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Small Business CGT – the maximum net asset value test

Getting the connection right

The Small Business CGT Concessions enshrined within Division 152 of the Income Tax Assessment Act 1997 (Cth) are capable of providing significant capital gains tax relief for qualifying small businesses – in some cases complete exemption.


However, the decision of Altnot Pty Ltd v Commissioner of Taxation [2013] AATA 140 provides a timely reminder of the dangers lurking within even the most basic statutory requirements.

Facts and findings

Altnot’s Case concerned whether the net value of the taxpayer’s (and “connected entity’s”) CGT assets exceeded the (then) $5 million limit under ‘Maximum Net Asset Value’ (MNAV) test found in the Act. This aspect would ultimately determine whether the full amount of a capital gain derived from the sale of the taxpayer’s interest in a carwash business could be exempted from capital gains tax. The Administrative Appeals Tribunal (AAT) determined that:

  1. The 50% interest in the property held by the director’s wife was not ‘connected’ with the taxpayer as she did not hold any shares in the taxpayer company, meaning her assets should not be included in the MNAV test; and
  2. The husband’s 50% interest in a holiday residence should be included in the MNAV test as although the property had ceased to be rented some 3-4 months before the CGT event (and was likely available solely for their personal use and enjoyment) the concept of “being used” infers an aspect of continuity which therefore required them to resume using the asset as a holiday residence for it to be excluded.

The taxpayer’s objection to the Commissioner’s amended assessment (which increased the taxable income of the taxpayer by $995,535) was thus partially unsuccessful (in that the AAT found that the holiday residence was to be taken into account for the MNAV calculation), although the rejection of the director’s wife assets from the MNAV test still resulted in the taxpayer being able to access the Small Business CGT Concessions.

The Commissioner has appealed the decision.

Lessons from the case

In situations where the Small Business CGT Concessions are available, the taxpayer is able to access significant taxation benefits. However, as a result of the numerous technical complexities of the legislation, there are numerous opportunities for taxpayers to disqualify themselves. Mistakes can be extremely costly for all concerned.

It is therefore paramount that any purported application of these concessions is systematic, attentive and supported by the technical ability of a taxation professional.

Further information

For further advice regarding the application of the Small Business CGT Concessions or taxation issues generally please contact us at tax@redchip.com.au or phone (07) 3223 6100.

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