| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1011930778063
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Small business 15 year exemption
Question
Do you satisfy the small business 15 year exemption requirements under section 152-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You (a company) established a business after September 1985. You have sold the business and as a result you made a capital gain.
You have the following share structure:-
Person X 1 share
Person Y 1 share
Person X 1 share
Person Z 2 shares
Person Y 1 share
Person and Person X are married to each other and they are both over the age of 55 and are retiring.
Person and Person Y are married to each other and they are planning to buy a similar business within two years.
Person Z is not retiring and is not planning to go back into the similar business.
The business was operated for more than 15 years under the same share structure.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-110
Income Tax Assessment Act 1997 Section 152-55
Income Tax Assessment Act 1997 Section 152-65
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.
Reasons for decision
Legislative references referred to herein are from the ITAA 1997, unless otherwise stated.
Small business 15 year exemption
The rules covering the small business 15-year exemption are contained in Subdivision 152-B.
Conditions to be satisfied
Section 152-110 contains the 15-year exemption rule for companies or trusts conducting a small business (the entity). It applies where:
· the basic conditions in Subdivision 152-A are satisfied for the gain;
· the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event
· the entity had a significant individual at all times during the whole period the entity owned the CGT asset; and
· the significant individual just before the CGT event was either: (i) 55 or over and the event happened in connection with the individual's retirement; or (ii) or that individual is permanently incapacitated.
Where all of these conditions are satisfied, the entity can disregard any capital gain arising from the CGT event.
Significant individual test
Section 152-55 states that an individual is a significant individual in a company or trust if they have a small business participation percentage in the company or trust of at least 20%. The 20% can be made up of direct and indirect percentages. One of the significant individuals of the company or trust must be either 55 or over at the time and the event happened in connection with the retirement of the individual or the individual must be permanently incapacitated.
In this case, you do not have a significant individual. Person and Person X are both over the age of 55 and are retiring but their shareholding is less than 20% each. There is no provision under Subdivision 152-B to combine the shareholding of Person and Person X or to waive the significant individual test. As such, you do not meet the requirements for the small business 15 year exemption.
Although the 15 year exemption is not available to you, other concessions under Division 152 may be available, but have not been considered in this ruling.