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Capital Gains Tax Changes for Entrepreneurs

The Federal Government has introduced a bill that aims to widen the availability of Capital Gains Tax exemptions for Small and Medium Businesses and the Entrepreneurs that own them

New significant individual 20% test

Prior to July 1 2006 certain qualifying businesses and individuals could access Capital Gains Tax exemptions to designed to encourage entrepreneurs to start and grow and reinvest the proceeds of the sale of their business back into other businesses. The Government was of the opinion these were too restrictive and has sought to widen their application.

To improve access to the concessions, the Government will replace the current controlling individual 50 per cent test with the new significant individual 20 per cent test that can be satisfied either directly or indirectly through one or more interposed entities.

Currently there is a limit of two controlling individuals or one controlling individual and their spouse who has an interest in the business. The controlling individual test applies where the concessions extend to an entity that did not make the relevant capital gain (that is, the 15-year exemption and the retirement exemption).

The new significant individual test would enable up to eight taxpayers to benefit from the full range of concessions instead of the current limit of two controlling individuals.

The small business CGT concessions are intended for active participants in a small business. The basis for the proposed significant individual test is to identify those who have a substantial interest in a small business, for they tend to have an active interest in running the business.

The full release can be found here http://www.treasurer.gov.au/tsr/content/pressreleases/2006/038.asp

The bill is not expected to pass into law until later in 2007 but will be applicable from July 1 2006 

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