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Ruling
Subject: Small business 15 year exemption
Question
Will the company satisfy the requirement contained in paragraph 152-110(1) (b) of the Income Tax Assessment Act 1997 (ITAA 1997) if the capital gains tax (CGT) event occurs in the 2012-13 income year?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
The company owns a property. This property was originally purchased by X more than 15 years prior to a date within the 2012-13 income year. On a date less than 15 years prior to that date, the property was transferred to the company.
X and Y are significant individuals of the company for CGT purposes.
The company meets the basic conditions for the CGT small business concessions.
The property was used in the operation of a business for at least 7.5 years during the ownership period.
The property also contains the residence of X and Y.
X and Y intend to transfer the property to their individual names and are seeking to apply the 15 year exemption to the CGT event.
Relevant legislative provisions
Income Tax Assessment Act 1997 Paragraph 152-110(1) (b)
Income Tax Assessment Act 1997 Section 152-115
Reasons for decision
The eligibility requirements for the small business 15 year exemption are contained in subdivision 152-B of the ITAA 1997. If you qualify for the small business 15 year exemption, you can entirely disregard the capital gain and do not need to apply any other concessions.
Paragraph 152-110(1)(b) of the ITAA 1997 requires that the entity claiming the exemption continuously owned the CGT asset for the 15 year period ending just before the CGT event.
The period of ownership for the 15 year exemption may be extended to take into account prior periods of ownership if there has been a roll-over because of a marriage breakdown, a compulsory acquisition or the loss or destruction of an asset, or if an asset is replaced as a result of the financial services reform measures (section 152-115 of the ITAA 1997). However, there is no provision that allows for a previous period of ownership to be taken into account where the asset was transferred to the company by a significant individual of the company.
There is no provision in the legislation that allows the Commissioner to treat the acquisition date of the property as the date X acquired the property. Accordingly, the requirement under paragraph 152-110(1)(b) will not be met during the 2012-13 income year.