Edited version of your private ruling

Authorisation Number: 1012534413886

Ruling

Subject: CGT - small business concessions

Question 1

Is your property an active asset?

Answer

Yes.

Question 2

Are you eligible for the small business 15 year exemption on the disposal of your property?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You purchased a property after September 1985 for $X.

The property was split into several different components.

You had two connected entities.

You and your connected entities have net assets of $X.

Both your connected entities and third parties have used components of the asset over the period of ownership.

Your connected entities have used majority of the asset for more than seven and a half years.

You sold the property on the Month 20XX for $X.

You are currently in the process of retiring from your role as chief executive officer from your connected entities.

You are now in a mentoring role and are expecting your hours to reduce further over the next 6 months.

The sale of the asset is part of your retirement plan which also involves the sale of further business premises ahead of the sale of the businesses.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152.

Income Tax Assessment Act 1997 Section 152-10.

Income Tax Assessment Act 1997 Section 152-35.

Income Tax Assessment Act 1997 Paragraph 152-40(4)(e).

Reasons for decision

Basic Conditions

A capital gain that you make may be reduced or disregarded under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) if the following basic conditions are satisfied:

· a CGT event happens in relation to a CGT asset of yours in an income year

· the event would have resulted in a gain

· the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and

· at least one of the following applies;

o you are a small business entity for the income year

o you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997

o you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or

o you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.

Active Asset

The active asset test is contained in section 152-35 of the ITAA 1997. Where you have owned the asset for more than 15 years, the active asset test is satisfied if the asset was an active asset of yours for at least seven and a half years of the test period detailed below.

The test period:

· begins when you acquired the asset, and

· ends at the earlier of

o the CGT event, and

o when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows).

A CGT asset is an active asset at a given time if, at that time you own it and it is used (or held ready for use) in the course of carrying on a business by you, a small business CGT affiliate of yours or an entity connected with you.

In your case, you have owned the asset for more than 15 years and it has been used by your connecting entities for more than seven and a half years. Therefore, the property is considered to be an active asset under section 152-35 of the ITAA 1997. As a CGT event occurred when the asset was sold, the event resulted in a gain and you satisfy the maximum net asset value test and the active asset test you have satisfied all the basic conditions to access the small business concessions.

Small business 15 year exemption

For an individual to be eligible for the small business 15-year exemption you must satisfy the basic conditions and these further conditions:

(a) you continuously owned the CGT asset for a 15 year period ending just before the CGT event; and

(b) either:

(i) you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or

(ii) you are permanently incapacitated at the time of the CGT event.

In your case, you owned the asset for longer than 15 years, the event happened in connection with your retirement and you are over the age of 55. Therefore, as you also satisfy the basic conditions you are eligible to claim the small business 15 year exemption.

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