Treasury has released draft legislation aimed at ensuring that taxpayers will only be able to access the small business capital gains tax (CGT) concessions for assets that are used (or held ready for use) in the course of a small business or are an interest in a small business.
This measure was announced in the 2017–2018 Federal Budget. The amendments include additional conditions that must be satisfied from 1 July 2017 to apply the small business CGT concession for capital gains that arise in relation to a share in a company or an interest in a trust (the "object entity").
Broadly, these conditions require that:
- if the taxpayer does not satisfy the maximum net asset value (MNAV) test, the relevant CGT small business entity must have carried on a business just before the CGT event;
- the object entity must have carried on a business just before the CGT event;
- the object entity must either be a CGT small business entity or satisfy the MNAV 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 consultation period for the exposure draft ends on 28 February 2018.
To satisfy the MNAV test, the total net value of CGT assets owned must not exceed $6 million just before the relevant CGT event. The limit is not indexed for inflation.
When calculating the total, you must include the net value of CGT assets owned by the taxpayer, any connected entities, any of the taxpayer's affiliates and entities connected with the affiliates.
Asset values contribute to the total only if the assets are used (or held ready for use) in a business carried on by the taxpayer or a connected entity. An asset doesn't count towards the total if it is used in the business of an entity that is connected with the taxpayer only because of the taxpayer's affiliate.