The 90% test
The 90% test only applies if there is an interposed entity between the CGT concession stakeholders and the company or trust in which the shares or interests are held.
The interposed entity satisfies the test if small business participation percentages in that entity totalling at least 90% are held by CGT concession stakeholders of the company or trust in which the shares or interests are held.
As with the significant individual test, the participation percentage can be held directly or indirectly through multiple interposed entities.
Example
The discretionary trust sells the units in Unit Trust.
Catherine, a significant individual and a CGT concession stakeholder of Unit Trust, has a 72% participation percentage in Discretionary Trust.
80% x 90% = 72%
If the other interests in Discretionary Trust are held by people who are not CGT concession stakeholders, Discretionary Trust will not satisfy the ownership requirement and will not be able to access the concessions.
End of example
Example
Based on the ABC Trust example:
- Jennifer, a significant individual and CGT concession stakeholder of Operating Co, has an 80% small business participation percentage in ABC Trust
- Bill, a CGT concession stakeholder of Operating Co, has a 15% small business participation percentage in ABC Trust
- Nicky, who is not a CGT concession stakeholder of Operating Co, has a 5% small business participation percentage in ABC Trust.
At least 90% of the participation percentages in ABC Trust are held by CGT concession stakeholders of Operating Co. As a result, ABC Trust satisfies the ownership requirement if it sells its shares in Operating Co, and can access the concessions on those shares, provided the other conditions are met.
End of exampleThe rules covering the small business 15-year exemption are contained in Subdivision 152-B of the Income Tax Assessment Act 1997.