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Edited version of your written advice
Authorisation Number: 1051229318999
Date of advice: 8 June 2017
Ruling
Subject: Capital gains tax – small business concessions
Question 1
Will you qualify for the small business concession and the 15-year exemption if you retire?
Answer
Yes
This ruling applies for the following periods:
30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
Your parents acquired farmland pre CGT and used continuously to produce income.
Parent 1 died before 2000.
You were the sole beneficiary of Parent 1’s estate.
Parent 2 died in 20XX.
You were the sole beneficiary Parent 2’s estate.
There have been no improvements or subdivision to the farmland.
You received an offer to sell the farmland in excess of $6 million.
You are over the age of 55 and intend to retire.
You fail the basic condition for the small business capital gain tax (CGT) concession as you exceed the $6 million maximum net asset value test, but you satisfy the small business annual turnover for the 20YY period.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 152-10
Income Tax Assessment Act 1997 Section 152-35
Income Tax Assessment Act 1997 Section 152-105
Income Tax Assessment Act 1997 Section 152-305
Reasons for decision
Question 1
Section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) contains the basic conditions you must satisfy to be eligible for the small business CGT concessions. These conditions are:
(a) a CGT event happens in relation to a CGT asset in an income year.
(b) the event would 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
(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 or
(iv) the conditions in subsection 152-10(1A) or (1B) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year.
(d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.
Active asset test
Subsection 152-35(1) of the ITAA 1997 states that a CGT asset satisfies the active asset test if:
● 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 of ownership, or
● 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 and a half years.
Subsection 152-40(1) of the ITAA 1997 details that a CGT asset is an active asset at a time if it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you.
Application to your circumstances
You acquired the farmland in 2000 and you have satisfied the basic conditions at a), b), c) and d), stated above.
The farmland has been used in the course of carrying on the business and you have had the asset for more than 15 years.
You satisfy the basic conditions for the active asset test and are eligible for the 50% active asset reduction as well as the 50% capital gain general discount.
15 year exemption – conditions for an individual
Subdivision 152-B of the ITAA 1997 provides a small business 15 year exemption as part of the capital gains tax (CGT) small business relief provisions.
Section 152-105 of the ITAA 1997 states:
If you are an individual, you can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied:
(a) the basic conditions are satisfied
(b) you continuously owned the CGT asset for the 15 year period ending just before the CGT event
(c) if the CGT asset is a share in a company or an interest in a trust, the company or trust had a significant individual for a total of at least 15 years
(d) 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.
Application to your circumstances
You qualify for the small business 15-year exemption, as you took ownership of the asset from 2000. The 15-year rule has priority and such a gain is entirely disregarded, so there is no need for any further concession to apply.
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