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Edited version of your private ruling
Authorisation Number: 1012612464374
Ruling
Subject: CGT SB Concessions - 15 Year Exemption
Question
Can you disregard any capital gain made on the disposal of the property under the Capital Gains Tax (CGT) 15 year exemption under section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following period(s)
Income year ended 30 June 2013
The scheme commences on
On or after 1 January 2009
Relevant facts and circumstances
You were born in 19XX.
Your deceased partner was born in 19XX.
You and your deceased partner commenced a business in 19XX.
Your deceased partner purchased a property in the year in 19XX by way of a gift from their parent for minimal or no consideration.
Over the next X years until your partner's death in 200X the land was used by the partnership in its business.
You then continued to wind down the business over a period of time until 20XX when another separate asset of the business was leased to a third party.
In 20XX the property was sold.
You have provided that you and your deceased partner were affiliates, the land was an active asset held for over 15 years and their business was a small business entity as it satisfied both the aggregated turnover and maximum net asset test.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-10
Income Tax Assessment Act 1997 Section 152-80
Income Tax Assessment Act 1997 Section 152-105
Reasons for decision
The small business 15-year exemption takes priority over the other small business concessions and the CGT discount. If the small business 15-year exemption applies, you entirely disregard the capital gain so there is no need to apply any further concessions. Further, you do not reduce the capital gain by any capital losses before you apply the 15-year exemption concession.
Subsection 152-105 of the ITAA 1997 provides that an individual can entirely disregard any capital gain if all of the following conditions are satisfied:
(a) you satisfy the basic conditions
(b) you continuously owned the CGT asset for the 15-year period ending just before the CGT event
(c) you are either:
i. 55 or over at the time of the CGT event and the event happens in connection with your retirement
ii. permanently incapacitated at the time of the CGT event.
Section 152-80 of the ITAA 1997 allows either the legal personal representative of an estate or the beneficiary to apply the small business CGT concessions in respect of the sale of the deceased's asset in certain circumstances.
Specifically, the following conditions must be met:
• the asset devolves to the legal personal representative or passes to a beneficiary
• the deceased would have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death
• a CGT event happens within 2 years of the deceased's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.
The Advanced guide to capital gains tax concessions for small business 2011-12 provides that where you are a beneficiary of the deceased state, legal personal representatives, trustee or beneficiary of the testamentary trust or a surviving joint tenant you will be eligible for the 15-year exemption to the same extent that the deceased would have been just prior to the death except that:
• the CGT event does not need to have be in connection with the retirement of the deceased
• the deceased needs to have been 55 or older immediately before their death, rather than at the time of the CGT event.
In your case based of the information you have provided:
• you satisfy the basic conditions under section 152-10 of the ITAA 1997
• you have owned the asset for over 15 years
However, both the deceased at their time of death and you at the time of disposing of the property were under the age of 55. Consequently your deceased spouse would not have been eligible for the 15 year exemption at the time of their death. Neither will you be eligible for the exemption in your own right as you were under the age of 55 at the time of disposing of the property.
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