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Taxation Law : Seperate Business Tax

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Question:

Describe about the Taxation Law for Seperate Business Tax.

 

Answer:

Capital Gain Tax

The Capital gain Tax (CGT) are the tax that are paid by the taxpayer on the capital gains made in case of a CGT event. The Capital Gain tax is not a separate tax but a component of the Income Tax Assessment Act 1997.  The Section 100-10 of the ITAA 1997 states that the Capital Gain Tax affects the income tax liability of the taxpayer. The section also states that the assessable income of the taxpayer should include the capital gains made during the year and the assessable income should be reduced by the losses made of capital nature during the income year. The section 100-20(1) of the ITAA 1997 states that the capital gain or loss can only arise if there is a CGT event[1]. The summary of CGT events is given in section 104-5 of the ITAA 1997 for example the event of selling a business is a D1 CGT event. The CGT event includes CGT assets and the section 100-25 provides a list of well-known CGT assets. In Section 108-5 the CGT asset is defined as any type of property or any rights that is not a property. In Section 100-35 of the ITAA 1997, it is stated that the taxpayer makes a Capital gain if the amount received from CGT event is more than the cost associated with the asset[2]. In the same section, it is stated that a taxpayer makes a capital loss if the amount received on sale of CGT asset is less that the cost of the assets.

Small Business Concession

The Section 152-1 states that the Division 152 of the ITAA 1997 contains the concessions that are available to small business in case of CGT event. The Section 152-5 states that the division provides basic conditions of the relief and if the conditions are satisfied then the small business could reduce its capital gain by using this division. The primary aim of the concession is to provide relief to the small business so that they can have enough funds for expansion and retirement. There are four concessions that are available for small business under Division 152 that are only applicable for CGT of small business[3]. These four concessions are:

  • 15 years exemption under subdivision 152B,
  • The 50% active assets reduction under subdivision 152C,
  • The “small business retirement exemption” under subdivision 152D and
  • “Small business rollover” under subdivision 152E

The section 152-10 states that in order to be qualified for the small business CGT concession it is necessary that the basic conditions be satisfied[4]. These conditions are in the structure of tests they are:

  • the “maximum net asset value test” as provided in section 152-15and section 152(20);
  • the “active assets test” as provided in section 152-35, section 152-40 and section 152-45;
  • the “controlling individual test” as provided in section 152-50 and section 152-60;

Therefore, it can be sad that if the basic conditions are satisfied then the small business concessions can be taken in case of CGT event.

 

Facts of the case

In the given case, the Cameron Truck is one of the owners of truck Lim Pty Ltd that was incorporated on 1 July 1999. Cameron had 50 shares of “TLPL” and in 2007; he sold 11 shares to Linda Kawan for $500000.00. The Cameron at the age of 55 years sold the business to Macrobroad Pty Ltd for $30 million in September 2015. The income of TLPL for the year ending 30June 2015 was $100 million. In addition to this with the money from the sale of the business, Cameron has purchased a bookshop. In this case, it is required to discuss the CGT consequence for Cameron Truck.

Discussion for CGT Consequences for Cameron Truck

In this case, at first the analysis is made to ascertain whether the basic conditions are satisfied so that the CGT concession for small business could be applied. In the section 152-50 of ITAA 1997 it is stated that the significant individual tests is satisfied if the entity has at least one significant individual before the CGT event[5]. The section 152-60 states that an individual is considered as CGT concession stakeholder in the company if the individual is the significant individual or spouse of the significant individual. In this case, Cameron Truck is a significant individual as he satisfied the “significant individual tests”. Therefore, it can be said that he is entitled to small business concession for CGT events. The section 152-50 of the ITAA 1997 states that an individual can completely disregard the capital gains made if the CGT assets are the shares of the company and the individual remains a “significant individual” for at least 15 years and the age of the individual is 55 years or more at the time of CGT[6]. In the given case, Cameron Truck is a significant individual in the company “TLPL” for more than 15 years. The age of Cameron truck at the time of selling the shares of the company was 55 years.

Conclusion

Therefore based on the above analysis it can be concluded that the Cameron Truck is entitled to CGT concession so the capital gain made will not be taxable.

 

Reference

Bender, Philip, 'Bell v FCT: Uncertainties in the Small Business CGT Concessions' (2013) 48Taxation in Australia 28.

Hicks, Angie and Anna Tran, 'Small Business Concessions' (2014) 48 Taxation in Australia367.

Kewley, Naomi, 'The Old, the New, and the Ugly: A Comparative Analysis of the UK, South African and Australian CGT Small Business Concessions - with Recommendations for Australia' (2013) 28 Australian Tax Forum 257.

Marsden, Stephen, Kerrie Sadiq and Timothy Wilkins, 'Small Business Entity Tax Concessions: Through the Eyes of the Practitioner' (2012) 22 Revenue Law Journal 1.

Norbury, Michael, 'Tax Cases: Dividend Access Shares and the Small Business CGT Concessions' (2016) 50 Taxation in Australia 410.

Rollins, Adrian, 'Budget Small Business Tax Concessions - what they Mean for Doctors' (2015) 27 Australian Medicine 13.

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