CGT Small Business Concessions: A Recent AAT Ruling
If you’re selling shares in your trading company or restructuring, understanding CGT small business concessions can be the difference between a big tax bill and a manageable one. A 2024 Administrative Appeals Tribunal (AAT) decision—Moloney and Commissioner of Taxation (Taxation) [2024] AATA 1483—shows just how much turns on getting the valuation right and passing the $6 million maximum net asset value (MNAV) test. In this guide, we unpack the ruling in plain English, recap the ATO’s rules, and give you a practical checklist to reduce risk. Australian Taxation Office
Not advice: The following is general information only. Always seek advice for your circumstances and rely on primary ATO guidance and the judgment itself. Australian Taxation Office
What are the CGT small business concessions?
The ATO provides four concessions in Division 152 (50% active asset reduction, retirement exemption, 15-year exemption, and rollover). To access them you must first satisfy the basic conditions—including either being a small business entity or passing the MNAV test (total net value of CGT assets of you, your affiliates, and connected entities not exceeding $6 million, just before the CGT event). Australian Taxation Office
The MNAV test in a nutshell
The ATO confirms you meet the MNAV test if, immediately before the CGT event, the sum of your net CGT assets (including connected entities/affiliates) is ≤ $6 million—with specific rules on what assets and liabilities to include or exclude. Australian Taxation Office
Where the market value substitution rule bites
If you and the buyer didn’t deal at arm’s length or the proceeds are more or less than market value, the market value substitution rule (MVSR) can replace the price with market value when calculating capital proceeds—often pushing taxpayers over the MNAV threshold. The ATO sets this out clearly in its guidance on capital proceeds (s 116-30 ITAA 1997). Australian Taxation Office
The case: Moloney and Commissioner of Taxation (AATA 1483)
The facts (short version). A family trust sold shares in its operating company in March 2015 for $3.5 million. The trust distributed income (including the capital gain) equally to four beneficiaries in June 2015, applying the 50% CGT discount and small business concessions based on that sale price. The ATO challenged the valuation, substituting a much higher market value of around $10.64 million under the MVSR. On that view, the trust failed the MNAV test and each beneficiary’s share of trust income would jump from about $321,989 to $1,194,174. AustLII
What the AAT decided. The Tribunal agreed the parties were not dealing at arm’s length, so MVSR was in play—but it preferred the taxpayers’ valuation evidence (which closely considered the business’s specific market, customers and risk profile) over the Commissioner’s higher valuation. Critically, the Tribunal found the total net CGT assets were under $6 million, so the MNAV test was satisfied and the small business CGT concessions were available; the amended assessments were set aside. AustLII
Why Moloney matters for owners (and trustees)
Valuation quality is everything. The AAT weighed two expert approaches and chose the one that dug into the actual business context—industry cycles, customer concentration, maintainable earnings assumptions. If your valuer can’t explain assumptions with real-world data, you’re exposed. AustLII
Arm’s length doesn’t always equal ‘unrelated’. Related parties can deal at arm’s length, but if they don’t, MVSR may substitute the price—potentially pushing you over $6 million. Build contemporaneous evidence of commercial dealing (process, comparables, independence of advisers). Australian Taxation Office
Timing matters: ‘just before’ the CGT event. The MNAV test is applied immediately before the event that gives rise to the gain—planning (and documentation) needs to be in place before you sign. Australian Taxation Office
Practical checklist: passing the MNAV test without nasty surprises
Before you restructure or sell:
Engage an experienced valuer who uses a methodology suited to your business (e.g., maintainable earnings with realistic normalisations) and documents key assumptions. Cross-check sensitivity to customer concentration and contract terms. (See AAT analysis in Moloney.) AustLII
Map your group and connections. Identify affiliates and connected entities—their assets and liabilities count in the MNAV calculation. Use the ATO’s eligibility guidance as your source of truth. Australian Taxation Office
Prepare a ‘just before’ balance sheet of CGT assets and relevant liabilities, clearly noting inclusions/exclusions per ATO rules (e.g., certain personal-use assets excluded). Australian Taxation Office
Evidence arm’s length behaviour even with related parties: independent advice, comparative offers, documented rationale. If MVSR applies, be ready with a defensible market value. Australian Taxation Office
Document trust distributions carefully (resolutions, beneficiary minutes) to align with the intended tax outcomes. (General practice note; always follow ATO guidance and your deed.) Australian Taxation Office
During the transaction:
Lock the valuation date and assumptions. The further you move from the valuation date, the more scope for dispute.
Check MNAV after adjustments. Price adjustments, earn-outs, or debt changes can move the needle—re-test MNAV before completion using the ATO’s framework. Australian Taxation Office
After completion:
Apply the concessions in the right order. The ATO sets out the order to apply (e.g., 50% discount, then Division 152 concessions). Keep working papers that mirror the ATO’s structure. Australian Taxation Office
Retain your files. Keep the valuation report, working papers, entity maps, and board/trustee minutes. If reviewed later, contemporaneous documentation carries weight.
Worked summary table: MNAV and MVSR at a glance
| Concept | What it does | Why it matters | Primary source |
|---|---|---|---|
| MNAV test | Requires total net CGT assets of you + affiliates + connected entities ≤ $6 m just before the CGT event. | Gateway to CGT small business concessions. | ATO MNAV guidance. Australian Taxation Office |
| MVSR (s 116-30) | Substitutes market value for capital proceeds where parties aren’t at arm’s length or proceeds can’t be valued. | Can increase proceeds and push you over $6 m. | ATO capital proceeds guidance / legislation. Australian Taxation Office+1 |
| Division 152 concessions | Framework for 4 concessions and basic conditions. | Dictates order and eligibility. | ATO small business CGT pages. Australian Taxation Office+1 |
| Moloney AAT 2024 | Tribunal preferred taxpayer valuation; MNAV met despite related-party sale. | Illustrates how valuation detail can decide eligibility. | AustLII judgment. AustLII |
Common pitfalls we see (and how to avoid them)
Over-optimistic normalisations. Stripping out too many expenses in maintainable earnings inflates value and invites ATO challenge. Have your valuer justify every normalisation against industry benchmarks. (Judgment shows scrutiny of assumptions.) AustLII
Forgetting connected entities. Vehicles, property, or investments sitting in a connected trust/company still count towards MNAV. Map everything, don’t guess. Australian Taxation Office
Documentation gaps. If your process looks ‘soft’, expect MVSR arguments. Keep a paper trail of negotiations and independent advice. Australian Taxation Office
Action plan for Queensland trade businesses
Book a pre-transaction MNAV review (valuation + MNAV modelling) at least 8–12 weeks before you sign.
Run an ATO-aligned eligibility check across Division 152 basic conditions and order of application. Australian Taxation Office+1
Get your governance in order—trust deed reviewed, resolutions templated, and entity map current.
If you want help doing this properly, our team works with trade businesses across Cairns and the Sunshine Coast—from pre-sale planning to documentation and ATO-ready files. Book a 15-minute strategy call and we’ll map your next steps.
FAQs
What is counted in the $6 m MNAV test?
Your net CGT assets plus those of affiliates and connected entities, with specific inclusions/exclusions per ATO rules. It’s tested just before the CGT event. Australian Taxation Office
Does the market value substitution rule always apply to related-party sales?
No. It applies where parties did not deal at arm’s length or proceeds can’t be valued. Related parties can deal at arm’s length if the process is genuinely commercial and evidenced. Australian Taxation Office
Which concession should I apply first?
Follow the ATO’s prescribed order when calculating your net capital gain (e.g., discount, then Division 152 concessions). Keep working papers that mirror ATO steps. Australian Taxation Office
What did Moloney change?
It didn’t change the law; it showed the deciding factor is valuation quality. The AAT preferred the taxpayers’ detailed, business-specific valuation and accepted MNAV ≤ $6 m, allowing concessions. AustLII
