Tax Bites

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.


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