In the 2017-18 Budget as part of its tax integrity package, the Government announced that, from 1 July 2017, the tax law will be amended so that a taxpayer will only be able to access the Small Business Entity (SBE) Capital Gains Tax (CGT) concessions in respect of assets that are used in a small business, or which represent an ownership interest in the small business.

Known as the ‘basic conditions’, the following initial criteria entail three main aspects as follows:

  1. The vendor is a CGT SBE if it carries on a business with a turnover (including related parties) of less than $2 million; or if passes the maximum net asset value test, whereby their assets, combined with those of related parties, is no more than $6 million;
  2. The shares satisfy the active asset test, whereby for the majority of the time the shares have been owned, at least 80% of the assets of the company/trust have been business assets (rather than passive style assets); and
  3. The CGT concession stakeholder requirement is met, which broadly requires the party, or their spouse, to have owned at least 20% of the shares in the company (or units in the unit trust).

The amendment proposes an integrity rule which seeks to add three additional basic conditions, being:

  1. A further technical consideration of the CGT small business entity test, which essentially tightens how that test is to be applied;
  2. Applying a modified version of the CGT small business entity ($2 million turnover) test or modified $6 million maximum net asset value test at the company/trust level (in addition to applying it at the shareholder/unit-holder level); and
  3. Calculating the active asset test again, using a modified set of rules.

The changes will add significant complexity to determining if concessions can be accessed, and will mean that many common scenarios which would have previously been able to qualify for the concessions will no longer be able to access the concessions at all.

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