Company shares: three questions and the general discount

You might automatically assume that your individual or trustee clients are eligible for the 50% general CGT discount (“General Discount”) when they dispose of private company shares they’ve held for 12 months or more. Unfortunately, this is simply not the case.

The good news is there are three initial questions that will assist you and your clients in determining their eligibility for the General Discount in this particular scenario.

If your client answers NO to any one of the these questions at the time of the share disposal then the General Discount may be available:

  1. Do you and your associates together beneficially own at least 10% (by value) of the equity in the relevant company?
  2. Are the total cost bases for CGT assets held by the relevant company for less than 12 months, more than half the total cost base of all the company’s CGT assets?
  3. Is the notional capital gain on all CGT assets owned by the relevant company for less than 12 months, more than half of the notional capital gain on all CGT assets held by the relevant company?

From a practical standpoint, the General Discount is often lost in situations where the relevant company holds a significant quantity of newly acquired assets.

If your client proposes to carry out a restructure or sell shares in a company which holds assets it has acquired recently, you should turn your mind to this quick checklist as a starting point in your wider advice.

There are, of course, subtle nuances contained in the provisions and some situations will require other surrounding tests.

If you’re unsure about the application of the General Discount, or would like to confirm the advice you are providing your clients, please contact us on (07) 3223 6100 or at tax@redchip.com.au.

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