How owning 50% of a company can deny you access to the small business CGT concessions
BDO was recently asked to provide tax advice to a company in which the owner of 50% of the equity wanted to sell down her interest to a third party. The valuation of the company came in at $10m and as a result this automatically denied him the ability to access the CGT Small Business Concessions as she failed the $6m net asset test and did not qualify for the $2m turnover test.
The reason she failed was that the $6m net asset test deems anyone with a 40% or greater interest in the company to control the company and therefore deems 100% of the value of the business to be included in the $6m test. This test also has a grouping provision to add in the net assets of the 50% equity holder of the company but we did not bother looking at them given we had already failed the test
The key messages here are:
- for you to have ongoing discussions with your clients on the likely market value of their business
- carefully plan which entity is the equity holder in the business to avoid the application of the grouping provisions and who is the owner of the families non business assets
- understand these rules as they apply to discretionary trusts and in particular how the annual trustee resolution to distribute the income of the trust can lead to difficulties in satisfying the small business concessions
Like to know more? BDO are running a refresher training course on the CGT small business concessions including practical examples. Register to attend our CGT Small Business Concession Training.
ASIC clamp down on companies with $25m turnover
If you have clients with turnover exceeding $25m you need to read this:
ASIC have announced that they plan to clamp down on private companies who are failing to comply with Corporations Law reporting requirements. Penalties of up to $250,000 or 6 months in jail for directors who fail to comply mean that it is important that directors comply with their obligations.
Read our fact sheet for further details.