CGT Small Business Concession

QUESTION: For my client to be eligible for the Capital Gains Tax Small Business Concession (CGT Small Business Concession) his business assets must total less than $6m.

There now seems to be an alternative test to the $6m test. It seems that if the combined profits from my client's businesses and business assets are less than $2m (the legislation uses "turnover"), then even if his business assets total over $6m he may still pass the alternative test.

Am I correct?


Here is LawCentral's view on this subject:




ANSWER: Yes, you are correct!

Starting this financial year (07/08), your client's business assets can total more than $6m and he may still be eligible for the CGT Small Business Concession.

Before this financial year he needed less than $6m worth of business assets.

Assets to be included in determining the net value of CGT assets are not restricted to business assets and include all of his and his entities' CGT assets. However, as an individual the following assets are excluded from the net value of CGT assets:
o Assets of a private or personal nature are excluded if the small business entity is not a company or trust;
o Assets solely for the personal use and enjoyment of the individual or a small business CGT affiliate (e.g. the family home, beach house that you don't rent out);
o Rights to capital amounts payable out of a superannuation fund or approved deposit fund;
o Rights to an asset of a superannuation fund or approved deposit fund; and
o Life insurance policies.

This, as you state, doesn't include your client's superannuation or assets that he owns for personal use. Any property that has only ever been used for personal use such as a family home or family beach home stays out of the $6m.

What about if your client uses the family home or beach house for personal use for only ½ of the year? He rents them out for the other half. Then you need to include half of their value in the $6m test. This is new.

Previously, you could magically turn your client's rental properties into personal assets on a moments notice. You would do this by kicking out the tenants from your client's rental properties. You then get your client to put his extended family members into those properties for no rent. These business assets were converted to personal assets and did not count towards the $6m test.

However, now the $6m test is only one of three tests. Your client now only needs to pass one of the following:

1. satisfy the original $6m maximum net asset value test; or
2. be a partner in a partnership that is a "small business entity" for the income year and the CGT asset is an asset of the partnership (section 152-10(1)(c)); or
3. be a "small business entity" for the income year (you don't need to be registered for STS to be a small business entity).