Share
In order to access Small Business CGT concessions on the sale of shares in a company or unit trust (or for the company or unit trust to access the 15-year exemption), there needs to be a “significant individual”, being an individual that has a small business participation percentage of at least 20%.
But different classes of shares, such as dividend access shares, typically result in there being no individual that can qualify as a significant individual in the vast majority of cases.
So many practitioners find themselves trying to “fix” this problem shortly before a sale by “cleaning up” the share structure to remove the different classes of shares (although this cannot fix the past and the 15-year exemption may not be available given it requires a significant individual for a total of at least 15 years).
But cleaning up the share structure can cause other issues which practitioners need to be aware of and consider based on their client’s particular circumstances, such as in relation to (1) the share buy-back rules and / or the capital streaming rules; (2) the market value substitution rules for proceeds; (3) the direct value shifting rules; (4) the continuity of ownership loss recoupment rules; (5) the rules which can deem pre-CGT status assets to be post-CGT status assets; and (6) the general anti-avoidance rules.
After working through the above rules, practitioners should be better placed to advise their clients on the implications of “cleaning up” the different classes of shares.