Edited version of private advice

Authorisation Number: 1052304963975

Date of advice: 9 December 2024

Ruling

Subject: CGT - small business 15-year exemption

Question

Are you entitled to apply the small business 15-year exemption in section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard your share of the capital gain made on the disposal the Property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You acquired the Property jointly with your spouse.

You operated a sole trader business from the property from soon after it was acquired for approximately X years.

A Trust then used the Property in its business until the business was sold X years later.

After selling the business you put some of the proceeds into a superannuation fund with the balance held (jointly with your spouse) in a term deposit.

The Trust has a corporate trustee.

You are the sole director and shareholder of the corporate trustee.

You and your spouse received more than 40% of the distributions from the Trust in the years the Trust used the Property in its business.

Soon after the business was sold you started working full-time as an employee of an unrelated business.

Since you stopped working full time for that employer you have occasionally worked a few hours per week.

You sold your share of the Property and made a capital gain on the disposal.

You intend to use the proceeds from selling the property to fund your retirement and grow your superannuation balance.

You were over 55 when the Property was sold.

The total net value of CGT assets owned by you, entities connected with you, your affiliates and entities connected with your affiliates, does not exceed $X million.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

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 Subdivision 152-B

Income Tax Assessment Act 1997 section 152-105

Reasons for decision

Summary

You satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 and the additional conditions for the small business 15-year exemption in Subdivision 152-B of the ITAA 1997 in relation to the Property. You can disregard your share of the capital gain made on its disposal.

Detailed reasoning

Section 152-105 of the ITAA 1997 provides a small business 15-year exemption for individuals. Under this section, you can disregard the capital gain made on the disposal of a CGT asset if you:

(a)    satisfy the basic conditions for the small business CGT concessions in Subdivision 152-A of the ITAA 1997 for the gain

(b)    continuously owned the CGT asset for the 15-year period ending just before the CGT event, and

(c)     are at least 55 years old at the time of the CGT event and the event happens in connection with your retirement or are permanently incapacitated at that time.

In your case, the basic conditions contained in Subdivision 152-A of the ITAA 1997 are satisfied because:

• a CGT event happened when you disposed of your interest in the Property
• the event resulted in a gain
• you satisfy the maximum net asset value test, and

• you owned your interest in the Property for more than 15 years and the Property was used in a business carried on by you or a connected entity for a total of at least 7½ years of your ownership period.

In addition,

• you continuously owned your interest in the Property for the 15-year period ending just before the CGT event, and

• you were at least 55 years old when you disposed of the Property and the disposal happened in connection with your retirement.

Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. We consider that there would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce.

A CGT event may happen in connection with your retirement irrespective of whether it happens before or after your retirement; however, your retirement must have some proximity to the CGT event. That is, you must retire at or near the time of the CGT event.

Since you cased your full-time employment you have worked occasionally for a few hours a week. This reduction in hours and change in the nature of your income producing activities is regarded as a retirement.

As you are considered to have retired at or near the time of the disposal of the Property you qualify for the small business 15-year exemption in section 152-105 of the ITAA 1997 in relation to the Property. You can disregard your share of the capital gain made on its disposal.

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