Capital gains tax: small business 50% reduction - trustee assessed under section 99A of the Income Tax Assessment Act 1936

Is the taxpayer, the trustee of a unit trust (receiver and manager appointed), entitled to the small business 50% reduction under Subdivision 152-C of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the net capital gain assessed to the trustee under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936)?

No. The trustee is denied the benefit of the small business 50% reduction by section 115-225 of the ITAA 1997.

The unit trust operated a business. A receiver and manager was appointed to carry on and arrange the sale of the business. The appointment was not made under the Bankruptcy Act 1966.

The disposal of the business will give rise to a net capital gain which will be included in the net income of the unit trust. The proceeds of the sale net of tax must be used to pay outstanding creditors.

The beneficiaries of the unit trust will not be presently entitled to the net capital gain and it will be assessed to the trustee under section 99A of the ITAA 1936.

Section 115-225 of the ITAA 1997 operates to reverse the benefit of the application of the small business 50% reduction under Subdivision 152-C of the ITAA 1997 where the trustee has been assessed under section 99A of the ITAA 1936. Section 115-225 of the ITAA 1997 reverses the benefits by providing that where a trust's net income includes a capital gain to which: • either the CGT discount or the small business 50% active asset reduction has applied, that amount is doubled; or • both the CGT discount and the small business 50% active asset reduction, that amount is multiplied by four.