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The Federal Court (Gordon J) has held that the taxpayers (husband and wife) each satsified the $5million maximum net asset value (MNAV) test in s 152-15 ITAA 1997 and were thus entitled to the exemption from tax under Subdiv 152-B ITAA 1997 ("the small business 15-year exemption").

The taxpayers together owned a total of 58.2% of the issued capital in a company. Mr White owned 30% of the issued capital. Mrs White owned 28.2% of the issued capital. The taxpayers were each other’s small business CGT affiliate for the purposes of Subdiv 152-B of the 1997 Act. The company was connected to each taxpayer by virtue of the application of the former s 152-30(2) ITAA 1997.

On 12 December 2006, the taxpayers sold their shares in the company. As a consequence of that sale, Mr White made a capital gain of $1,887,571 and Mrs White made a capital gain of $1,887,572.

In determining whether the taxpayers satisfied the MNAV test, the taxpayers included the value of their shareholding in the Company and otherwise excluded the net value of the assets of the Company. The Commissioner disallowed the 15 year retirement exemption on the basis that the taxpayers failed the MNAV test. In arriving at that decision, the Commissioner included the net value of the assets of the Company.

Thus, the only issue for determination was whether the taxpayers passed the MNAV test. That conclusion turned on whether ss 152-20(3) and (4) of ITAA 1997 excluded the value of the company’s assets from the MNAV test calculation. The Court held that s 152-20(4) applied to so exclude the value of the company's assets, on the basis that the connection (between the company and the taxpayer under consideration) arose only because of the relationship between that taxpayer and their spouse.

Or to put the same point another way, the taxpayer under consideration was connected with the company only because his or her spouse had a shareholding which together with the taxpayer’s shareholding exceeded the 40% threshold prescribed by s 152-30 ITAA 1997. But for that circumstance, that taxpayer was not connected with the company.

Thus, the taxpayers satisfied the MNAV and, as a consequence, the taxpayers were entitled to the exemption under Subdiv 152-B.

White v FCT [2012] FCA 109 (20 February 2012).


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