Edited version of private advice

Authorisation Number: 1052380413890

Date of advice: 8 April 2025

Ruling

Subject: Small business 15-year exemption

Question 1

Will you be able to apply the small business 15-year exemption in Subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain you make on the disposal of the first 50% interest you acquired in the Property more than 15 years ago?

Answer 1

Yes.

Question 2

Will you be able to apply the small business retirement exemption in Subdivision 152-D of the ITAA 1997 to disregard all or part of the capital gain you make on the disposal of the second 50% interest that you acquired in the Property less than 15 years ago?

Answer 2

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your spouse jointly purchased a property over 15 years ago.

The property has been used for both residential and commercial purposes.

The residential portion has always been used as your main residence.

The commercial portion of the property was converted into a workshop for business purposes.

Approximately 50% of the Property is used for conducting business.

The commercial portion of the Property has been continuously used for business purposes for over 20 years, initially under a partnership, which was operated by you and your spouse.

The business transitioned from the partnership to a company continuing the same business activities. All business assets rolled over from the partnership to the company and the business continued to operate from the Property.

You and your spouse each owned 50% of the company.

Less than 15 years ago, your spouse passed away.

You inherited both their 50% share of the property and their 50% ownership in the company.

Your aggregated turnover has always been under $2million.

No part of the property has ever been rented.

When the property is sold you will be retiring and ceasing all work. The business will carry on until the Property is sold.

You are over 55 years of age.

You have not previously used the retirement exemption to disregard all or part of a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 section 152-10

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

Income Tax Assessment Act 1997 section 152-105

Income Tax Assessment Act 1997 section 152-305

Reasons for decision

Separate interests in the property

You and your late spouse jointly purchased the property. You are taken to have acquired your late spouse's interest in the property on the day they died. The first element of your cost base is equal to your spouse's cost base for their interest on the day they died.

Consequently, your ownership of the property is made up of two separate interests. The first was acquired more than 15 years ago (first interest) when the Property was purchased. The second was acquired less than 15 years ago (second interest). The interests remain separate CGT assets for capital gains tax purposes.

Question 1

First interest - Small business 15-year exemption

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

(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 will be satisfied because:

•                     a CGT event will occur when you dispose of the first interest in the Property

•                     the event will result in a gain

•                     an entity connected with you (the Company) will be a CGT small business entity at the time of the event

•                     you will have owned the first interest in the Property for more than 15 years and it will have been used in the business of the company for a total of at least 7½ years of your ownership period, and

•                     during the CGT event year you have not carried on a business in your individual capacity.

•                     In addition,

•                     you continuously owned the first interest in the property for the 15-year period ending just before the CGT event

•                     you will be at least 55 years old when you dispose of the first interest in the property, and

•                     the disposal will happen in connection with your retirement.

Therefore, you qualify for the small business 15-year exemption in section 152-105 of the ITAA 1997 in relation to your first interest in the property. You can disregard the capital gain made on its disposal.

Question 2

Second interest - retirement exemption

Subsection 152-305(1) of the ITAA 1997 provides that an individual over the age of 55 can choose to use the retirement exemption to disregard all or part of a capital gain if the basic conditions in Subdivision 152-A are satisfied for the gain.

In your case, the basic conditions contained in Subdivision 152-A of the ITAA 1997 will be satisfied for the second interest because:

•                     a CGT event will occur when you dispose of the second interest in the Property

•                     the event will result in a gain

•                     an entity connected with you (the Company) will be a CGT small business entity at the time of the event

•                     you will have owned the second interest in the Property for less than 15 years and it will have been used in the business of the company for a total of at least half of your ownership period, and

•                     during the CGT event year you will have not carried on a business in your individual capacity.

As the basic conditions will be satisfied for the capital gain that you make on the disposal of the second interest in the property, and you will be over 55 years of age at the time the choice is to be made, the requirements in subsection 152-305(1) of the ITAA 1997 will be satisfied, entitling you to choose to apply the small business retirement exemption to the capital gain you make on your second interest in the Property.

You can choose to disregard all, or part, of the capital gain you make up to your lifetime limit of $500,000. You must keep a written record of the CGT exempt amount you choose to disregard.

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