Edited version of private advice

Authorisation Number: 1051740372815

Date of advice: 28 August 2020

Ruling

Subject: Small business 15-year exemption

Question 1

Is the Company eligible to access the small business 15-year exemption under section 152-110 of the Income Tax Assessment Act 1997 to disregard the capital gain made on the sale of the Properties?

Answer

Yes.

All the requirements to be entitled to the small business 15-year exemption in relation to the sale of the Properties have been met as:

·         The Company was a CGT small business entity in the income year of the CGT event;

·         The properties were used in a business carried on by the Company (in partnership) for at least 7.5 years;

·         The Company continuously owned the properties for the 15-year period ending just before the CGT event happened;

·         The Company had a significant individual for a total of at least 15 years during the period of ownership of the properties (Individual A was a significant individual for at least 15 years); and

·         The individual who was a significant individual just before the CGT event (being Individual D) was at least 55 years old at that time and the event happened in connection with their retirement.

Question 2

If the answer to question 1 is no, is the Company eligible to apply the small business CGT retirement concession under subdivision 152-D of the Income Tax Assessment Act 1997 to the sale of the properties?

Answer

N/A.

This ruling applies for the following period

Year ended 30 June 2019

The scheme commenced on

1 July 2018

Relevant facts and circumstances

The Company) was incorporated in the 1970's with the shares being owned by members of a family and their related entities.

Shortly after incorporation, the Company acquired the farming properties.

After a restructure during the 1990's, the majority of the ownership of the Company was held by one of the family members (Individual A).

The restructure caused the properties to become post-CGT assets in the hands of the Company as the majority underlying ownership of the properties had changed.

Immediately after the restructure, the Company and Individual A entered into a partnership (Partnership) to carry on a business of primary production (the Farming Business).

The properties were used by the Partnership to carry on the Farming Business until the Properties were sold by the Company during the 2018-19 income year.

Individual A inherited more ownership in the Company on the death of their spouse who also had an ownership interest in the Company.

Individual A passed away a few years ago.

Individual A left their estate (Estate) to their three adult children, individuals B, C and D. Individuals B and D were over the age of 55 at the time of Individual A's death (together the Beneficiaries). The Estate included the shares in the Company.

The shares were transferred from the Estate to the three children as joint holders with effect from Individual A's death.

Individual D is the member whose name stands first on the register. Accordingly, and pursuant to Article XX of the Company Memorandum and Articles of Association, Individual D is the only individual entitled to vote in respect of the shares.

After the death of Individual A, the Beneficiaries discussed and agreed that the Properties would be sold to a third party and that the Partnership (with the executors of the Estate in partnership with the Company) will continue operating the Farming Business until the Properties were sold. The Beneficiaries decided to delay placing the Properties on the market until spring 2018 due to the drought at the time.

The Properties were sold to an unrelated party during the 2018-19 income year.

The Company's annual aggregated turnover for the 2017-18 and 2018-19 income years was

less than $2 million.

After receiving the inheritance from Individual A and having the discussions with Individuals B and C about the sale of the Properties, Individual D took steps to retire and in anticipation of the sale, fully retired X months before the Properties were sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-110

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