Edited version of private advice

Authorisation Number: 1052345909844

Date of advice: 18 February 2025

Ruling

Subject: CGT - concessions

Question 1

Can you apply the rollover in section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997) after subdivision of your property on the breakdown of your marriage?

Answer

Yes. As you received your share of this property from your spouse as a result of a court order made under the Family Law Act 1975 (FLA 1975) you can apply the rollover provisions in section 126-5 of the ITAA 1997.

Question 2

Will you satisfy the basic conditions in subsection 152-10(1) of the ITAA 1997 to be eligible to apply the Small Business CGT Concessions to the sale of your property?

Answer

Yes. Taking the nature and extent of your XXXX and XXXX operations into account it is accepted that you are in business with these activities. The nature of the services you are providing and your agreements with animal owners precludes the conclusion that your property is being used to generate rent. It is accepted that you are a CGT small business entity for the purposes of subsection 152-10(1) of the ITAA 1997 and that your asset satisfies the active asset test.

Question 3

Would you be eligible to apply the 15 year exemption from CGT under section 152-105 of the ITAA 1997 upon the sale of your property?

Answer

Yes. You satisfy the basic conditions for small business concessions in section 152-10 of the ITAA 1997 and you have owned the property continuously for more than 15 years.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ending 30 June 20YY

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are over 55 years of age.

You are transitioning to retirement.

You and your spouse purchased less than 20 ha of land several decades ago.

You have used this land as your principal place of residence for your family.

The land is also zoned for the keeping and grazing of stock.

You began using your property in partnership with your spouse for animal agistment several years after its purchase and have been carrying on this activity since that time.

You and your spouse agreed to subdivide the property following your divorce.

The court order issued under the FLA 1975 determining the final settlement of financial arrangements between yourself and your spouse sets out the detailed responsibilities, indemnities, and action to be taken in relation to the subdivision of the property.

Under this settlement agreement you retained more than half the property.

Both you and your spouse were registered as joint tenants on the certificate of title for the property before the subdivision.

Your spouse was bound by the terms of the settlement to transfer their share in the ownership of this half of the property to yourself within 30 days of the publication of the settlement orders.

You were subsequently registered as the sole proprietor of your portion of the land under the relevant state legislation.

You began your agistment and related services several years after your purchase of the land.

You had previous experience in a professional organisation working with the animals you were accommodating and providing services for.

On commencement of your agistment and service activity you sought expert advice on farmland management, pasture grass seeding, designing irrigation systems, and animal husbandry.

You also sought expert advice on your taxation obligations.

You also undertook market research on the range of services offered by other commercial operators in the agistment industry.

You then evaluated these services and the assets required so you could determine the potential for profit in this activity.

In making your evaluation of the profitability of this undertaking you considered the funding required for:

•                     structures

•                     plant

•                     facilities

•                     fencing

•                     irrigation

•                     pasture establishment and maintenance

•                     legal fees

•                     accounting fees.

On commencing your agistment activity you spent, on average, more than 20 hours a week establishing your facilities.

Tasks undertaken during this time included;

•                     Fence erection and ongoing maintenance

•                     Pasture establishment and ongoing maintenance

•                     Management, maintenance, and care of the animals

•                     Liaising with the animal's owners

•                     Construction and maintenance

•                     Installing facilities.

Having spent 5 years establishing your facilities and services you were able to reduce the time you spent on this activity, on average, to about 1 day a week depending on the number of animals you were accommodating and caring for.

Since the division of your property, you have been spending about a half a day a week on this activity.

You offer a number of facilities for the animals you are accommodating.

You offer services include but are not limited to:

•                     hand feeding the animals

•                     health checks and minor injury treatment

•                     provision of appropriate veterinary services as required

•                     liaison with and support for other relevant service providers

•                     on site attendance 24 hours a day 7 days a week.

Under your agreement owners are responsible for veterinary costs.

Animals are not usually assigned to specific paddocks as part of your operation, and you manage the pasture through rotational grazing. If owners request special treatment for their animals, you try to accommodate their requests and will charge more for the additional service.

The animals on your property are watered from permanent automated water troughs which are connected to your irrigation system.

You advertise your agistment services online through general and industry specific websites.

You offer short, medium, and long term agistment arrangements but prefer long term arrangements.

The animal owners are free to enter you property at any time during daylight hours to tend to their animals.

Evening visits are also allowed by prior arrangement.

You believe, based on feedback from these owners, that you are providing a higher level of service than other operators undertaking the same or similar activities.

You use 2 written agreements with animal owners for your agistment service, an agistment agreement and a deed of indemnity.

•                     matters covered in your agistment agreement include:

•                     payment for veterinary costs

•                     disease and parasite prevention

•                     provision of relevant food supplements for the animals

•                     behaviour while on your property

•                     payment for services

•                     notice for ending agistment agreements.

Your indemnity agreement covers matters such as:

•                     indemnity for the property owners and family against all legal actions, demands or costs arising from the use of the property

•                     responsibility for the behaviour while on the property

•                     responsibility for safety matters

•                     first aid.

You do not have public liability insurance.

You have chosen to manage your risks by ensuring clients understand the hazards associated with handling their animals, the indemnity agreement you ask them to sign on commencement of their agistment agreement, maintaining a double fence around your property, and locking the property gates each night.

You offer discounts for accommodating larger numbers of animals.

You attribute 80% of your fees to the services you are providing.

You do not employ anyone else in your agistment activity but may occasionally engage contractors to provide tractor or excavation services.

You keep electronic and hard copy records for a minimum of 7 years.

Payments for your service are made by bank transfer on either a weekly or monthly basis.

Expenses are paid by cash, debit car, or bank transfer as they arise.

You provide monthly reconciliations and email receipts as required by your clients.

You also keep copies of agistment contracts and correspondence with local and state governments that is relevant to your activity.

You have retained documents relating to the purchase and mortgage of your land.

Following your divorce, you continued to carry on your agistment activity on your portion of your property.

You have not prepared financial statements for this activity as you did not believe the income from the activity was enough to justify the effort.

You have entered your income and expenses listed by category in your tax returns.

You have made consistent profits of less than $20,000 a year for the 4 years up to and including the relevant financial year.

While you have often accommodated the maximum number of animals your property can carry at any one time in the past you have halved this number since the property was subdivided on settlement of your divorce.

Since commencing your operation, you have been developing a focus on the services you are providing and your preferred client profile.

You have asked clients to move their animals on in the past because they were not keeping up their agistment payments and imposing on yourself. This has helped stabilise animal numbers, reduce costs, and reduce the amount of time you are spending on this activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 126-5

Income Tax Assessment Act 1997 subsection 152-10(1)

Income Tax Assessment Act 1997 section 152-105

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