What Is a Significant Individual?

An individual is a significant individual in a company or trust at a given time if, at that time, they hold a small business participation percentage in that entity of at least 20 per cent. That is section 152.55 of the ITAA 1997, and it is a much shorter sentence than the work it does inside the small business CGT concessions.

The percentage decides who can reach the concessions on a sale of shares or units, who can be paid out under the retirement exemption, and whether the 15 year exemption is available at all.

It is also, in most structures we look at, smaller than the client thinks.

Where the percentage comes from

Your small business participation percentage is the sum of a direct and an indirect figure (section 152.65). The direct one comes off a table in section 152.70, and the row you land on depends on the entity holding the business.

• Company: the smallest of three percentages, being voting power, entitlement to dividends and entitlement to capital distributions. Redeemable shares are left out of the calculation.
• Fixed trust: the smaller of the income entitlement and the capital entitlement.
• Discretionary trust: the distributions of income and capital actually made during the income year, and where the two differ, the smaller of them.

The smallest of applies for a reason, and it catches people out. Hold 30 per cent of the ordinary shares while a dividend access class takes most of the income, and the percentage that matters here can land at 10 per cent.

Indirect percentages are traced by multiplying through the chain. A 50 per cent interest in a trust that holds 30 per cent of the operating company produces 15 per cent, which falls short standing on its own.

Figure 1. The direct participation percentage is worked out differently for each entity type under the table in section 152.70.

In a discretionary trust, the resolution decides it

This is the one worth writing on the wall.

A discretionary trust has no fixed entitlements, so the percentage comes from what the trustee actually distributed during the year. A resolution signed in June can create or remove a significant individual, and it does so for the whole income year rather than only from the date of the distribution. Anyone choosing a structure on tax grounds should read this alongside trust versus company tax, because the flexibility that makes a discretionary trust attractive is the same flexibility that puts this test at risk.

The percentage drops to zero in two situations. Where the trust had net income and no tax loss and the trustee chose to distribute nothing. And where the trustee has never made a distribution at all, up to and including the year of the CGT event.

Amendments made in 2012 soften one edge of that. Where the trustee made no distribution in the CGT event year and the trust had no net income or ran a tax loss that year, you can look back to the last year in which a distribution was actually made.

The stakeholder layer, and the spouse limb

Significant individual is the ingredient. CGT concession stakeholder is what the concessions ask for.

Under section 152.60 you are a CGT concession stakeholder if you are a significant individual, or if you are the spouse of one and your own participation percentage sits above zero. Above zero is the entire test on that second limb. 1 per cent qualifies.

That limb is worth checking in most family structures before a sale, since it widens who can receive a retirement exemption payment out of a company or trust.

The 90 per cent test sits on top

Where the entity making the gain is itself a company or trust rather than an individual, subsection 152.10(2) adds a further requirement. The CGT concession stakeholders in the object entity have to hold, together, a participation percentage of at least 90 per cent in the entity claiming the concession. Layered structures fail here more often than they fail the 20 per cent test, and it pays to run the arithmetic at the same time as aggregated turnover.

The 15 year exemption wants 15 years of it

Subdivision 152.B looks across the whole ownership period rather than at the present moment. It asks whether the company or trust had a significant individual for a total of at least 15 years during that period (sections 152.105 and 152.110).

The total does not need to run continuously, and it does not need to be the same person the whole way. A founder for 9 years and an adult child for 7 can add up.

Four things that go wrong

Share classes introduced for income splitting. Dividend access shares can quietly cut the dividend or capital percentage the test measures, long before anyone is thinking about a sale.

A spouse assumed to be covered. A spouse holding no shares, no units and no distribution has a percentage of zero and falls outside section 152.60 entirely.

Resolutions signed and forgotten. The percentage is evidenced by distribution records and trustee resolutions, so the paperwork is the proof and there is no reconstructing it years later, which is why what records to keep for tax matters more here than in most places.

Testing at the wrong moment. The general rule tests just before the CGT event, while a discretionary trust percentage taken from the year’s distributions applies across the whole income year. Get this in order early, alongside the active asset question, rather than during a due diligence request list.

Where to start

Work out the percentage for each individual in the structure before a sale is on the table, and keep it under review each year the resolutions are signed. It costs an hour and it decides access to concessions worth far more than that. Keeping the distribution history and the share register aligned year by year is the part that makes the answer provable later, and it is one of the things Tax Assistant tracks for clients.

Technical reference (current as at July 2026)

• Significant individual: section 152.55, ITAA 1997. An individual with a small business participation percentage in the company or trust of at least 20 per cent.
• CGT concession stakeholder: section 152.60. A significant individual, or the spouse of a significant individual where the spouse holds a small business participation percentage greater than zero.
• Small business participation percentage: section 152.65. The sum of the direct and indirect percentages.
• Direct percentage: section 152.70. Company (table item 1): the smallest of the percentages of voting power, dividend entitlement and capital entitlement, disregarding redeemable shares. Fixed trust (table item 2): the smaller of the income and capital entitlement percentages. Discretionary trust (table item 3): the percentage of distributions of income or capital the entity was beneficially entitled to during the income year, and the smaller of the two where they differ.
• Zero percentage in a discretionary trust: where the trust had net income and no tax loss and the trustee made no distribution, or where the trustee has never made a distribution up to and including the CGT event year.
• Look back rule: subsections 152.70(4) to (6). Where the trustee made no distribution in the CGT event year and the trust had no net income or had a tax loss, the last income year in which a distribution was made can be used.
• Indirect percentage: section 152.75. Traced through interposed entities by multiplying the percentages along the chain.
• Significant individual test: section 152.50. The entity must have had at least one significant individual just before the CGT event.
• Additional basic conditions for shares or trust interests: subsection 152.10(2). You must be a CGT concession stakeholder, or CGT concession stakeholders in the object entity must together hold a participation percentage in the entity claiming the concession of at least 90 per cent.
• 15 year exemption: Subdivision 152.B. Requires a significant individual for a total of at least 15 years during the ownership period (sections 152.105 and 152.110). The period need not be continuous and need not involve the same individual.
• Retirement exemption for a company or trust: the exempt amount must be paid to a CGT concession stakeholder, in proportion to participation percentages. Lifetime CGT cap for 2026 to 2027: $1,935,000.
• Other basic conditions (Subdivision 152.A): a CGT event happening to a CGT asset, a gain arising, the active asset test, and either a CGT small business entity (aggregated turnover under $2 million) or the maximum net asset value test ($6 million).

This article is general information and is not a substitute for advice on your own circumstances.