CGT small business concessions: controlling individual - different income and capital beneficiaries

Will a testamentary trust with different income and capital beneficiaries satisfy the controlling individual test in subsection 152-55(2) of the Income Tax Assessment Act 1997 (ITAA 1997) (one of the basic conditions for the small business CGT concessions to apply)?

No. The trust will not satisfy the controlling individual test in subsection 152-55(2) of the ITAA 1997 as there is no individual who is beneficially entitled to at least 50% of the income and capital of the trust. Accordingly, a beneficiary of the trust will not be eligible for the small business CGT concessions in relation to a capital gain from their interest in the trust.

An individual acquired an interest in a property before 20 September 1985. The individual died during the 1996 income year.

The will of the deceased individual provided that the property was to be held upon trust for their spouse (the taxpayer) for life, with the remainder to their two children.

The taxpayer's interest in the trust is an active asset (section 152-40(3) of the ITAA 1997).

The taxpayer proposes to surrender their life interest in the trust, or dispose of it to the remainder beneficiaries. The taxpayer will make a capital gain from CGT A1 happening to their interest in the trust, and wishes to apply the small business CGT concessions to reduce or disregard the gain.

In order for a taxpayer to access any of the small business concessions, the basic conditions in Division 152 of the ITAA 1997 must be satisfied. If the relevant CGT asset is an interest in a trust, the trust must satisfy the controlling individual test (subsection 152-10(2) of the ITAA 1997).

The controlling individual test is satisfied if the trust had at least one controlling individual just before the CGT event ( subsection 152-50 of the ITAA 1997).

For fixed trusts, an individual is a controlling individual of the trust at a particular time if, at that time, the individual is beneficially entitled to at least 50% of the income and capital of the trust (subsection 152-55(2) of the ITAA 1997).

The taxpayer in this case is entitled to 100% of the income of the trust and the remainder beneficiaries are entitled to 100% of the capital of the trust. Therefore, there is no individual that is beneficially entitled to at least 50% of both the income and the capital of the trust.

Accordingly, the trust does not have a controlling individual under subsection 152-55(2) of the ITAA 1997. Because the trust does not satisfy the controlling individual test the taxpayer is not eligible for any of the small business CGT concessions.