Small business CGT – Why discretionary trust distributions matter in the years before a sale
20th January 2015
The ultimate of the small business CGT concessions is the small business 15-year exemption – it provides a full CGT exemption and provides a mechanism to extract proceeds from sale structures with minimal fuss.
But, in the context of company or trust structures, one of the requirements is that there is a significant individual (broadly an ultimate individual with an underlying 20% interest) for a total of at least 15 years.
Where discretionary trusts hold interests in the company or trust, the yearly discretionary trust distributions will impact whether there is in fact an individual that qualifies as a significant individual on a year by year basis.
This usually isn’t a problem for closely-held family owned businesses (as there is typically an ultimate individual with an underlying 20% interest), but it will more likely be a problem where there are 2 or more different family group investors.
So, this is worth thinking about each year for small business clients when considering potential trust resolutions if you want to take steps to ensure there is a significant individual for that year.
Discretionary trust distributions in the years before sale can have other impacts too in the context of the small business CGT concessions, such as in determining who are connected entities – but that’s for another day…
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Tax Bites are general in nature and are not a substitute for specific advice. They are the opinion of Tax Advisory Specialists, and the ATO or the Courts may take a different view. They are not updated for changes in the law or the interpretation of the law since publication.