TAX TIP #2: CGT SMALL BUSINESS CONCESSIONS | 15-YEAR EXEMPTION

Facts

Company C owns and operates a business for the past 15 years.

Trust T holds 100% of shares in Company C for the same period.

Company C sells its business and makes a capital gain.

Company C satisfies the basic conditions for the CGT small business concessions.

The main beneficiary of Trust T was a significant individual of Company C and was 55 at the time of the CGT event.

Question

Can the capital gain be tax-free?

Answer

Yes. The capital gain for Company C can be tax-free if the CGT event happened in connection with the significant individual’s retirement.

Tax Tip

1. Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it isn't necessary for there to be a permanent and everlasting retirement from the workforce. A CGT event may be ‘in connection with your retirement’ even if it occurs at some time before retirement. Similarly, the words ‘in connection with’ can apply where the CGT event occurs sometime after retirement.

2. The distribution to the significant individual is also tax-free because it is not dividend (see section 152-15(3)(a) ITAA 1997) and is non-assessable non-exempt (NANE) income of the significant individual.
   

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