Edited version of private advice

Authorisation Number: 1052266591539

Date of advice: 2 July 2024

Ruling

Subject: CGT - small business concession

Question 1

Do you satisfy the small business CGT concessions basic eligibility requirements under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. You satisfy all the basic conditions under section 152-10 of the ITAA 1997 as you are a small business entity and your land is an active asset as you owned it for over 15 years, and it has been used in your business for more than 7.5 years. The asset was not used to primarily derive rent.

Question 2

Do you qualify for the small business CGT concessions 15-year exemption under Subdivision 152-B of the ITAA 1997?

Answer

Yes. You satisfy the requirements to allow you to apply the small business 15-year exemption for the sale of the land. You satisfy the basic eligibility requirements for the small business CGT concessions. You have continuously owned land for more than 15 years. Person A was a significant individual, who has held more than 20% for over 15 years. Person A is over 55 years of age who will retire at the time of the CGT event.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were incorporated on a specified date.

Your land was purchased after 20 September 1985.

The land is currently zoned as Urban Growth Zone as the growth area is an urban growth project in a regional location of a state to address the location's long-term population growth and as part of City's plan for the future.

You are primarily engaged in farming activities including crop farming and livestock.

You have provided details of activities on your land which shows that you are in crop farming and livestock business for more than 15 years.

The land contains a residential house which occupies an insignificant portion of the land. The residential property was previously rented to tenants on an arm's length basis but has not been rented out in the past 8 years. The residence has not been used by any of your shareholders. The residential property is currently used by Person A when they are working on the farm.

You provided us with details on your current directors and their shareholdings. Person A holds majority of the voting power. Person B and Person C are the children of Person A.

Person A has held majority voting power for more than 7.5 years and has held more than 20% voting power since your incorporation. Person B and Person C have each held equal voting power since a specified date.

Person A does all the maintenance of the farm all year round including fixing the fence and crop burning so the land is ready before the seeds can be planted.

Person A is solely responsible to make and approve all major farm operational and transactional decisions.

Person A conducts weekly visits to inspect the farming land for the crop. In addition, they engage in activities such as preparing the land for the next harvest and producing organic fertilizer from manure to enhance land productivity.

Person A's primary responsibilities include selecting high-quality breeding stock with desirable traits, ensuring access to clean and fresh water, managing rotational grazing to maintain sufficient forage availability, and establishing regular vaccination and deworming schedules.

Your land is in the regional Growth Area but has not yet been zoned residential land, it is zoned as Urban Growth Zone.

Your land and its surrounding area are being reviewed for potential rezoning. The rezoning is being initiated by Council and it is anticipated it will be completed by the next two years.

Due to inexperience, you entered into an agreement with a professional property consulting firm called Company A for few months to represent you in council meetings to understand the review process and represent the views of your directors and shareholders.

You ceased engagement with Company A on a specified date and entered into a services agreement with Company B. Company B approached you and proposed that they could represent you to work with Council to try and increase the net development area (NDA). The proposal to you was appealing as Company B would incur all the time and costs to represent you in submissions on how the Land may be impacted by a rezoning process and would share in a percentage of any calculated increase in value from increased NDA that Company B would assist obtain through their representation. However, if there was no increase in NDA, you would be liable to a fall back fee.

Person A, Person B and Person C do not have any property development experience.

Your aggregated turnover for the relevant financial year was less than $2 million.

Person A is more than 55 years of age and will work on the farm until the land is sold. Once the land is sold Person A will retire.

You have not obtained any valuations of your property. Your latest council valuation has your property valued at a specified amount.

Upon sale of the land, you will cease current business activity, however you may commence other businesses.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-110

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