Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 152 - Small business relief  

Subdivision 152-A - Basic conditions for relief under this Division  

Maximum net asset value test

SECTION 152-20   Meaning of net value of the CGT assets  

Meaning of net value of the CGT assets

152-20(1)    

The net value of the CGT assets of an entity is the amount (whether positive, negative or nil) obtained by subtracting from the sum of the *market values of those assets the sum of:

(a) the liabilities of the entity that are related to the assets; and

(b) the following provisions made by the entity:

(i) provisions for annual leave;

(ii) provisions for long service leave;

(iii) provisions for unearned income;

(iv) provisions for tax liabilities.

Assets to be disregarded

152-20(2)    
In working out the net value of the CGT assets of an entity:

(a) disregard *shares, units or other interests (except debt) in another entity that is *connected with the first-mentioned entity or with an *affiliate of the first-mentioned entity, but include any liabilities related to any such shares, units or interests; and

(b) if the entity is an individual, disregard:

(i) assets being used solely for the personal use and enjoyment of the individual, or the individual's *affiliate (except a *dwelling, or an *ownership interest in a dwelling, that is the individual's main residence, including any adjacent land to which the main residence exemption can extend because of section 118-120 ); and

(ii) except for an amount included under subsection (2A), the *market value of a dwelling, or an ownership interest in a dwelling, that is the individual's main residence (including any relevant adjacent land); and

(iii) a right to, or to any part of, any allowance, annuity or capital amount payable out of a *superannuation fund or an *approved deposit fund; and

(iv) a right to, or to any part of, an asset of a superannuation fund or of an approved deposit fund; and

(v) a policy of insurance on the life of an individual.

Note:

The meaning of connected with is affected by section 152-78 .

Individual's dwelling

152-20(2A)    

In working out the net value of the CGT assets of an individual, if:

(a) a *dwelling of the individual, an *ownership interest in such a dwelling or any relevant adjacent land, was used, during all or part of the *ownership period of the dwelling, by the individual to produce assessable income to a particular extent; and

(b) the individual satisfied paragraph 118-190(1)(c) (about interest deductibility) at least to some extent;

include such amount as is reasonable having regard to the extent to which that paragraph was satisfied.

Note:

The net value of the CGT assets of the individual will be reduced by the same proportion of the individual's liabilities related to the dwelling, ownership interest or adjacent land.

Net value of the CGT assets of others

152-20(3)    

In working out the net value of the CGT assets of:

(a) your *affiliate; or

(b) an entity that is *connected with your affiliate;

include only those assets that are used, or held ready for use, in the carrying on of a *business by you or another entity *connected with you (whether the business is carried on alone or jointly with others).

Note:

The meaning of connected with is affected by section 152-78 .

152-20(4)    

However, disregard assets under subsection (3) that are used, or held ready for use, in the carrying on of a *business by an entity that is *connected with you only because of your *affiliate.

Example:

You and your husband sell a florist ' s business that you jointly carry on. Your husband also wholly owns a company that carries on a newsagency business. You yourself have no other involvement with the newsagency business.

Under subsection (4), you disregard the newsagency company's assets in working out whether you satisfy the maximum net asset value test because, although the company is " connected " with you, it is so connected only because of your affiliate (your husband).

Note:

The meaning of connected with is affected by section 152-78 .

Effect of look-through earnout rights

152-20(5)    

Despite subsections (1) to (4), in working out the net value of the CGT assets of an entity at the time just before the *CGT event (the valuing time ), you can make a choice under subsection (6) if:

(a) at the valuing time, one or more of the entity ' s *CGT assets were assets for which the entity later provided, or was later provided with, one or more *financial benefits under one or more *look-through earnout rights that were in existence at the valuing time; or

(b) at the valuing time, one or more of the entity ' s CGT assets were look-through earnout rights relating to CGT assets of:

(i) one or more of the other entities referred to in section 152-15 ; or

(ii) one or more entities not referred to in that section; or

(c) you are the entity, and:

(i) the CGT event referred to in section 152-15 happened because you *disposed of a CGT asset; and

(ii) your *capital proceeds from the disposal were affected by one or more financial benefits provided to, or by, you under one or more look-through earnout rights;

and no further financial benefits can be provided under any of those look-through earnout rights.

Note:

For paragraph (c), capital proceeds can be affected by financial benefits provided under a look-through earnout right (see section 116-120 ).

152-20(6)    

You can choose to treat the *market value of each of the *CGT assets first mentioned in the applicable paragraph of subsection (5) as if it were, at the valuing time, equal to:

(a) if paragraph (5)(a) applies - the first element of the CGT asset ' s *cost base at the valuing time; or

(b) if subparagraph (5)(b)(i) applies - nil; or

(c) if subparagraph (5)(b)(ii) applies - the total of the financial benefits provided under the *look-through earnout right after the valuing time; or

(d) if paragraph (5)(c) applies - those *capital proceeds.

Note:

For paragraph (a), the first element of a CGT asset ' s cost base can be affected by financial benefits provided under a look-through earnout right (see section 112-36 ).

152-20(7)    

In working out the net value of the CGT assets of an entity at the valuing time, if:

(a) you make a choice under subsection (6) about a *CGT asset of the entity that is a CGT asset covered by paragraph (5)(a) or (c); and

(b) a *look-through earnout right covered by that paragraph is also a CGT asset of the entity;

treat the *market value of that right as if it were nil at the valuing time.