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Edited version of your written advice
Authorisation Number: 1051312233107
Date of advice: 23 November 2017
Ruling
Subject: Small Business Concessions
Question 1
Are you eligible for the small business 50% active asset reduction from the sale of the property located at X ?
Answer
Yes
Question 2
Are you eligible to apply the small business retirement exemption on 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 2016
Relevant facts and circumstances
You owned and operated a manufacturing business for over 30 years.
You purchased a commercial property and operated the business from the property.
The business was sold to a third party. The new entity continued to operate the business at the property under a commercial lease agreement.
The aggregated annual turnover for the company is less than $2 million.
You are proposing to sell the property to a third party which will result in a CGT event.
The contract for sale is likely to be signed within 12 months.
The CGT concessional stakeholders have a small business participation percentage of over 90%.
The CGT concessional stakeholders are over the age of 55.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-10
Income Tax Assessment Act 1997 Section 152-35
Income Tax Assessment Act 1997 Section 152-40
Income Tax Assessment Act 1997 Section 152-300
Income Tax Assessment Act 1997 Section 152-305
Income Tax Assessment Act 1997 Section 152-315
Reasons for decision
Summary
You satisfy the basic conditions for the small business 50% active asset reduction. In addition, you will be able to choose to disregard up to $500,000 under the retirement exemption by simply keeping a record of the amount you chose to disregard.
Detailed reasoning
Small business CGT concessions
● The basic conditions for the small business capital gains tax concessions in Subdivision 152-A of the ITAA 1997 (as relevant to this case) are:
● the small business entity test
● the active asset test and
● The CGT concessional stakeholders in the company have a small business participation percentage of over 90%.
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.
You have advised that your business has a turnover of less than $2 million.
Active asset test
The active asset test is contained in section 152-35 of the ITAA 1997. 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.
In this case, you have owned the Property for less than 15 years and it has been used in the course of carrying on a business for at least half of the ownership period. Therefore, the Property will satisfy the active asset test.
Retirement exemption
If you are 55 years old or older when you make the choice to access the retirement exemption, there is no requirement to pay any amount to a complying superannuation fund or RSA
The amount of the capital gain that you choose to disregard (that is, the CGT exempt amount) must not exceed your CGT retirement exemption limit. An individual’s lifetime CGT retirement exemption limit is $500,000 reduced by any previous CGT exempt amounts the individual has disregarded under the retirement exemption. This includes amounts disregarded under former (repealed) retirement exemption provisions.
In this case, as discussed above, you satisfy the basic conditions. Provided you keep a written record of the amount you chose to disregard, you are entitled to the small business retirement exemption.