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Ruling
Subject: Capital gains tax, 15 year exemption
Question
Will the small business 15 year exemption apply in relation to the disposal of the property?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The company purchased the property after 1 July 1990 from which it operated a business.
The company satisfies the eligibility criteria for the capital gains tax (CGT) small business concessions as it is a small business entity and has a turnover of less than $2 million.
After the 1998-99 financial year, the business was scaled down.
The property satisfies the active asset test as it was active for more than 7.5 years of the test period (beginning when the asset was purchased and ending at the time of the CGT event).
The significant individual of the company is over 55 years of age.
The sale of the property is in connection with the retirement of the significant individual.
The company has had a significant individual for at least 15 years.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-110 and
Income Tax Assessment Act 1997 section 152-110(1)(d)(i).
Reasons for decision
According to the Advanced guide to capital gains tax concessions for small business 2010-11, an entity can disregard a capital gain from a CGT event happening to a CGT asset if the entity has owned the asset for at least 15 years and one or more conditions are satisfied.
In order to be eligible for the 15 year exemption, a number of basic conditions must be satisfied. The entity must either satisfy the maximum net asset value test or be considered a small business entity for the income year. To be a small business entity you must have an aggregated turnover of less than $2 million. The basic conditions also include the active asset test which requires the asset to have been an active asset for at least 7.5 years of the whole period of ownership.
A company or trust must meet additional conditions to apply the 15 year exemption to a capital gain. The company must have had a significant individual for a total of at least 15 years of the whole period of ownership. The individual who was a significant individual just before the CGT event must have been at least 55 years old at that time and the event must have occurred in connection with their retirement.
In this case, the company is a small business entity and has owned the CGT asset for a period of greater than 15 years. The asset has been active for more than 7.5 years of the whole period of ownership. Therefore, the company will satisfy the basic conditions.
The company has had a significant individual for a total of at least 15 years. The CGT event will occur in connection with the individual's retirement and the individual is over 55 years of age. Therefore, the company can disregard the capital gain made on the sale of the property under the 15 year exemption.
Additional information
If a capital gain made by a company is disregarded under the small business 15 year exemption the company must make a payment within two years after the CGT event that resulted in the capital gain or, in appropriate circumstances, such further times as allowed by the Commissioner. More information regarding the small business concessions and the 15 year exemption can be found in the publication Advanced guide to capital gains tax concessions for small business 2010-11 (NAT 3359), which is available on our website www.ato.gov.au.
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