Tax & Accounting Blog

CGT small business concession “significant individual” test requires rethink

Blog, Business Tax, Individual Tax, Tax January 22, 2016

The “significant individual” test in the CGT small business concessions has proven to be a challenge to both tax practitioners and those involved in tax administration. The test, which comes under the umbrella of the broader concept of “CGT concession stakeholder”, is integral to accessing the concessions where a taxpayer makes a capital gain on shares or trust interests or where the entity making the capital gain is a company or trust that wishes to pass on the benefit of the concessions to “controlling individuals” of that company or trust.

Kirk Wilson, Senior Tax Writer, Thomson Reuters, highlights the practical issues of meeting the “significant individual test” in the cases involving discretionary trusts. Writing in Thomson Reuters Weekly Tax Bulletin (Issue 3, 22 January 2016), Wilson notes that the clear legislative requirement of s 152-50 of the ITAA 1997 that a significant individual exists “just before the CGT event” is one that can be highly demanding in the case of discretionary trusts. Wilson says this could well work to exclude access to the concessions.

Wilson notes the ATO’s practical approach to enable the test to be met in the case of discretionary trusts. The ATO’s approach allows the taxpayer to “create” a significant individual for these purposes “after the event” (so to speak) to meet the test. Unfortunately, direct authority for the ATO’s approach appears to be scant – being among other things, minutes from an NTLG sub-committee meeting. In this regard, Wilson suggests that for such an important matter, a more appropriate authority should exist, and in this regard, he suggests legislative amendments.

See the full article in Thomson Reuters Weekly Tax Bulletin (Issue 3, 22 January 2016).