ATO Interpretative Decision

ATO ID 2003/864 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as the ATO view on this matter is now reflected in the publication Advanced guide to capital gains tax concessions for small business.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.

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

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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.

Year 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

Business Line:  Losses & CGT Centre of Expertise OCTC

Date of publication:  26 September 2003

ISSN: 1445-2782