The small business capital gains tax (CGT) concessions (Concessions) in Division 152 of the Income Tax Assessment Act 1997 (ITAA 97) offer significant opportunities to reduce or eliminate tax levied on capital gains. However, despite a recent judicial pronouncement that the Concessions should be interpreted beneficially, the legislative conditions for relief are intricate and complex.
Importantly, the mere fact that a taxpayer satisfies the “basic” conditions under Subdivision 152-A is not the end of the analysis. Taxpayers and their advisors then need to carefully work through the parameters of the specific concession and ensure that the requirements are met (particularly if a trust or company makes the capital gain, or if the CGT asset in question is a share or a unit).
Practitioners do not need reminding that trusts have their own unique tax features that seem to be attracting ever increasing scrutiny from the Australian Taxation Office (ATO). Therefore, when it comes to the significant tax benefits that a trust may avail itself to by using the Concessions, it is imperative that the use of the Concessions be able to stand up to the possibility of rigorous scrutiny.
Paragraphs 1.1 to 1.3 of the Explanatory Memorandum to the New Business Tax System (Capital Gains Tax) Bill 1999 (Cth.) which inserted Division 152 provides:
Schedule 1 to this Bill amends the ITAA 1997 to streamline and simplify the current small business CGT concessions and to provide further concessions in relation to retirement from carrying on business by disregarding certain capital gains made by small business entities from the disposal of active assets.
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