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    Director's wife was 'connected with' taxpayer company

    The Commissioner has been successful in overturning a decision of the AAT about whether the assets of the sole director's wife had to be taken into account for the (former) $5M net asset value test. At issue was whether the taxpayer company had correctly applied the retirement exemption under the small business CGT concessions to a capital gain derived on the sale of its interest in a business in the 2007 year of income.

    In a very brief judgement, the Federal Court on appeal held that the director's wife was connected with the entity and the matter was remitted to the AAT for it to reconsider on that basis. Although the wife owned no shares in the company, she was connected through her husband’s shareholding in the company, given that he was her ‘small business CGT affiliate’ under the laws as they stood at the relevant time.

    This case is straightforward but the important thing to note is that the law has since changed about who an affiliate is for the purposes of the small business CGT concessions. There is a common misconception that the assets of both spouses and all family controlled entities must be taken into account for the $6M net asset value test, but that is not always the case. One of the reasons for this is that, unless a person's spouse carries on a business, then that spouse cannot be an affiliate of the person for these purposes (except in some favourable instances, not presently relevant) (C of T v Altnot Pty Ltd [2014] FCA 362).

    30 Apr 2014

    Topic: CGT

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