Restricted access to small business CGT concessions

March 2018

Small business owners should be mindful of draft legislation to change small business CGT concessions to address integrity concerns.

In the 2017-18 Federal Budget the Government announced that changes would be made to the small business CGT concessions to address some integrity concerns. While the Government stated that the changes would apply from 1 July 2017, no specific details were released until Treasury released exposure draft legislation in February 2018.

The draft legislation changes the basic conditions that need to be met in order to apply the small business CGT concessions to a capital gain arising in relation to a share in a company or an interest in a trust.

The changes are complex and will make it more difficult for many shareholders or unitholders to access the concessions on the sale of shares or units from 1 July 2017.  Broadly, the proposed new conditions require that:

  • If the taxpayer selling the shares or units does not satisfy the $6m maximum net asset value test, they would generally need to have carried on a business just before the CGT event; 
  • The company or trust being sold must have carried on a business just before the CGT event;
  • The company or trust must either be a CGT small business entity ($2m turnover threshold applies) or satisfy the $6m maximum net asset value test (the grouping rules will be modified in this instance); and
  • The shares or units must satisfy a modified active asset test that looks through to the activities and assets of the underlying entities.

Depending on the business structure that has been adopted these changes could prevent a number of taxpayers from accessing the concessions including where someone is selling interests in an entity that has been used to hold assets that are then leased or licenced to a related entity that operates the relevant business 

While the changes are not yet law and may change before the final legislation is introduced to Parliament, clients and practitioners need to be mindful of the fact that any changes could apply to CGT events that have already occurred as well as future transactions. 

Need more information? Please contact our team on 02 9957 4033. 

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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