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This edited version has been archived due to the length of time since original publication.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: 1051350613576

Date of advice: 16 March 2018

Ruling

Subject: Small Business CGT Concessions

Question 1

Will the Trust satisfy the basic conditions under Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the sale of its business assets?

Answer

Yes

Question 2

Will the Trust be able to access the small business capital gains tax concessions under Division 152 of the ITAA 1997 upon sale of its business assets?

Answer

Yes, subject to satisfaction of any extra conditions that must be satisfied for the concessions to be available

This ruling applies for the following periods:

Income year ending 30 June 2018

Income year ending 30 June 2019

Income year ending 30 June 2020

Income year ending 30 June 2021

Relevant facts and circumstances

Assumptions

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 104-10(4)

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 subsection 152-10(1)

Income Tax Assessment Act 1997 paragraph 152-10(1)(a)

Income Tax Assessment Act 1997 paragraph 152-10(1)(b)

Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(i)

Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(ii)

Income Tax Assessment Act 1997 paragraph 152-10(1)(d)

Income Tax Assessment Act 1997 subsection 152-10(1AA)

Income Tax Assessment Act 1997 paragraph 152-10(1AA)(b)

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 subsection 152-20(1)

Income Tax Assessment Act 1997 subsection 152-20(2)

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 subsection 152-40(4)

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-D

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Subdivision 328-C

Income Tax Assessment Act 1997 section 328-110

Income Tax Assessment Act 1997 section 328-125

Income Tax Assessment Act 1997 section 328-130

Reasons for decision

Question 1

Summary

The Trust will satisfy the basic conditions under Subdivision 152-A of the ITAA 97 in respect of the sale of its business assets.

Detailed Reasoning

A number of concessions that provide relief from CGT, for small businesses, are set out in

Division 152 of the ITAA 1997. If the basic conditions for relief are satisfied, capital gains may be reduced or disregarded under Division 152.

The basic conditions that apply to all four small business concessions are detailed in

Subdivision 152-A.

The other four Subdivisions (152-B, 152-C, 152-D, and 152-E) deal with each of the concessions and, in some instances, contain further conditions specific to each of those concessions.

The basic conditions in Subdivision 152-A that need to be satisfied in order to access a concession, as relevant to the Trust and pursuant to subsection 152-10(1), are:

Basic condition 1: CGT event relating to a CGT asset

The sale of the Trust’s business assets (CGT assets pursuant to section 108-5) will give rise to a CGT event A1 under section 104-10, thereby satisfying the first basic condition.

Basic condition 2: CGT event results in a capital gain

The sale of the Trust’s business assets will, as assumed for the purposes of this ruling, result in a capital gain (as per subsection 104-10(4)), thereby satisfying the second basic condition.

Basic condition 3(i): The CGT small business entity test

A CGT small business entity is defined in subsection 152-10(1AA) as follows:

Subdivision 328-C explains the meaning of ‘small business entity’, together with related concepts.

In order to qualify as a small business entity for an income year, as per section 328-110, the entity must be carrying on a business in that year and satisfy any one of three tests based on the aggregated turnover of the entity and of other entities that are connected or affiliated to it.

Whilst the Trust may satisfy the aggregated turnover test under section 328-110 for the income year in which it sells its business assets, it will not (as assumed for the purposes of this ruling and paragraph 152-10(1AA)(b)) if each reference in section 328-110 to $10 million were a reference to $2 million. The Trust will therefore not, for the purposes of satisfying the third basic condition, be a CGT small business entity for the relevant income year.

Basic condition 3(ii): The maximum net asset value test

The Trust will satisfy the maximum net asset value test (MNAV test) if, just before the time of the CGT event that results in the capital gain, the sum of the following amounts does not exceed

$6 million:

The net value of the CGT assets

Subsection 152-20(1) provides the meaning of the net value of the CGT assets of an entity as being the sum of the market values of those assets less:

Shares, units or other interests (except debt) in a connected or affiliated entity are disregarded. However, any liabilities related to any such shares, units or interests are included

(subsection 152-20(2)).

As assumed for the purposes of this ruling, the net value of the CGT assets of the Trust just before the sale of its business will be less than $6 million, thereby satisfying the MNAV test and the third basic condition.

Basic condition 4: The active asset test

Pursuant to section 152-35, the CGT assets to be disposed by the Trust will satisfy the active asset test if:

An asset may be an active asset of the Trust pursuant to section 152-40 where it is owned by the Trust and:

As assumed for the purposes of this ruling, the business assets to be disposed of by the Trust are, used, or held ready for use, in the course of carrying on the Trust’s business, or (to the extent they’re intangible) are inherently connected with the Trust’s business, and are not excepted from being an active asset under subsection 152-40(4), thereby satisfying the fourth and final basic condition.

Question 2

The Trust will be able to access the small business capital gains tax concessions under Division 152 upon sale of its business assets.

Detailed Reasoning

Given the Trust will satisfy the basic conditions in Subdivision 152-A, the small business capital gains tax concessions will be available to utilise subject to satisfaction of any further conditions that must be satisfied for those concessions to be available.


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