ATO Interpretative Decision

ATO ID 2003/328

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

For the purposes of the small business 15-year exemption, was the taxpayer 'permanently incapacitated at the time of the CGT event' as required by subparagraph 152-105(d)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. For the purposes of the small business 15-year exemption, the taxpayer was 'permanently incapacitated at the time of the CGT event' as required by subparagraph 152-105(d)(ii) of the ITAA 1997.

Facts

The taxpayer was a partner in a partnership that acquired a business after 19 September 1985.

The taxpayer developed certain health problems that continued to deteriorate. They became incapable of effectively operating the business. The business was sold during the income year ended 30 June 2003. At the time of the sale the taxpayer was under 55 years of age.

The taxpayer's doctor stated in writing at the time the business was sold that the taxpayer 'suffers ill health to the extent that they are unlikely to be able to engage again in gainful employment for which they are reasonably qualified, trained or experienced.'

Reasons for Decision

Under the small business 15-year exemption in section 152-105 of the ITAA 1997, an individual can disregard a capital gain arising from a CGT asset they have owned for at least 15 years if certain conditions are satisfied. One of those conditions is that the individual is either 55 or over at the time of the CGT event and the event happens in connection with their retirement; or the individual is permanently incapacitated at the time of the CGT event.

The term 'permanent incapacity' is used elsewhere within the retirement and superannuation provisions of the law and its meaning in those provisions may assist in providing some indication of its meaning for the purposes of the small business 15-year exemption. Having regard to the other provisions in which the term is used, a broadly indicative description of permanent incapacity is:

ill health (whether physical or mental), where it is reasonable to consider that the person is unlikely, because of the ill-health, to engage again in gainful employment for which the person is reasonably qualified by education, training or experience. The incapacity does not necessarily need to be permanent in the sense of everlasting.

In this case the taxpayer developed severe health problems that deteriorated to the point where they are incapable of operating the business and, as a result, the business was sold. In these circumstances, it is considered that, at the time of the CGT event, the taxpayer is unlikely to be able to engage again in gainful employment for which they are reasonably qualified and this is supported by medical evidence.

Accordingly, it is considered the taxpayer was 'permanently incapacitated at the time of the CGT event' for the purposes of subparagraph 152-105(d)(ii) of the ITAA 1997. The taxpayer may therefore qualify for the small business 15-year exemption if the other conditions for exemption are satisfied.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 152-105
   subparagraph 152-105(d)(ii)

Keywords
CGT small business relief
Small business 15-year exemption
Capital gains tax

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  15 May 2003

ISSN: 1445-2782