The CGT Small business concessions may reduce or eliminate a taxable capital gain a taxpayer makes when a CGT event happens in relation to a CGT asset.

In order to access any of the small business concessions (SBCs), a taxpayer must first satisfy the following basic conditions:

  1. The entity is a small business entity;
  2. The entity does not carry on business (other than as a partner) but the taxpayer’s asset is used in business by a small business entity that is the taxpayer’s affiliate or is connected with the taxpayer (passively‑held assets);
  3. The taxpayer is a partner in a partnership that is a small business entity and the CGT asset is:
    a. the taxpayer’s interest in a partnership asset (partnership assets)
    b. an asset the taxpayer owns that is not an interest in a partnership asset (partner’s assets), or
  4. The taxpayer meets the $6 million maximum net asset value test.

The small business entity (SBE) test

An entity (whether an individual, partnership, company or trust) is an SBE for the income year if:

  1. is carrying on a business, and
  2. has an aggregated turnover of less than $2 million.

Furthermore, aggregated turnover is the taxpayer’s annual turnover plus the annual turnovers of any businesses that are connected with the taxpayer or that are the taxpayer’s affiliates (‘relevant entities’).

Recently, the Administrative Appeals Tribunal (AAT) was deciding whether a taxpayer who was the sole director and shareholder of the trustee company of a discretionary trust controlled the trust. The ATO disallowed the trust’s claim for the small business concessions because the trustee was carrying on a separate business that was connected to the trust. As a result the taxpayer failed both the maximum net asset value and the small business tests.

The AAT found that while the taxpayer was the formal director (i.e. on ASIC’s register), her father was a person who made all the key decisions in relation to the business. The case demonstrated that for the purpose of the SBCs the AAT would examine any businesses that are connected with the taxpayer or that are the taxpayer’s relevant entities along with the level of its control.

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