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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012964529159

Date of advice: 11 February 2016

Ruling

Subject: Capital gains tax

Question and answer:

Are you entitled to disregard in full any capital gain that results from the disposal of your property?

Yes.

This ruling applies for the following period:

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

You and your spouse purchased a property that was less than 2 hectares as joint tenants.

Contracts to purchase the property were exchanged post 20 September 1985.

A portion of the property consisted of a dwelling that was used as your main residence, as well as a shed, driveway etc.

The remaining portion of the property was used to conduct various business activities for a period of approximately 30 years.

During the years that you operated your business activities, at no stage did the aggregate turnover exceed $2 million.

The combined net asset wealth of both you and your spouse does not exceed $6 million.

Upon retirement you intend to dispose of the property.

When you dispose of the property you will make a gain on sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-15

Income Tax Assessment Act 1997 Section 152-40

Income Tax Assessment Act 1997 Section 152-35

Income Tax Assessment Act 1997 Section 328-125

Income Tax Assessment Act 1997 Section 328-130

Income Tax Assessment Act 1997 Section 152-110

Income Tax Assessment Act 1997 Section 152-55

Income Tax Assessment Act 1997 Section 152-65

Income Tax Assessment Act 1997 Section 152-70

Reasons for decision

Capital gains tax

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event happening to a CGT asset in which you have an ownership interest. 

Buildings and land are CGT assets as defined under section 108-5 of the ITAA 1997, and the disposal of a CGT asset triggers a CGT event under section 104-10 of the ITAA 1997. The most common event is a CGT event A1 which occurs when you dispose of a CGT asset to someone else. Subsection 104-10(5) of the ITAA 1997 provides that any capital gain or loss is disregarded if you acquire the asset before 20 September 1985.

In your case, you and your spouse purchased a property post 20 September 1985. As this property was acquired post 20 September 1985 it is a CGT asset under section 108-5 of the ITAA 1997 and when it is disposed of it will trigger CGT event A1 under section 104-10 of the ITAA 1997.

Main residence exemption (one third of the property)

Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, must not have been used to produce assessable income, and the land surrounding the dwelling (including the land on which the dwelling is situated) must not be more than 2 hectares.

In your case, a portion of your property consists of a dwelling, driveway, shed etc. You and your spouse moved into the dwelling and occupied it as your main residence as soon as was practical. You have elected this portion of the property as your main residence and the land adjacent to the property is less than 2 hectares. Therefore, you are entitled to disregard any capital gain or loss that results from its disposal under section 118-110 of the ITAA 1997.

Small business CGT concessions (remaining portion of the property)

Section 152-105 of the ITAA 1997 provides that a taxpayer is entitled to disregard any capital gain that results from a CGT event if the following conditions are satisfied:

In your case, you will have continuously owned the property for the 15 year period ending just before the CGT event and the property is not a share in a company or interest in a trust. Further you are over the age of 55 years and the disposal of the property is in connection with your retirement. Therefore it only needs to be established whether you satisfy the basic conditions under subdivision 152-A of the
ITAA 1997.

Basic conditions (subdivision 152-A of the ITAA 1997)

Section 152-10 of the ITAA 1997) outlines the basic conditions for relief where a capital gain may be reduced or disregarded. These conditions are as follows:

In your case contracts for the purchase of your property were exchanged post 20 September 1985, therefore the property is a CGT asset under section 108-5 of the ITAA 1997. The disposal of the property will trigger CGT event A1 under section 104-10 of the ITAA 1997, and the disposal of the will result in a gain.

The aggregate turnover of your business activities has been under $2 million hence you are a small business entity. Further the value of you and your spouse's assets is less than $6 million.

The active asset test also requires the CGT asset to be an active asset for:

There are a number of assets that cannot be an active asset for the purpose of the small business concessions under subsection 152-40(4) of the ITAA 1997, however these exclusions are not applicable in the case of the property that you and your spouse own.

With regards to the remaining portion share of the property, you have owned the property for a period of greater than 15 years. During this period of ownership, business activities have been conducted on the property for a period of greater than 7 ½ years.

Small business CGT concessions

Accordingly, as you have satisfied the conditions for small business CGT concessions under section 152-105 of the ITAA 1997, you are entitled to disregard any capital gain that results from its where business activities were conducted.

Conclusion

Under section 118-110 of the ITAA 1997 you are entitled to disregard any capital gain or loss that results from its disposal of the portion of the property that includes the dwelling that you occupied as your main residence. Under section 152-105 of the ITAA 1997 you are entitled to disregard any capital gain that results from the disposal of the remaining portion of the property that was used for business activities.

Accordingly, you are entitled to disregard in full any capital gain that results from the disposal of your property under sections 118-110 and 152-105 of the ITAA 1997.

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