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Edited version of your written advice
Authorisation Number: 1013030229783
Date of advice: 9 June 2016
Ruling
Subject: Small business concession
Question 1
Do you satisfy the basic conditions necessary to be eligible for the capital gains tax (CGT) concessions for small business?
Answer
No.
Question 2
Are you eligible to disregard any capital gain made on disposal of the property under the CGT retirement exemption concession for small business?
Answer
No.
Question 3
Are you eligible for the 50% active asset reduction?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
You are seeking to sell a parcel of land.
The block is by a related entity in their business activities.
The related entity has an aggregated turnover of greater than $2million.
The value of your net assets and those of related entities is greater than $6million.
You are over 55 years of age.
You do not carry on a business as sole traders or as a member of a partnership.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-10
Income Tax Assessment Act 1997 Section 152-205
Income Tax Assessment Act 1997 Section 328-110
Income Tax Assessment Act 1997 Subsection 152-305(1)
Reasons for decision
Section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) contains the basic conditions you must satisfy to be eligible for the small business capital gains tax (CGT) concessions. These conditions are:
(a) a CGT event happens in relation to a CGT asset in an income year.
(b) the event would have resulted in the gain
(c) at least one of the following applies:
(i) you, your affiliate or an entity connected with you, are a small business entity for the income year
(ii) you satisfy the maximum net asset value test
(iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership or
(iv) you do not carry on a business (other than as a partner) but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.
(a) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.
Section 328-110 explains the meaning of small business entity. Subsection 328-110(1) states you are a small business entity for an income year (the current year) if:
(a) you carry on a business in the current year; and
(b) one or both of the following applies:
(i) you carried on a business in the income year (the previous year) before the current year and your aggregated turnover for the previous year was less than $2 million;
(ii) your aggregated turnover for the current year is likely to be less than $2 million.
You will satisfy the maximum net asset value test (set out in section 152-15 of the ITAA 1997) if, just before the CGT event that results in the capital gain, the net value of the CGT assets of you and the following entities does not exceed $6 million:
• any entities connected with you
• your affiliates and any entities connected to your affiliates (subject to certain exclusions)
In your case, your related entity is an affiliate of yours as its' the activities of the company. Its aggregated turnover is more than $2million. Therefore the related entity is not a small business entity.
The net value of your and your affiliates CGT assets exceeds $6million. Thus, the maximum net asset value test has not been met.
As neither you nor the related entity are small business entities and the maximum net asset value has not been met, you do not satisfy the basic conditions.
Retirement exemption
You may choose to disregard all or part of a capital gain under the small business retirement exemption if you satisfy certain conditions. If you are an individual who chooses the retirement exemption, you do not need to terminate any activity or cease business. This concession allows you to provide for your retirement.
Subsection 152-305(1) of the ITAA 1997 explains that if you are an individual, you can choose to disregard all or part of a capital gain if:
• you satisfy the basic conditions
• you keep a written record of the amount you chose to disregard (the CGT exempt amount), and
• if you are under 55 years old just before you choose to use the retirement exemption, you make a personal contribution equal to the exempt amount to a complying superannuation fund or retirement savings account (RSA).
In your case, you do not satisfy the basic conditions necessary to be eligible for the CGT small business concessions.
Accordingly, you do not satisfy the necessary conditions to be eligible for the retirement exemption concession.
50% active asset reduction
In accordance with section 152-205 of the ITAA 1997, to be eligible for the small business 50% reduction you only need to satisfy the basic conditions in subdivision 152-A.
As stated above you have not satisfied the basic conditions in subdivision 152-A, and are therefore ineligible for the small business 50% reduction.