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  • 2018
  • Stricter new conditions for the Capital Gains Tax concessions on Selling a Small Business Entity (SBE)

Stricter new conditions for the Capital Gains Tax concessions on selling a Small Business Entity (SBE)

13 Feb 2018
  • Stricter new conditions for the Capital Gains Tax concessions on Selling a Small Business Entity (SBE)

The Federal Treasury on 8 February 2018 released Exposure Draft legislation and explanatory materials which introduce stricter new conditions which an owner of a small business must satisfy in order to apply the CGT SBE concessions.

Currently, taxpayers who either satisfy a minimum asset test or a small business entity test (where a turnover threshold of $2m applies) may benefit by substantially reducing (by up to 75%) their taxable eligible SBE discounted capital gain.

If these new rules are passed, they will operate retrospectively from 1 July 2017 onwards to require four new conditions to be satisfied if a taxpayer wishes to apply CGT SBE relief for a sale of shares in a company or an interest in a trust, as follows:

  • 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 Explanatory Materials set out a number of examples where the additional conditions would cause CGT SBE relief to be denied notwithstanding relief may have been available under the existing rules.

For more information, please contact your usual Grant Thornton advisor or:

Yan Wong
Yan Wong
Partner Adelaide
Email address https://www.linkedin.com/in/yan-wong-067760a9/ Yan Wong VCard
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