ATO Interpretative Decision

ATO ID 2003/658 (Withdrawn)

Income Tax

• This ATO ID is withdrawn and replaced by Advanced Guide to CGT concessions for small business.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does an individual taxpayer need to cease their business activities and retire in order to choose the small business retirement exemption under subsection 152-305(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. An individual taxpayer does not need to cease their business activities and retire in order to choose the small business retirement exemption under subsection 152-305(1) of the ITAA 1997.

Facts

An individual taxpayer carried on a business. Due to ill health, the taxpayer sold the licences he needed to conduct the business and made several capital gains. The sales were made over two income years and the taxpayer was over 55 years of age at the time he first received proceeds from the sales.

Income tax returns were lodged which included the capital gains made from the sale of the licences. Each tax return was prepared by a different tax agent. Both tax agents involved did not claim the retirement exemption as they did not think the taxpayer was retired or was retiring. They noted that although the taxpayer sold the licences, he conducted other activities which continued after the sale of the licences.

Reasons for Decision

Under subsection 152-305(1) of the ITAA 1997 an individual can choose the retirement exemption and disregard all or part of a capital gain if:

•

the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied and,

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if the individual was under 55 just before receiving an amount of capital proceeds from the CGT event, an amount equal to the eligible termination payment (ETP) referred to subsection 152-310(2) of the ITAA 1997 is rolled over into a complying superannuation fund, a complying approved deposit fund or a retirement savings account.

If a taxpayer is 55 or over at the time of receiving the capital proceeds from the CGT event there is no requirement to roll over any amount.

The amount chosen for the retirement exemption, together with any previous amount chosen under an earlier application of the retirement exemption, must not exceed an individual's lifetime CGT retirement exemption limit of $500,000 (paragraph 152-315(2)(a) and subsection 152-320(1) of the ITAA 1997). The amount must also be specified in writing (subsection 152-315(4) of the ITAA 1997).

For an individual choosing the retirement exemption there is no requirement to make an actual ETP, that is, a payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer (paragraph 27A(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)). In other words, there is no requirement for the taxpayer to terminate any employment or other activity. Rather the amount an individual chooses for the retirement exemption is treated as if it were an ETP (subsection 152-310(2) of the ITAA 1997 and paragraph 27A(1)(jaa) of the ITAA 1936).

Accordingly, there is no requirement for an individual taxpayer to cease their business activities and retire in order to choose the small business retirement exemption under subsection 152-305(1) of the ITAA1997.

Year of income:  Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   Subdivision 152-A
   subsection 152-305(1)
   subsection 152-310(2)
   paragraph 152-315(2)(a)
   subsection 152-315(4)
   subsection 152-320(1)

Keywords
Capital gains tax
Retirement
Small business income case reports
CGT retirement exemptions
Small business retirement exemption

Business Line:  OCTC

Date of publication:  1 August 2003

ISSN: 1445-2782