1 Do you meet the conditions to apply the small business CGT concessions under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made on the disposal of a share in a company?
Yes. Issue 2 Question 2 As outlined in clause X of the Agreement, will the documents viewed together constitute a sale of shares and in their entirety, constitute the provision of a financial service meaning no GST will be payable on the transaction? Answer Yes. This ruling applies for the following period : Year ended XX June 20XX The scheme commences on: XX July 20XX
You have owned and operated The Company for more than 15 years. You are the registered holder and beneficial owner of the shares. You are not registered or required to be registered for GST. The Company leases plant and equipment from an associated family discretionary trust. On XX June 20XX, the trust deed was executed. On XX July 20XX, you used the small business restructure rollover to transfer the business activities from The Company to The Trust. The net assets of The Company and their affiliates/connected entities will remain under $6 million for the year being considered. You are a beneficiary of The Trust, along with your partner and your child. You are the sole appointer of The Trust. You are the significant individual of The Trust. You are over 55 years of age and wish to transfer complete control of The Company and The Trust, alongside your entitlements under The Trust and in The Trust's assets, in connection with your retirement. You intend to sell, and the buyer agrees to purchase: • All of your beneficial interest in The Trust, excluding any previously declared but unpaid trust distributions, and income of The Trust up to the date of completion, and
• The shares. You will resign as director of The Company. You will be alienating all interest in the assets owned by the associated family discretionary trust. You have agreed with the buyer that the transaction amounts to the provision of a financial service and therefore no GST will be payable. Failing this, you have agreed to count the transaction as a supply of a going concern, if possible. The buyer will be registered or required to be registered on the day of supply. The asset will be sold in the 20XX-XX financial year.
Income Tax Assessment Act 1997 Subdivision 152-A Income Tax Assessment Act 1997 Subdivision 152-B Income Tax Assessment Act 1997 section 152-10 Income Tax Assessment Act 1997 section 152-35 Income Tax Assessment Act 1997 section 152-105 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 38 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 40 A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) section 40
Issue 1 Small Business CGT concessions Summary Having considered your circumstances and the relevant facts, you will satisfy the basic conditions for the small business CGT concessions under Subdivision 152-A of the ITAA 1997 upon disposal of the asset and can apply the 15-year exemption under Subdivision 152B of the ITAA 1997. Detailed reasoning The small business 15-year exemption takes priority over other small business CGT concession under Division 152 of the ITAA 1997. Section 152-105 f the ITAA 1997 provides that an individual can entirely disregard any capital gain if all of the following conditions are satisfied: a) The basic conditions (section 152-10 of the ITAA 1997) b) You continuously owned the CGT asset for the 15-year period ending just before the CGT event occurred c) You are either: i. 55 years of age or over at the time of the CGT event and the event is in connection with your retirement, or ii. Permanently incapacitated at the time of the CGT event. Basic conditions Section 152-10 of the ITAA 1997 contains the basic conditions that must be satisfied to apply the small business CGT concessions. These conditions are:
a) A CGT event happens in relation to a CGT asset in an income year b) The event would (apart from this Division) have resulted in a gain c) At least one of the following applies: i. You are a small business entity for the income year ii. You satisfy the maximum net asset value test iii. You are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of that partnership, or iv. You do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate, or an entity connected with you. d) The CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. In your circumstances, you intend to transfer ownership of a share to your child which will trigger a CGT event and result in a capital gain. As a result, there are additional conditions to satisfy in order to be eligible for the small business CGT concessions. These are as follows: a) You either: i. Carried on a business just before the CGT event ii. Meet the maximum net asset value test b) Just before the CGT event, either:
i. You were a CGT concession stakeholder in the company or trust (section 152-60 of the ITAA 1997) ii. The CGT concession stakeholders in the company or trust had a total small business participation percentage of at least 90% in you. c) The company or trust, when applying the modified connected entity rule in determining entities controlled by it, mut either: i. Be a small business entity in the income year ii. Meet the maximum net asset value test d) Your shares or interest must meet the modified active asset test. Application to your circumstances Having considered your circumstances and the relevant facts, you will satisfy the basic conditions for the small business CGT concessions under Subdivision 152-A of the ITAA 1997 upon disposal of the asset. Further, as you are considered to be a significant individual of The Trust and are over 55 years of age, the Commissioner considers that the disposal of the asset will be in connection with your retirement. Therefore, it is accepted that you are eligible to apply the 15-year exemption under Subdivision 152B of the ITAA 1997 upon disposal of the asset. Issue 2 GST Summary
Having considered your circumstances and the relevant facts, the supply of shares will not be subject to GST. Detailed reasoning Under item 10 of the table in subsection 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) , the provision, acquisition or disposal of shares is considered to be a financial supply. Likewise, the capital of a partnership or trust is also included under item 10 of the table. However, subparagraph 40-5.09(1)(b)(i) of the GST regulations provides that the supplier must be registered or required to be registered in order to be making a financial supply. Generally, an entity is not entitled to an input tax credit for acquisitions or importations made in relation to their financial supplies. There are however some exceptions. Application to your circumstances As you are not currently registered or required to be registered for GST, you will not be making a financial supply.
If you were registered or required to be registered for GST, the supply of shares would be considered a financial supply and therefore no GST would be payable. The supply of shares could not be treated as a 'supply of a going concern' as it fails the test set out in paragraph 38-325(2)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) which requires that the supplier carry on the enterprise until the day of the sale. It is The Company that is carrying on the identified enterprise, not you as the supplier.