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Edited version of private advice
Authorisation Number: 1052129578505
Date of advice: 16 June 2023
Ruling
Subject: CGT - 15 year exemption
Question 1
Is the unit trust connected with the family trust and Person A for the purposes of satisfying basic conditions in the Small Business CGT concessions in section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. The unit trust controls the family trust because the corporate trustee of the family trust, whom Person A and his wife are controllers of, could reasonably be expected to act, in accordance with the directions or wishes of the unit trust, its affiliates, or together with its affiliates. The family trust carries on a small business and has an aggregate turnover of less than $2m. Therefore, it is considered that the property is used in a business carried on by a small business entity that is connected with the unit trust.
Question 2
Is the property considered to be an active asset in accordance with section 152-35 of the ITAA 1997 and section 152-40 of the ITAA 1997?
Answer
Yes. The property has been owned for more than 15 years. It has been used in a business carried on by an entity connected with the unit trust for at least 7.5 years between the date of acquisition and the date of disposal. In addition, the business income of the real estate business is more than double the rental income from the 3 tenancies to the unit trust. The main purpose of the property was for business use, that is, the main use of the asset is not to derive rent.The property is considered to be an active asset.
Question 3
Can the unit trust apply the 15-year exemption on the disposal of the property in accordance with subsection 152-110(1) of the ITAA 1997?
Answer
Yes. The unit trust satisfies the basic conditions including the active asset test. The unit trust continuously owned the property for the 15-year period ending just before the CGT event; Person A was a significant individual of the unit trust for more than 15 years and was a significant individual just prior to the sale the of property. Person A is over 55 years old and is using the proceeds from the sale of the property for his retirement. The unit trust is eligible to apply the 15-year exemption to the sale proceeds from the disposal of the property.
This ruling applies for the following period:
Period ended 30 June 2022
The scheme commenced on:
1 July 2021
Relevant facts and circumstances
In 1983 a unit trust was established. The unit holders are unrelated parties - Person A with 50% holding an 50% shareholding in the corporate trustee of the unit trust.
The unit trust purchased a commercial property (the property). The property had 3 tenancies of roughly equal size.
Person A established a real estate business and operated it via a family trust for approximately 30 years.
Person A is a beneficiary of the family trust. Person A is also a director of the corporate trustee of this trust. Person A and his wife are 100% shareholders of the corporate trustee of the family trust.
The family trust is a small business entity with an aggregate turnover of less than $2m and has less than $6m in assets.
The real estate business operated from the property and paid rent to the unit trust.
The business income of the real estate business is more than double the rental income from the 3 tenancies to the unit trust.
The property was sold. Person A was over 55 years old when the property was sold.
Person A was a significant individual of the unit trust for more than 15 years and was a significant individual just prior to the sale the of property.
Both unit holders received 50% of the sale proceeds, are over 55 years old and are using the proceeds from the sale of the property for their retirement.
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
Income Tax Assessment Act 1997 section 328-125
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