3-1 of the Income Tax Assessment Act 1997 apply to a taxpayer who conducts a business with goodwill.

TR 1999/16 explains what goodwill is:

12. As explained more fully at paragraph 85 of this Ruling, goodwill is the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it. The attraction of custom is central to the legal concept of goodwill. Goodwill is a quality or attribute that derives among other things from using or applying other assets of a business. It may be site, personality, service, price or habit that obtains custom. It is more accurate to refer to goodwill as having sources than it is to refer to it as being composed of elements. Goodwill is a composite thing. It is one whole. It is an indivisible item of property that is legally distinct from the sources from which it emanates. It is something that attaches to a business and is inseparable from the conduct of a business. It cannot be dealt with separately from the business with which it is associated.

...

14. Goodwill is not a series of CGT assets that inhere in other identifiable assets of a business. Goodwill, being a composite thing, attaches to the whole business. It does not attach separately to each identifiable asset of the business. Nor is there an element of goodwill in each identifiable asset of a business.

In respect of when goodwill is acquired TR 1999/16 states:

52. If a taxpayer commences business and starts to create goodwill, the goodwill of the business is acquired when the taxpayer starts work that results in the creation of the goodwill (subsection 109-10, item 1). When a taxpayer starts the work resulting in the creation of goodwill of a business is a question of fact dependent on the circumstances of each particular case.

...

123. Because goodwill must be attached to a business the question when work that results in the creation of the goodwill starts needs to be considered in the context of the conduct of that business. This is a question of fact which depends on the circumstances of each particular case. The word 'work' envisages more than a mere contemplation of activity that will create goodwill of a business. 'Work' envisages a continuum of acts, transactions or events in carrying on business from which goodwill of the business emanates.

As stated in paragraph 16 of TR 1999/1, the goodwill of a business is a single CGT asset. A consequence of this is, if the business remains the 'same business' the goodwill acquired or created by a taxpayer is the same asset as that which is disposed of when the goodwill of the business is sold or otherwise transferred. If however, a business, or the sources of its goodwill, changes so much so that it can no longer be said to be the same business, the goodwill of the original business ceases to exist and a new CGT asset, being the goodwill of the new business, is acquired.

In respect of whether a business remains the same business, and whether the goodwill of the original business continues to exist, or a new CGT asset is acquired, TR 1999/16 states:

20. Whether the same business is being carried on is a question of fact and degree that ultimately depends on the circumstances of each particular case. ....

21. The business does not need to be identical from its acquisition to its disposal. If the essential nature or character of the business is not changed, the business remains the same business for the CGT goodwill provisions. A business owner may expand or contract activities, or change the way in which a business is carried on, without ceasing to carry on the same business provided the business retains its essential nature or character. Organic growth, expansion or diversification of a business by, for example:

(a) adopting new compatible operations;

(b) servicing different clients; or

(c) offering improved products or services

does not of itself cause it to be a new business provided the business retains its essential nature or character.

22. Nor would it be a different business if all that happens is that portions of the operations of a business are discarded in an ordinary commercial way but the business retains its essential nature or character.

23. If the types of customers a business attracts change as the business evolves over the years, this does not necessarily mean the business is no longer the same business as was originally carried on.

...

91. It is a question of fact and degree whether the same business is being carried on. Factors to consider include the nature or character of the business, its location and size, the extent of changes in the assets and resources of the business, the activities of the business - whether the activities constitute, or are treated by the business owner as constituting separate or distinct activities, enterprises, divisions or undertakings - and the way in which the business is structured, carried on, managed and controlled.

Application to ABC

Since it commenced business, ABC has carried on the business of supplying products. ABC purchases products from other producers and then processes the products for sale. In addition, depending on the demand and market conditions, ABC sources other products from other producers for resale.

ABC's business commenced in a single retail store, housing both the retail and the wholesale businesses, but over time as the wholesale business grew, ABC focused only on the wholesale business.The expansion of the wholesale business resulted in ABC relocating its business from the retail store premise to a larger premise, and then to its current premise. The move in business location was required to accommodate for the growth in the business to a location that has the requisite space and access to reliable transport and logistic support for delivery of its products to its customers. ABC's business operated principally on word of mouth in its early days. Over time its reputation grew and is now established. Shareholder B and Shareholder A have always each owned 50% of the shares in ABC.

As stated in TR 1999/16, a business does not need to be identical from the time of its acquisition to the time of its disposal. The organic growth, expansion or diversification of a business does not of itself cause it to be a new business. If the essential nature or character of the business does not change the business remains the same business.

It is considered that the business of ABC has retained its essential nature and character since it commenced. Its business has always been products that it processed and prepared itself, or that it purchased from other producers. Whilst its customers, its business premises and location, and the size of the business has changed since it commenced, this is considered to have occurred as a part of the organic growth and expansion of the business and is not the result of a new business having commenced. It is the same business.

If a taxpayer commences business and starts to create goodwill, the goodwill of the business is acquired when the taxpayer starts work that results in the creation of the goodwill. The goodwill of ABC's business was therefore acquired when the business commenced in 2002.

Question 2

Summary

A CGT event will happen to the disposal of goodwill by ABC.

Detailed reasoning

Section 102-20 states a capital gain or a capital loss arises if a CGT event happens to a CGT asset.

'CGT asset' is defined in subsection 108-5(1) as any kind of property or a legal or equitable right that is not property. Subsection 108-5(2) identifies a number of specific items that are CGT assets and includes 'goodwill, or an interest in goodwill (paragraph 108-5(2)(b)).

Section 104-5 provides a summary of the CGT events. Subsection 102-25(1) states that where more than one CGT event can happen you should use that one which is the most specific to your situation.

As stated in TR 1999/16, CGT event A1 happens (subsection 104-10(1)) to the goodwill of a business when there is a disposal of the business to which the goodwill attaches:

70. If a business owner (whether a sole trader or practitioner, a company, a trustee of a trust estate) disposes of their entire business, goodwill may be transferred with that business. CGT event A1 in section 104-10 (about disposals of CGT assets) happens to the goodwill of the business...

74. If a business owner is carrying on one business and disposes of some part of the business, it is a question of fact whether the owner has disposed of a discrete business that a purchaser could conduct or has merely disposed of a business asset or a collection of business assets. This question is determined having regard to all of the circumstances (and not solely from the purchaser's perspective) including whether sufficient relevant assets are sold to enable the purchaser to carry on the business the vendor had carried on, whether the assets sold are accompanied or carry with them the legal right, privilege or entitlement to conduct the business and whether what is sold is sold as a self contained business. If a business owner disposes of part of their business, an important consideration is whether the effect of the transaction is to put the purchaser in possession of a going concern the activities of which the purchaser could carry on without interruption: see Full Supreme Court of Tasmania decision in Zeekap (No 56) Pty Ltd v C of SD (Tas) 99 ATC 4745 at 4747-8; (1999) 42 ATR 295 at 297-8.

75. Many factors are relevant to this question though few are conclusive in themselves. If a purchaser assumes the conduct of a vendor's business and continues to carry it on, this points to a business having been transferred rather than a transfer of a business asset or a collection of business assets...An express assignment of goodwill is strong evidence of a transfer of the business to which it is attached but the absence of an express assignment of goodwill does not conclusively mean that there has been no disposal of a business...

78.... The sale of an asset or a series of assets separate from the business itself does not involve any disposal of the goodwill of the business or a disposal of any part of the goodwill. For goodwill to be disposed of, there must be a business disposed of to which the goodwill attaches.

Application to ABC

ABC will sell all of its business assets including all of the elements that make up the goodwill of ABC (e.g. business name, customer lists, supplier references, etc.) to XYZ.

On completion of the restructure, XYZ will own all assets and goodwill necessary for the operation of the business previously owned by ABC. ABC will no longer have the requisite assets for the operation of the business. As stated in TR 1999/16 if a business owner disposes of their business, such that the purchaser can then conduct the business, the goodwill attached to that business is disposed of and CGT event A1 happens to the goodwill of the business.

The effect of the restructure is that following the sale of all of its business assets ABC will no longer be able to operate the business. ABC will have disposed of the business to which the goodwill attaches. Instead XYZ will operate the business having all of the requisite assets to do so. CGT event A1 will therefore happen to the goodwill of ABC's business.

Question 3

Summary

The small business 15-year exemption in section 152-110 applies to allow ABC to disregard any capital gain from the disposal of the goodwill.

If ABC makes a payment of an amount exempt to Shareholder A and/or Shareholder B within two years of the CGT event and it does not exceed an amount determined by multiplying that person's control percentage by the exempt amount the payment will not be included in their assessable income.

Detailed reasoning

Section 102-20 states a capital gain or a capital loss arises if a CGT event happens to a CGT asset. The gain or loss may however be affected by an exemption.

Division 152 includes several small business concessions that allow capital gains to be reduced by the various concessions in the Division. To qualify for the small business CGT concessions, the 'basic conditions' that are common to all the concessions must be satisfied. In addition, some of the concessions have additional specific conditions that must also be satisfied.

BASIC CONDITIONS

The basic conditions are specified in Subdivision 152-A. Subsection 152-10(1):

A *capital gain (except a capital gain from *CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain:

(a) a *CGT event happens in relation to a *CGT asset of yours in an income year;

(b) the event would (apart from this Division) have resulted in the gain:

(c) at least one of the following applies:

(i)               you are a *CGT small business entity for the income year;

(ii)              you satisfy the maximum net asset value test (see section 152-15);

(iii)            you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership;

(iv)            the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year;

(d) the CGT asset satisfies the active asset test (see section 152-35).

The basic conditions in subsection 152-10(1) are satisfied by ABC as explained below.

Paragraph 152-10(1)(a) - A CGT event happens

CGT event A1 will happen to the goodwill of ABC's business. This condition will be satisfied.

Paragraph 152-10(1)(b) - The event results in capital gain

Subsection 104-10(4) states you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. A capital gain will be made by ABC on the disposal of the goodwill. This condition will be satisfied.

Paragraph 152-10(1)(c) - one of the requirements listed is satisfied

One of the requirements listed at subparagraphs 152-10(1)(c)(i) to (iv) must be satisfied.

·        CGT small business entity

A CGT small business entity is an entity that satisfies the conditions to be a 'small business entity' in section 328-110 except that it must satisfy these conditions assuming the relevant threshold for the aggregated turnover is $2m, rather than $10m (subsection 152-10(1AA)).

Aggregated turnover includes your annual turnover and the annual turnover of entities connected or affiliated with you (section 328-115). 'Annual turnover' is defined in section 328-120.

ABC has an annual turnover of more than $2 million and therefore is not a CGT small business entity as defined in subsection 152-10(1AA). This requirement is not satisfied.

·        Maximum net value asset test

The maximum net value asset test is specified in section 152-15 as follows:

You satisfy the maximum net asset value test if, just before the *CGT event, the sum of the following amounts does not exceed $6,000,000:

(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)).

An entity is 'connected with' an entity if either entity controls the other, or both are controlled by another entity, in a way described in section 328-125. Broadly, a company will be directly controlled by another entity, if that other entity, its affiliates, or that other entity together with its affiliates, own or have the right to acquire at least 40% of the company's income distribution, capital distribution or its voting rights.

An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company (section 328-130).

The maximum net asset value test for ABC includes the net value of Shareholder B and Shareholder A's assets because they are connected with ABC. Immediately prior to the sale by ABC, the aggregate net value of the relevant CGT assets of ABC, Shareholder B and Shareholder A do not exceed $6 million. The maximum net value asset test is satisfied.

Paragraph 152-10(1)(c) - CGT asset satisfies the active asset test

To satisfy this condition, the CGT asset must be an 'active asset' and it must satisfy the 'active asset test'.

Section 152-40 provides that a CGT asset is an 'active asset' at a time, if at that time you own the asset and it is used, or held ready for use, in the course of carrying on a business that is carried on by you, your affiliate, or another entity that is connected with you. The goodwill of a business is an active asset because it is an intangible asset that is inherently connected with that business (paragraph 152-40(1)(b)).

Subsection 152-35(1) states:

ACGT asset satisfies the active asset test if:

(a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period specified in subsection (2); or

(b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7 1/2 years during the period specified in subsection (2).

Subsection 152-35(2) states the period begins when the asset is acquired and ends at the earlier of the CGT event or the cessation of the business.

ABC's goodwill is a CGT asset and it is an active asset as defined in section 152-40. The goodwill was acquired when the business commenced in 2002, therefore the active asset test in subsection 152-35(1) is satisfied because the asset has been owned for more than 15 years and it has been an active asset since the business commenced. This requirement is satisfied.

SMALL BUSINESS 15 YEAR EXEMPTION

The small business 15-year exemption takes priority over the other small business concessions and the CGT discount. If the small business 15-year exemption applies, a capital gain is entirely disregarded so there is no need to apply any further concessions.

Subsection 152-110(1) states the requirements for the small business 15-year exemption for a company:

An entity that is a company or trust can disregard any *capital gain arising from a *CGT event if all of the following conditions are satisfied:

(a) the basic conditions in Subdivision 152-A are satisfied for the gain;

(b) the entity continuously owned the *CGT asset for the 15-year period ending just before the CGT event;

(c) the entity had a *significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which the entity owned the CGT asset;

(d) an individual who was a significant individual of the company or trust just before the CGT event either:

(i) was 55 or over at that time and the event happened in connection with the individual's retirement; or

(ii) was permanently incapacitated at that time.

The requirements specified in subsection 152-110(1) are satisfied by ABC as explained below.

Paragraph 152-110(1)(a) - basic conditions in Subdivision 152-A are satisfied

ABC satisfies the basic conditions in Subdivision 152-A.

Paragraph 152-110(1)(b) - the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event

ABC acquired the goodwill in 2002, therefore the CGT asset has been owned continuously for more than 15 years before the CGT event happened.

Paragraph 152-110(1)(c) - entity had a significant individual for a total of at least 15 years during which the entity owned the CGT asset

An individual is a 'significant individual' in a company if the individual has a 'small business participation percentage' in the company of at least 20% (section 152-55). This percentage can be made up of direct and indirect percentages (section 152-65).

As is most relevant, subsection 152-70(1) explains that an entity's direct small business participation percentage in a company is the percentage of:

·        voting power that the entity is entitled to exercise (except for jointly owned shares); 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.

These percentages must arise because of legal and equitable interest the entity holds in shares in the company

ABC was incorporated in 2002. The goodwill was acquired when the business commenced. The shareholders of ABC have always been, and are, Shareholder A and Shareholder B who both hold 50% each of the shares in ABC. Their percentage of share ownership has not changed since ABC was incorporated.

Shareholder A and Shareholder B are both a significant individual in ABC because they both have a direct small business participation percentage in the company of at least 20%. ABC therefore has had a significant individual for at least 15 years during the time that it owned the CGT asset. This requirement is satisfied.

Paragraph 152-110(1)(c) - the significant individual of the company just before the CGT event was 55 or over at that time and the event happened in connection with the individual's retirement

Whether a CGT event happens in connection with an individual's retirement depends on the circumstances of each case. There needs to be at least a significant reduction in the number of hours worked or a significant change in the nature of the individual's present activities to be regarded as a retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce.

The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with a taxpayer's retirement', nor does it give any indication of the degree of retirement required in order to take advantage of this concession. The words 'in connection with' can also apply where the CGT event occurs sometime before or after retirement.

It is intended that Shareholder B and Shareholder A will retire from the business and their children will take over the running of the business. As a part of the restructure ABC will sell all of its business assets including all the elements that make up the goodwill of ABC to XYZ. On completion of the restructure XYZ owns all assets and goodwill necessary for the operation of the business previously owned by ABC. ABC will no longer have the requisite assets for the operation of the business. Shareholder B and Shareholder A will retire from the business and will eventually liquidate ABC.

It is anticipated that initially Shareholder B and Shareholder A will remain involved in the early days of the business of XYZ to facilitate the transition of the business. Shareholder B was initially the Director of XYZ only to facilitate the transition of the business however has recently resigned from that position as part of Shareholder B and Shareholder A's progressive steps towards full retirement. It is the intention of Shareholder B and Shareholder A that their activities will be reduced significantly following the transfer of the business to XYZ. Over time their involvement will only be on an ad hoc basis, in that they may be consulted from time to time on any strategic or significant events or issues and may not be required at all. The day to day operation and running of the business will be the responsibility of Shareholder B and Shareholder A's children.

Shareholder A and Shareholder B are both over the age of 55. Considering the circumstances of the restructure, it is considered that the CGT event is in connection with Shareholder A and Shareholder B's retirement. This requirement is satisfied.

Summary - small business 15-year exemption

All of the required conditions for the small business 15-year exemption are satisfied. The exemption will therefore apply to allow ABC to disregard any capital gain from the disposal of the goodwill.

Given that the small business 15-year exemption takes priority over the other small business concessions and any capital gain is entirely disregarded by ABC, there is no need to consider any further concessions in Division 152.

DISTRIBUTIONS OF THE EXEMPT AMOUNT

Section 152-125 provides that, if a capital gain made by a company is disregarded under the small business 15-year exemption, any distribution made by the company of that exempt amount to a 'CGT concession stakeholder' is not included in the assessable income of the CGT concession stakeholder, and is not deductible to the company, if the following conditions are satisfied:

·        the company makes a payment within two years after the CGT event that resulted in the capital gain or, in appropriate circumstances, such further time as allowed by the Commissioner;

·        the payment is made to an individual who was a CGT concession stakeholder of the company just before the CGT event; and

·        the total payments made to each CGT concession stakeholder does not exceed an amount determined by multiplying the CGT concession stakeholders control percentage by the exempt amount.

Section 152-60 defines what is meant by 'CGT concession stakeholder':

An individual is a CGT concession stakeholder of a company or trust at a time if the individual is:

(a) a *significant individual in the company or trust, or

(b) a spouse of a significant individual in the company or trust, if the spouse has a *small business participation percentage in the company or trust at that time that is greater than zero.

Shareholder A and Shareholder B are both a significant individual in ABC because they both have a direct small business participation percentage in the company of at least 20% (section 152-55). Therefore, they are both a CGT concession shareholder of ABC.

Any distribution made by ABC of the exempt amount to Shareholder A will not be included in Shareholder A's assessable income if the payments are made within two years of the CGT event, and the total payments to Shareholder A do not exceed an amount determined by multiplying Shareholder A's control percentage by the exempt amount.

Similarly, any distributions of the exempt amount made to Shareholder B within two years of the CGT event will not be included in Shareholder B's assessable income if the total payments to Shareholder B do not exceed an amount determined by multiplying Shareholder B's control percentage by the exempt amount.