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Edited version of your written advice
Authorisation Number: 1012980798883
Date of advice: 10 March 2016
Ruling
Subject: Small business 15 year exemption for capital gains tax
Question 1
Will the sale of your land be considered 'in connection with retirement' for the purposes of the small business 15 year exemption for capital gains tax?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You are winding down your business in order to retire in the near future.
You are over 55.
Your businesses have been operating for over 15 years.
You plan to sell some of your land as part of your transition to retirement.
The land has been used continuously for use in your business for over 15 years.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 152-105.
Reasons for decision
Subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997) provides a small business 15-year exemption as part of the CGT small business relief provisions. If you qualify for the small business 15-year exemption, the capital gain is entirely disregarded and it is unnecessary to apply any other concessions.
To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the 'basic conditions'. The 15-year exemption also has further requirements that you must satisfy for the concession to apply.
15 year exemption
Section 152-105 of the ITAA 1997 provides a small business 15-year exemption for individuals. Under this section, you can disregard the capital gain from the disposal of your XX acres of land, being CGT event A1 happening to the asset, if you:
(a) satisfy the basic conditions in subdivision 152-A of the ITAA 1997 for the small business CGT concessions.
(b) continuously owned the asset for the 15-year period ending just before the CGT event happened and
(c) you are:
(i) at least 55 years old at that time and the event happened in connection with your retirement or
(ii) permanently incapacitated at the time.
In your application, you have asked us to rule on whether the sale of land is considered to be in connection with retirement, and satisfies the legislative requirements of the CGT small business 15 year exemption. Therefore, this ruling will consider only those conditions that are specific to the 15 year exemption and not the basic conditions for small business CGT concessions.
Accordingly condition (a) will not be considered. In your case, condition (b) is met because you have continuously held the land that you intend to sell for over 15 years.
Condition (c)
Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours that you work or a significant change in the nature of your present activities to be regarded as a retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce.
A CGT event may also be in connection with your retirement even if it occurs at some time before retirement. Whether particular cases satisfy the conditions depends very much on the facts of each case.
Application to your circumstances
You are over 55 years old and you are selling land (over 50% of the total land your business operates from) in order to start winding down your business prior to your retirement. Because the sale represents a significant portion of the land from which your business operates from, it can be considered to bring about a significant change in the nature of your present activities. Moreover, the sale is part of a move towards a planned full retirement. Therefore, the sale can be considered to be in connection with your retirement and you will satisfy this condition for the 15 year exemption.
Further issues for you to consider
This ruling has not fully considered your eligibility for the CGT small business concessions; it has only addressed eligibility under the specified provisions of the ITAA 1997. You should ensure that you satisfy all the basic conditions and other relevant conditions for eligibility. More information is available in the publication Advanced guide to capital gains tax concessions for small business 2014-15, which is available on our website www.ato.gov.au.
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