ATO Interpretative Decision
ATO ID 2003/864 (Withdrawn)
Income Tax
CGT small business concessions: 15 year exemption - retirementFOI status: may be released
-
This ATO ID is withdrawn as the ATO view on this matter is now reflected in the publication Advanced guide to capital gains tax concessions for small business.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
If a taxpayer sells their business, ceases to be self employed and then commences some employment with another party on a much reduced scale, is there a 'retirement' under subparagraph 152-105(d)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) for the purposes of the small business 15-year exemption?
Decision
Yes. In the particular circumstances described, there is a 'retirement' under subparagraph 152-105(d)(i) of the ITAA 1997 for the purposes of the small business 15-year exemption, even though the taxpayer has not permanently left the workforce.
Facts
The taxpayer, a sole trader, sold the business they had carried on for many years and made a capital gain on the disposal of the land used to conduct the business. The taxpayer owned the land for at least 15 years and was over 55 at the time of the sale.
The taxpayer agreed to be employed by the new owner for a few hours each week for two years.
Reasons for Decision
One of the conditions that must be satisfied to qualify for the small business 15 year exemption is that the relevant individual must be either:
- •
- 55 or over at the time of the CGT event giving rise to the capital gain and the event happens in connection with their retirement; or
- •
- permanently incapacitated at that time (paragraphs 152-105(d) and 152-110(1)(d) of the ITAA 1997).
Therefore, unless the individual is permanently incapacitated at the time of the CGT event the individual must retire and the CGT event must happen in connection with that retirement.
Whether there is a 'retirement' for the purposes of the 15-year exemption will depend on the circumstances of each particular case. However, it is considered for the term to be satisfied, there must at least be a significant reduction in the number of hours the individual is engaged in present activities, or a significant change in the nature of present activities. It is not necessary for there to be a permanent and everlasting retirement from the workforce.
In this case, the taxpayer sold the business they had conducted for many years and in doing so permanently or indefinitely ceased their activity of being self employed. The taxpayer was over 55 at the time. As part of the arrangements, the taxpayer agreed to be employed by the new owner on a much reduced scale, that is, for a few hours a week for two years, compared with the level of his previous activities.
Having regard to all the facts it is considered these circumstances constitute a 'retirement' under subparagraph 152-105(d)(i) of the ITAA 1997 for the purposes of the small business 15-year exemption and the sale of the land happened in connection with that retirement. The exemption will be available if the other conditions are satisfied.
Date of decision: 3 September 2003Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
paragraph 152-105(d)
subparagraph 152-105(d)(i)
paragraph 152-110(1)(d)
Keywords
CGT small business relief
Small business 15 year exemption
ISSN: 1445-2782
| Date: | Version: | |
| 3 September 2003 | Original statement | |
| You are here | 11 March 2005 | Archived |