Edited version of private advice

Authorisation Number: 1051570650439

Date of advice: 23 August 2019

Ruling

Subject: Small business CGT concessions - 15 year exemption

Question

Are you eligible to use the small business 15 year exemption under Subdivision 152-B of the Income Tax Assessment Act 1997 to disregard your capital gain from selling your property?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You own a property.

The property was initially acquired by your parent pre-1985.

Your parent died. The property passed to your surviving parent as the sole beneficiary of the estate.

Your surviving parent died and you are your siblings inherited the property as beneficiaries under the Will.

The property has been used for a primary production business from acquisition by your parent until sale.

You and one of your siblings were in the primary production business in partnership.

Before you became part owner of the property you ceased that business and started another primary production business with your spouse full-time at a different location.

The property was sold.

You were over 55 when the property was sold and the sale was in connection with your retirement.

You have no affiliates.

You are a small business CGT entity for the relevant financial year as your turnover did not exceed $XX.

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 paragraph152-40(1)(a)

Income Tax Assessment Act 1997 section 152-105

Reasons for decision

Summary

You are not entitled to apply the small business 15-year exemption in Subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain from the selling of the property.

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.

In this case, the disposal of the rural property constitutes CGT event A1.

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.

In your case, the business in which you currently operate 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.

Application to your circumstances

The asset will only be an active asset if you have owned the asset during the relevant time it used and held ready for use in a business you carry on. Based on the facts provided, you only owned the asset from the time your surviving parent died. You did not operate a business on the property during the period in which you owned the property. You only operated a business of the business prior to owning it.

Therefore during the years of your ownership of the asset, the asset will not be an active asset.

Accordingly, you will not be able to access the 15 year exemption and your capital gain will not be disregarded.

Further comments

Since the asset has been owned over twelve months, you will be entitled to claim the 50% CGT discount upon sale of the asset.