Chapter 05 · Model answers

Small Business Entities and CGT Concessions

Model Answers

Question 1 — Aggregated turnover

The analysis must include connected-entity rules. If the 60% ownership/control makes the company connected with the sole trader, its relevant annual turnover can be included in aggregated turnover. $7.8m + $3.4m = $11.2m before any statutory adjustments, so the taxpayer may fail a less-than-$10m concession threshold even though her own turnover is below $10m.

Question 2 — Different thresholds

Thresholds are concession-specific. The general SBE framework commonly uses less than $10m, while the Division 152 turnover gateway for the small business CGT concessions is less than $2m. A taxpayer at $8m may access some SBE concessions but cannot rely on that turnover gateway for Division 152; the alternative maximum net asset value gateway may need to be examined.

Question 3 — Active asset

The warehouse was actively used in the business for six years and passively rented for four. Division 152 requires the active-asset test to be measured over the ownership period using the statutory time rule. The answer depends on the exact ownership period, dates of active use, whether rental use falls within an exclusion and whether any connected business use is relevant. The six active years may be sufficient depending on the precise statutory period test.

Question 4 — Net asset gateway

The net asset test is not replaced by low turnover where the taxpayer relies on that alternative gateway. Relevant CGT assets of the taxpayer and specified connected/affiliate entities must be included and liabilities deducted as the legislation directs. Significant investment assets can therefore prevent access even where business turnover is modest.

Question 5 — Concession ordering

First calculate the capital gain and apply capital losses. For an eligible individual, the general 50% CGT discount may then apply. Division 152 concessions are considered in the statutory sequence, including the active-asset reduction, retirement exemption and rollover where conditions are met. The exact result depends on which concessions the taxpayer chooses and whether the 15-year exemption is available.

Question 6 — Restructure rollover

Test SBE eligibility, whether the transferred assets are active assets, whether the transfer forms part of a genuine restructure of an ongoing business, whether ultimate economic ownership is maintained, and relevant residency/integrity conditions. The fact that the company is wholly owned by the sole trader supports continuity but does not alone establish every requirement. Contemporaneous commercial reasons and legal documentation are important.

MCQ Answers

B — Aggregated turnover.
C — Division 152.
A — the $6 million maximum net asset value test.

IRAC Problem

Sale of an active business asset

Issue

Can a business owner access the Division 152 concessions on disposal of a long-held operating asset?

Rule

Apply the Division 152 basic conditions, the relevant turnover or maximum-net-asset gateway, active-asset test and the additional conditions for the particular concession.

Application

Do not begin with the 50% reduction. First establish the CGT event and gain, identify the taxpayer’s group for turnover/net-assets, test the asset’s business-use history, then examine the 15-year exemption and the remaining concessions in order.

Conclusion

Eligibility cannot be determined from the sale price alone. The group structure, ownership duration, active use and taxpayer-specific conditions drive the result.

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