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A capital gain made from the sale of a share or an interest in a trust can be reduced, and probably eliminated, under the small business CGT concessions. But if the concessions are to apply to such a gain there are two “additional basic conditions”, one of which must be satisfied, as well as the other necessary basic conditions.

Just before the CGT event either:

  • You must be a CGT concession stakeholder in the company or trust; or
  • CGT concession stakeholders in the object company or trust together have a small business participation percentage in you of at least 90%.

A CGT concession stakeholder is a significant individual in the company or trust if that spouse has a small business participation percentage in the company or trust of greater than zero. For example, Janet and Steve own all the shares of Jaset Pty Ltd. Janet owns 90% of the shares and Steve owns 10% of the shares. Steve sells his shares and makes a capital gain. Steve is a CGT concession stakeholder because he is the spouse of a significant individual of the company. Janet is a significant individual because she owns 20% or more of the company. So Steve will pass the additional basic condition.

The other alternative is often referred to as the “90% test”. This test is applicable where there are tiers of entities. For example, a trust sells shares in a company. Franco receives 95% of the distributions of the trust. The trust owns 50% of the shares in the company. The trust cannot satisfy the first additional basic condition because a CGT concession stakeholder must be an individual. So now, to pass the additional basic conditions, CGT concession stakeholders in the company must have at least a 90% small business participation percentage in the trust. This occurs in this situation because Franco has received 95% of the distributions from the trust.

Franco is a CGT concession stakeholder in the company because he has an indirect small business participation percentage in the company of 95% x 50% = 47.5%. This gives him a small business participation percentage of 20% or greater in the company and thus makes him a significant individual and a CGT concession stakeholder in the company.

 

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