“just before the CGT event”

When dealing with the Division 152 concessions, many sections require something to be satisfied ‘just before the CGT event’.

This is important for the significant individual test, where section 152-50 provides ‘An entity satisfies the significant individual test if the entity had at least one * significant individual just before the * CGT event.’

Does this means that for discretionary trusts, a person must have been entitled to income or capital just before the CGT year?

The answer, according to the ATO, is no.

In the National Tax Liaison Group Losses and CGT Sub-committee minutes - 14 November 2007 at item 1.28, the ATO addressed this exact issue.

The ATO provided the following comment:

Subsection 152-70(1) table item 3 is applied to work out an entity's direct small business participation percentage in a discretionary trust based on distributions to which the entity was beneficially entitled.

The percentage applies for the whole of the income year in which the relevant distributions are made. An individual who was beneficially entitled to 30% of the distributions of income and 30% of the distributions of capital from a discretionary trust during an income year will have a direct small business participation percentage (and hence a small business participation percentage) of 30% in the discretionary trust at all times during that income year. The individual will therefore be a significant individual of the trust at all times during that year and accordingly the trust will satisfy the significant individual test in section 152-50 for a CGT event that happens during that year.

According to the ATO, there is no need to make a distribution ‘just before the event’. If a distribution is made in a year, it is considered by the ATO to apply for the whole of that year.