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Edited version of your written advice
Authorisation Number: 1012770596053
Ruling
Subject: 15 year exemption
Question
Are you eligible to disregard any capital gain on the sale of the asset under the capital gain tax (CGT) 15-year exemption concession for small business?
Answer
Yes
This ruling applies for the following period
Income year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
You purchased an asset in x.
You used an asset in your business until x.
You leased that asset from x until x when you sold the asset and made a capital gain.
The maximum net value of your, your affiliates and your connected entities CGT assets is less than $6,000,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-10
Income Tax Assessment Act 1997 section 152-15
Income Tax Assessment Act 1997 section 152-25
Income Tax Assessment Act 1997 section 152-105
Reasons for decision
Requirements of the 15 Year Exemption
Under the small business 15-year exemption in section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997), an individual can disregard any capital gain in relation to the sale of the CGT asset if all of the following conditions are satisfied:
(a) the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied for the gain
(b) you continuously owned the CGT asset for the 15-year period ending just before the CGT event
(c) you were an individual that was:
(i) was 55 or over at the time of the CGT event and the event happens in connection with individual's retirement; or
(ii) was permanently incapacitated at that time.
Basic Conditions in Subdivision 152-A of the ITAA 1997
Section 152-10 of the ITAA 1997 contains the basic conditions to be satisfied. These conditions are:
(a) a CGT event happens in relation to a CGT asset of yours in an income year.
(b) the event would (apart from Division 152 of the ITAA 1997) have resulted in the gain
(c) at least one of the following applies:
(i) you are a small business entity for the income year
(ii) you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997, or
(iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership.
(d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.
Maximum net asset value test
Section 152-15 of the ITAA 1997 provides the requirements of the maximum net asset value test. To pass the test just before the CGT event the sum of the following amounts must not exceed the following:
(a) the net value of the CGT assets of yours
(b) the net value of the CGT assets of any entities connected with you
(c) the net value of the CGT assets of your affiliates or any entities connected with your affiliates.
Active Asset Test
It is a general condition of small business relief that the asset must pass the active asset test in section 152-35 of the ITAA 1997. This test is satisfied if:
(a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period detailed below or
(b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7 ½ years during the period detailed below:
The period:
(a) begins when you acquired the asset and
(b) ends at the earlier of:
(i) the CGT event and
(ii) if the relevant business ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows) when the business ceased.
Section 152-40 of the ITAA 1997 provides the meaning of active asset. A CGT asset is an active asset if it is used or held ready for use in the course of carrying on a business.
Application to your circumstances
In your circumstances you meet all the basic requirement of the small business concession in that:
• CGT event A1 occurs on the sale of the asset which will give rise to a capital gain
• you satisfy the maximum net asset value test
• the asset will satisfy the active asset test, as it was an active asset for greater than 7 ½ years out of the total ownership period.
You will also satisfy the additional requirements of the 15 year exemption in that:
• you have held the asset for a period of greater than 15 years
• the sale of the asset was in connection will your retirement.
Consequently you will be able to disregard the entire capital gain associated with the sale of the asset under section 152-105 of the ITAA 1997.
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