Edited version of private advice

Authorisation Number: 1051559983566

Date of advice: 06 August 2019

Ruling

Subject: Small business CGT concessions

Question

Are you entitled to apply the Small Business 15 year CGT concession in subdivision 152-B of the Income Tax Assessment Act 1997 to the gain made on the sale of the property?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You owned the property on which you conducted a business.

You acquired a part interest in the property before 20 September 1985 and acquired the remaining interest after 20 September 1985.

The property was used to carry on your business for your entire period of ownership, until the property was sold in 20XX for $X.

Your business income for the 20XX and 20XX financial years is less than $2m.

Following the sale, you have significantly reduced your activities.

You are not connected with and don't control any companies or trusts.

You were over 55 years old at the time of the sale of the property.

You will contribute an amount to your superannuation fund to the maximum amount allowed under the lifetime CGT cap.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 292-100

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-105

Reasons for decision

Summary

You are entitled to apply the small business 15 year CGT concession to the gain made on the sale as you meet the basic conditions and conditions specific to the concession.

Detailed reasoning

*all provisions are in respect of the Income Tax Assessment Act 1997 unless otherwise stated.

You can disregard some or all a capital gain under the small business CGT concessions which arises from the sale of a CGT asset used in your small business if certain conditions are met.

Broadly, the small business 15 year exemption contained in subdivision 152-B is available where:

·         the basic conditions for relief in Subdivision 152-A are satisfied

·         you continuously owned the asset for the 15-year period leading up to the CGT event

·         you are over 55 years old at the time of the event and is in connection with your retirement.

Basic conditions

A capital gain that you make may be reduced or disregarded under Division 152 if the following basic conditions are satisfied:

·         a CGT event happens in relation to a CGT asset of yours in an income year

·         the event would have resulted in a gain

·         the CGT asset satisfies the active asset test in section 152-35, and

·         at least one of the following applies

o   you are a CGT small business entity for the income year

o   you satisfy the maximum net asset value test in section 152-15

o   you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or

o   you do not carry on a business, 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.

In this case, when the property is sold a CGT event (A1) will occur in relation to a CGT asset you own and it is expected that this event will result in a capital gain. While the gains made for CGT assets acquired before 20 September 1985 are generally disregarded for CGT event A1, for these purposes section 292-100 provides to treat such an asset as a 'post CGT' asset.

The active asset test is satisfied if the asset was an active asset of yours for a total of at least half the ownership period, the exceptions in subsection 152-40(4) do not apply and the asset is owned by you and is used in a business you carry on.

You meet the active asset test as you have used the property in carrying on your business for the entire period of ownership and none of the exceptions apply. You have owned the property for more than 15 years, so also meet this condition of the 15 year exemption.

You are a CGT small business entity in the income year as your turnover is less than $2m.

Accordingly you meet the basic conditions for relief.

55 years old and retirement

Paragraph 152-105(d) requires that you were over 55 years old at the time of the event and the event happens in connection with your retirement.

Whether a CGT event happens in connection with your retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours you work or a significant change in the nature of your present activities to be regarded as a retirement. However, it isn't necessary for there to be a permanent and everlasting retirement from the workforce.

You were over 55 years of age when the property sold and given the significant reduction in working hours and scale of your activities following the sale, it is accepted that the CGT event will be in connection with your retirement.

Accordingly, you meet the relevant requirements and are entitled to apply the small business 15 year exemption under section 152-105.