CGT small business concessions and contributions to super
Additional eligibility rules for 15-year exemption
A small business entity can disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met. The main conditions are that:
- The basic conditions for small business relief are satisfied (refer to paragraph 8.2 above)
- The entity continuously owned the asset for the 15-year period leading up to the CGT event
- If the entity is an individual, the individual retires in connection with the CGT event and is aged 55 or over or is permanently incapacitated, and
- If the entity is a company or trust, the entity had a significant individual for a total of at least 15 years, during which the entity owned the asset, and the individual who was the significant individual just before the CGT event retires or is permanently incapacitated.
A requirement for retirement is that the individual is aged 55 or over at the time of the CGT event (s152-105).
X Co acquired land and buildings in 1978 and immediately operated a business from those premises. The company had 3 equal shareholders, A, B and C. All shares issued by X Co had the same rights. Accordingly, A, B and C are significant individuals of X Co. On 30 May 2004, A, B and C sold their shares to D, E and F who then each hold 33.3% of the shares. Consequently, D, E and F are significant individuals of X Co from that time. This event also caused a change in the majority underlying interest in the business premises with the effect that the premises stopped being a pre-CGT asset of X CO under Division 149. On 30 May 2012, X Co sold the business premises and made a capital gain. As X Co has continuously owned the premises from 1978 to 30 May 2012 (more than 15 years) and has had a significant individual for a total of at least 15 years during the period it owned the premises, the 15-year CGT exemption will be available if the other conditions for the exemption are satisfied.
Where the 15 year exemption concession applies, there is no need to apply the other three small business CGT concessions. The capital gain is disregarded. Thus, capital losses do not have to be applied against a capital gain arising from the 15 year exemption concession. If a capital loss were to arise, the capital loss is not disregarded and may be used to reduce other capital gains.
Where a capital gain made by a company or trust qualified for the small business 15-year exemption and is disregarded for CGT purposes, the company or trust may distribute the gain to a CGT concession stakeholder within two years of the CGT event as an exempt amount if the conditions in s152-125 are satisfied. The Commissioner has discretion to extend this period.
Where this amount is distributed, payments that relate to that exempt capital gain are disregarded in the hands of the CGT concession stakeholder and any interposed entity that facilitates the payment of the amount. This applies to the extent that the payments are equal to or less than the stake-holder's39;s participation percentage.
The stakeholder's participation percentage for a company or a trust is generally the person's small business participation percentage. However, for a trust, where entities do not have entitlements to all the income and capital of the trust, it is 100% divided by the number of CGT concession stakeholders (s152-125). This payment will not constitute a dividend and will not be a frankable distribution (ss152-125 (3)). Nor will the payment cause CGT event G1 to happen.
The 15-year exemption concession does not apply to CGT events J2,J5 or J6 (s152-10(4) or a balancing adjustment amount (ss152-110(3)).
Last modified: Tuesday, May 2, 2017