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Edited version of your written advice
Authorisation Number: 1051487481746
Date of advice: 03 April 2019
Ruling
Subject: Income tax - Capital gains tax - Small business relief - 15 year exemption
Question
Will the Commissioner extend the time limit in paragraph 152-125(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) from two years to seven years in accordance with subsection 152-125(4) of the ITAA 1997, so that the payments made to a capital gains tax (CGT) concession stakeholder can be disregarded under subsection 152-125(2) of the ITAA 1997?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2019
Year ended 30 June 2020
Year ended 30 June 2021
Year ended 30 June 2022
Year ended 30 June 2023
Year ended 30 June 2024
Year ended 30 June 2025
The scheme commences on:
1 July 2018
Relevant facts and circumstances
You are a private trading entity incorporated in 200X as a proprietary company limited by shares.
You have a sole shareholder that has been the sole shareholder since the inception of the company. The business has been continuously owned and operated since 200X.
You have sold the business to a company (purchasing entity) operated by your former employees.
The purchasing entity entered into a contact for sale in the 2018-19 income year under a vendor finance agreement over a maximum period of seven years.
The CGT concession shareholder is retiring; any involvement they may have in the running of purchasing entity will be limited.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 152-A
Income Tax Assessment Act 1997 section 152-105
Income Tax Assessment Act 1997 section 152-110
Income Tax Assessment Act 1997 subsection 152-125(1)
Income Tax Assessment Act 1997 paragraph 152-125(1)(b)
Income Tax Assessment Act 1997 subsection 152-125(2)
Income Tax Assessment Act 1997 subsection 152-125(4)
Reasons for decision
You have provided evidence in support of the claim that you satisfy the basic conditions for the small business CGT concessions under Subdivision 152-A.
You will be entitled to entirely disregard any capital gain you would otherwise have made from the sale of the business.
You will provide vendor financing to the purchasing entity and the payments will be made in instalments over seven years. Therefore you will not be able to complete distribution of the exempt amount to the CGT concession stakeholder within two years.
The sale arrangement will provide an income stream for the retirement of the concession stakeholder and allow the purchasing entity to make repayments from future trading profits of the business.
In determining whether the discretion in subsection 152-125(4) will be exercised, the Commissioner has considered the following factors:
a) there is an acceptable explanation for the period of the extension you seek. You need to provide vendor finance and allow the purchasing entity to make repayments from funds derived from trading profits. It is commercially necessary for the proceeds of sale to be received and paid out over a nine year period.
b) based on the facts specific to this decision, allowing the extension will not prejudice the Commissioner.
c) other people have a right to request for an extension of time which will be based on the individual facts of their case. As such, there appears to be no unsettling of other people or established practices.
d) there is no evidence of a lack of consideration of fairness between you, other people in like positions and the wider public interest.
e) there does not appear to be any mischief involved based on the facts of the case.
f) the unintended consequence of not granting the extension is to deny exemption to company CGT concession stakeholders where the delay provides you with no apparent benefit.
Based on the above, the Commissioner will extend the time limit in paragraph 152-125(1)(b) from two years to seven years in accordance with subsection 152-125(4).
The payments made to the CGT concession stakeholder must be made on receipt of each instalment in accordance with the advised timing. The extension to the time limit in paragraph 152-125(1)(b) so that payments made to a capital gains tax (CGT) concession stakeholder from two years to seven years has been allowed based on the facts and circumstances particular to this ruling only.
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