Edited version of your written advice

Authorisation Number: 1051381908688

Date of advice: 8 June 2018

Ruling

Subject: Capital gains tax – small business concessions – 15 year exemption

Question

Will you be entitled to claim the small business capital gains tax (CGT) 15-year exemption under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20xx

Year ending 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

You purchased land from your parents more than 15 years ago.

The land consisted of XXX acres and was used by you for the purposes of farming.

During the period in which you have owned the land, you have used it for mixed farming production.

You have operated the farm as a sole trader with a turnover of less than $2 million and the net value of assets held by you is less than $X million.

You are over 55 years of age and intend to sell the land and retire.

Settlement of the sale of the land was to occur recently, but has been rescheduled and is likely to occur in in the next month.

A gross capital gain will be made on the sale of the land.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Section 152-105

Reasons for decision

Summary

You will be eligible to apply the 15 year to the land when it is sold as you have used it as an active asset for the whole period in which you have owned the land and you are over 55 years of age and the sale of the land is connected with your retirement.

Detailed reasoning

Small Business capital gain tax concessions

The basic conditions for the small business capital gains tax concessions in Subdivision 152-A of the ITAA 1997 are:

● A CGT event happens in relation to a CGT asset of yours in an income year; and

● The event will result in a capital gain; and

● You are either a small business entity for the income year or you satisfy the maximum net asset value test; and

● The CGT asset satisfies the active asset test.

15 Year small business concession

Section 152-105 of the ITAA 1997 states that you can 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 Subdivision 152-A of the ITAA 1997; and

● Continuously owned the CGT asset for the 15 year period ending just before the CGT event happened; and

● If you are an individual

● you are at least 55 years old at the time of the CGT event and the event happens in connection with your retirement, or

● you were permanently incapacitated at the time of the CGT event.

Active asset test

A CGT asset is an active asset at a time if:

a) You own the asset and it is used or held ready for use in the course of carrying on a business that is carried on (whether alone or in partnership) by:

(i) you; or

(ii) your affiliate; or

(iii) another entity that is connected with you; or

b) ………..

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.

Application to your situation

As you have owned the land in excess of 15 years and the land was an active asset for the entire period that you owned it, and you are over 55 years of age and selling the land in connection with your retirement, you meet the 15 year small business concession. Therefore, you will be able to disregard any CGT on the sale of the land.