The Federal Court has held that husband and wife taxpayers who sold their combined 58% shareholding interest in a company had each satisfied the maximum net asset value test for the purpose of accessing the CGT small business concessions in respect of capital gains of $1.8m they each made on the sale. The Commissioner argued that as they were “CGT small business affiliates” of each other, then the company was a connected entity to each of them (in terms of the 40% shareholding control test) and that therefore the assets of the company had to be taken into account for the purposes of the test (in which case they would not pass the test).
However, the Court agreed with the taxpayers that the exception in (then) s 152-20(4) of the ITAA 1997 for “an entity that is connected with you only because of your small business CGT affiliate” applied, and that therefore only the net value of their respective shareholding in the company was to be taken into account (and not the assets of the company). It did so on the basis that s 152-20(4) was a “but for” test and but for each taxpayer’s small business CGT affiliate owning a respective 28% or 30% interest in the company, it would not have been connected with either taxpayer.
(White v FCT [2012] FCA 109, Federal Court, Gordon J, 20 February 2012.)
[LTN 37, 24/2]