ATO Interpretative Decision

ATO ID 2001/606

Income Tax

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

Issue

Is the sale of the taxpayer's share in a private company, after their retirement, an 'event that happens in connection with the taxpayer's retirement' pursuant to subparagraph 152-105(d)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The sale of the share in the private company is an event that is connected to the retirement of the taxpayer pursuant to subparagraph 152-105(d)(i) of the ITAA 1997, notwithstanding that the sale occurred after retirement.

Facts

The taxpayer had a family business that was taken over by their children. The taxpayer owned a share in the private company that operated the business. The share was acquired more than 15 years ago. The taxpayer is over 55 years of age and has officially retired. The taxpayer intends to sell the shares.

The taxpayer meets the basic conditions for the small business concessions under Subdivision 152-A of the ITAA 1997. There has been a controlling individual of the company at all times during the period of ownership of the share in the company as required under subsection 152-105(c) of the ITAA 1997. The market value of the active asset's of the company is more than 80% of the value of all assets of the company as required for the share to be an active asset of the company under subsection 152-40(3) of the ITAA 1997 .

Reasons for Decision

Subdivision 152-B of the ITAA 1997 allows an individual taxpayer to disregard a capital gain on a CGT asset they have continuously owned for 15 years (section 152-105 of the ITAA 1997). Subparagraph 152-105(d)(i) of the ITAA 1997 requires that, in addition to the basic requirements, the CGT event must happen in connection with the taxpayer's retirement.

There is no statutory definition of 'retirement'. The word 'retirement' is defined in the Macquarie Dictionary to mean 'the withdrawal from office, business or active life'. The Shorter Oxford English Dictionary gives a number of meanings for 'retirement' including 'The act of falling back, retreating or receding from a place or position. The act of withdrawing into seclusion or privacy; withdrawal from something. Withdrawal from occupation or business activity.'

The Explanatory Memorandum (EM) to the New Business Tax System (Capital Gains Tax) Bill 1999 makes the following comments about the requirement to be retiring as one of the conditions for the concession:

'1.5 ... the disposal is related to a person retiring ... '. and

'1.68 ... an individual small business tax payer ... must be ... at least 55 years old and using the capital proceeds for their retirement.'

The taxpayer is over 55 years of age and has 'officially' retired. They are now completing the process of retirement by disposing of their share in the company. It is therefore considered that the sale of the share is an event that is linked to the taxpayer's retirement.

The conditions in Subdivisions 152-A & 152-B are satisfied by the taxpayer, who is, therefore, eligible for the CGT Small Business 15 year exemption.

Legislative References:
Income Tax Assessment Act 1997
   subdivision 152-A
   subdivision 152-B
   subsection 152-40(3)
   section 152-105
   paragraph 152-105(c)
   subparagraph 152-105(d)(i)

Other References:
Explanatory Memorandum: New Business Tax System (Capital Gains Tax) Bill 1999.

Keywords
CGT small business relief
Basic conditions for relief
Small business 15 year exemption

Business Line:  Centre of Expertise Capital Gains Tax

Date of publication:  22 November 2001

ISSN: 1445-2782