In order to access the small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997, the taxpayer and their connected entities and CGT affiliates must have, amongst other things, net assets less than $6,000,000 or a combined turnover of less than $2,000,000.

Due to those tests, whether someone is connected to a taxpayer or CGT affiliate of a taxpayer is often the deciding factor in determining whether the taxpayer can obtain the benefit of the small business CGT concessions.  Sometimes the taxpayer will want certain people or entities to be connected with them and at other times they won’t.

This was clearly demonstrated in the recent case of Gutteridge v FCT [2013] AATA 947.  In that case a discretionary trust sold its business and distributed the income, including the capital gains to Mr and Mrs Gutteridge.  The business was an active asset and Mr and Mrs Gutteridge elected to use the small business CGT concessions to reduce their taxable capital gain.

Neither Mr nor Mrs Gutteridge were directors of or shareholders in the corporate trustee of the family trust.  Those roles were held by their daughter, Ms McKenzie.  The appointor trust was Mr Coffey.  Mr and Mrs Gutteridge were beneficiaries of the family trust.

The ATO held the view that Ms McKenzie was the controller of the trust and that as a result, her, and more importantly another entity controlled by her, were connected with the trust.  The combined assets of the trust and Ms McKenzie’s entity were greater than $6,000,000 and turnover of the two entities was greater than $2,000,000.  As a result, the trust, and consequently Mr and Mrs Gutteridge, could not access the small business CGT concessions.

On reviewing the matter, the AAT provided the trust and its beneficiaries with an early Christmas present on Christmas Eve when it disagreed with the ATO’s view and held that although Ms McKenzie was the shareholder and director in the corporate trustee, she was not the controller of the trust.  The controller of the trust was, in fact, Mr Gutteridge.  All decisions made in relation to the trust were, in reality, made by Mr Gutteridge.  He attended board meetings and made all of the decisions regarding the running of the business which Ms McKenzie dutifully put into effect via her role as the director of the trustee.

Mr Coffey, although the named appointor, signed a statutory declaration stating that he would not act unless directed to do so by Mr Gutteridge.  He also stated that he would not act on the instructions of Ms McKenzie.

As the AAT held that Mr Gutteridge was the controller of the trust and not Ms McKenzie, the assets and turnover of Ms McKenzie’s business were excluded from the relevant tests and the trust and the beneficiaries were able to access the small business CGT concessions.

The case provides a good insight into the AAT’s view of control for the purposes of the small business CGT concessions.

Brendan Cockerill is a Business and Succession Lawyer at Dobinson Davey Clifford Simpson, 18 Kendall Lane, NewActon, Canberra ACT 2601 and can be contacted on (02) 6212 7600.