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Edited version of your written advice
Authorisation Number: 1051307526402
Date of advice: 15 November 2017
Ruling
Subject: Small Business Concessions
Question 1
Will you be eligible for the CGT small business 15 year exemption in Subdivision 152-B of the Income Tax Assessment 1997 with respect to the sale of the property?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
You purchased a property.
The property was used for a period of time as the principle place of business.
Your business was conducted as a partnership.
You had an aggregated turnover of less than $2 million.
You retired.
The property and business was advertised for sale.
The business was sold.
The new business owner leased the property until the business was closed down.
An offer and acceptance for the property has been signed.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 Part 3-3
Summary
In respect to the sale of the property, you are eligible for the CGT small business 15 year exemption found in Subdivision 152-B of the Income Tax Assessment 1997.
Detailed reasoning
Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, happens if you dispose of a CGT asset to someone else e.g. the disposal of a dwelling.
Small business concessions
To qualify for the small business concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions.
The basic conditions in Subdivision 152-A of the ITAA 1997 which are relevant to you are:
● The small business entity test; and
● The active asset test.
Small business entity
You will be a small business entity if you are an individual, partnership, company or trust that is carrying on a business and has an aggregated turnover of less than $2 million.
Active asset test
The active asset test is satisfied if:
● You have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the test period detailed below, or
● You have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years during the test period.
The test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases.
A CGT asset is an active asset if it is owned by you and is:
● Used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or
● An intangible asset that is inherently connected with a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or another entity that is connected with you, carries on; for example, goodwill.
CGT concessions
Individuals (including partners in partnerships) may be able to reduce a capital gain by using various methods. Relevant to your application, the small business 15 year exemption would be an appropriate consideration under the circumstances.
A small business 15-year exemption allows you to disregard a capital gain from a CGT event happening to a CGT asset you have owned for at least 15 years if you:
● Satisfy the basic conditions for the small business CGT concessions (the active asset test requires the asset to have been an active asset for at least 7.5 years of the whole period of ownership)
● Continuously owned the CGT asset for the 15 year period ending just before the CGT event happened.
● If the entity is an individual, the individual retires or is permanently incapacitated.
The small business 15-year exemption takes priority over the other small business concessions and the CGT discount.
Conclusion
In your case, the disposal of your property constitutes an A1 CGT event. You were in a partnership and had an aggregated turnover of less than $2 million, therefore you are considered to be a small business entity.
Additionally, you satisfy the active asset test as you have held the property for a period of time and used it in the course of carrying on a business in excess of the minimum 15 year period required.
The small business 15-year exemption would apply because you have meet the basic conditions regarding small business concessions and the sale of the CGT asset is in connection with your retirement. Accordingly, you may disregard the capital gain in its entirety and there would be no need to apply any further concessions that may be available.