Treasury Laws Amendment (Tax Integrity and Other Measures) Act 2018 (124 of 2018)

Schedule 2   Improving the integrity of the small business CGT concessions

Income Tax Assessment Act 1997

2   Subsection 152-10(2)

Repeal the subsection, substitute:

Additional basic conditions for shares in a company or interests in a trust

(2) The following additional basic conditions must be satisfied if the *CGT asset is a *share in a company, or an interest in a trust, (the object entity ):

(a) the CGT asset would still satisfy the active asset test (see section 152-35) if the assumptions in subsection (2A) were made;

(b) if you do not satisfy the maximum net asset value test (see section 152-15) - you are carrying on a *business just before the *CGT event;

(c) either:

(i) the object entity would be a *CGT small business entity for the income year; or

(ii) the object entity would satisfy the maximum net asset value test (see section 152-15);

if the following assumptions were made:

(iii) the only CGT assets or *annual turnovers considered were those of the object entity, each affiliate of the object entity, and each entity controlled by the object entity in a way described in section 328-125;

(iv) each reference in section 328-125 to 40% were a reference to 20%;

(v) no determination under subsection 328-125(6) were in force;

(d) just before the CGT event, either:

(i) you are a *CGT concession stakeholder in the object entity; or

(ii) CGT concession stakeholders in the object entity together have a *small business participation percentage in you of at least 90%.

(2A) For the purposes of paragraph (2)(a), in working out whether subsection 152-40(3) applies at a given time (the test time ) assume that:

(a) an asset of a company or trust is covered by neither:

(i) subparagraph 152-40(3)(b)(ii) (about financial instruments); nor

(ii) subparagraph 152-40(3)(b)(iii) (about cash);

if the company or trust acquired that asset for a purpose that included assisting an entity to otherwise satisfy paragraph (2)(a) of this section; and

(b) paragraph 152-40(3)(b) does not cover an asset that:

(i) is a share in a company, or an interest in a trust, (the later entity ); and

(ii) is held at the test time by the object entity directly or indirectly (through one or more interposed entities); and

(c) subparagraph 152-40(3)(b)(i) also covers each asset that:

(i) is held at the test time by a later entity covered by subsection (2B); and

(ii) is, for that later entity, an asset of a kind referred to in subparagraph 152-40(3)(b)(i), (ii) or (iii), as modified by paragraphs (a) and (b) of this subsection; and

(d) subject to paragraph (b) of this subsection, all of the assets of the object entity at the test time included all of the assets of each later entity at the test time; and

(e) for the purposes of paragraph 152-40(3)(b), the *market value at the test time of an asset held by a later entity were the product of:

(i) the asset's market value, apart from this paragraph, at the test time; and

(ii) the object entity's *small business participation percentage in the later entity at the test time.

(2B) For the purposes of paragraph (2A)(c), this subsection covers a later entity if:

(a) at the test time:

(i) your *small business participation percentage in the later entity is at least 20%; or

(ii) you are a *CGT concession stakeholder of the later entity; and

(b) either:

(i) the later entity would be a *CGT small business entity for the income year that includes the test time; or

(ii) the later entity would satisfy the maximum net asset value test (see section 152-15) for a notional CGT event taken to have happened at the test time;

if the following assumptions were made:

(iii) the only *CGT assets or *annual turnovers considered were those of the later entity and of the entities referred to in subparagraph (2)(c)(iii);

(iv) each reference in section 328-125 to 40% were a reference to 20%;

(v) no determination under subsection 328-125(6) were in force.