On 8 February 2018, the Government released for public consultation exposure draft legislation to implement the announcement in the 2017 Budget regarding integrity improvements to the small business capital gains tax (CGT) concessions.
From what was a short statement in the May 2017 Budget, the draft legislation significantly reduces access to the small business CGT concessions for taxpayers disposing of their ownership interest in companies and trusts. Further, the proposed changes are retrospective and apply to taxpayers that have sold shares in companies or interests in trusts from 1 July 2017. This is consistent with the concerns we outlined in our presentation Planning for tax issues in business and asset sales in Melbourne on 6 June 2017.
The amendments include additional basic conditions that must be satisfied for a taxpayer 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 object entity).
Broadly, the conditions require that where the relevant CGT asset is a share in a company or an interest in a trust (unit) in addition to the current tests all of the below must be satisfied:
- if the taxpayer does not satisfy the maximum net asset value test, the relevant CGT small business entity must have carried on a business just prior to the CGT event;
- the object entity must have carried on a business just prior to the CGT event;
- the object entity must either be a CGT small business entity or satisfy the maximum net asset value test (applying a modified rule about when entities are “connected with” other entities); and
- the share or interest must satisfy a modified active asset test that looks through shares and interests in trusts to the activities and assets of the underlying entities.
The modified rule regarding connected entities will lower the controlling interest threshold from 40% or more to 20% or more. This change will result in more entities being connected, increasing the pool of entities and therefore assets to be considered in calculating the MNAV test for the purposes of ownership interests in companies and trusts.
Consultation closes on Wednesday, 28 February 2018.
To discuss this further or for more information please contact:
Kristy Merganovski
Associate
Sladen Legal
+61 3 9611 0116
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
Daniel Smedley
Principal | Accredited Specialist in Tax Law
Sladen Legal
M +61 411 319 327 | T +61 3 9611 0105
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
dsmedley@sladen.com.au
