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Edited version of private advice
Authorisation Number: 1051572651472
Date of advice: 29 August 2019
Ruling
Subject: CGT - small business concessions - 15 year
Question
Can you apply the 15 year exemption to disregard the capital gain you make on the disposal of the property?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2020
Year ended 30 June 2021
The scheme commences on:
1 July 2019
Relevant facts and circumstances
You were incorporated in 19XX.
Your directors and shareholders are E (X Class A shares, X ordinary shares) and H (X Class A shares, X ordinary shares).
There has been no change to your ownership structure since incorporation.
You purchased the property in late 19XX with settlement occurring XX January 19XX.
From the date of purchase the property has been used in your business.
You satisfy the maximum net asset value test and will do so when the property is sold.
E is suffering from a medical condition rendering E permanently incapacitated.
You previously applied for and were issued a private ruling on XX May 20XX which provided that you qualify to apply the small business 15 year exemption. The private ruling applied to the period 1 July 20XX to 30 June 20XX inclusive.
You intend to dispose of the property as soon as possible.
You listed the property with a real estate agent on XX November 20XX.
The property has been leased since April 20XX. You will continue to lease the property until you are able to find a suitable buyer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 152-A
Income Tax Assessment Act 1997 Subdivision 152-B
Income Tax Assessment Act 1997 section 152-110
Reasons for decision
Summary
You are entitled to entirely disregard the capital gain you make on the disposal of the property as you qualify for the small business 15 year exemption.
Detailed reasoning
The rules covering the small business 15 year exemption are contained in Subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997).
If you qualify for the small business 15 year exemption you can entirely disregard the capital gain you make from the disposal of a capital gains tax (CGT) asset and do not need to apply any other concessions. In addition, you do not have to apply capital losses against your capital gain before applying the exemption.
Under section 152-110 of the ITAA 1997, a company can disregard the capital gain made on the disposal of a CGT asset if the company:
a) satisfies the basic conditions for the small business CGT concessions in Subdivision 152-A of the ITAA 1997 for the gain
b) continuously owned the CGT asset for the 15 year period ending just before the CGT event
c) had a significant individual for a total of at least 15 years (even if it was not the same significant individual during the whole period) during which the company owned the CGT asset; and
d) an individual who was a significant individual of the company just before the CGT event either:
i. was 55 or over at the time and the event happens in connection with the individual's retirement, or
ii. was permanently incapacitated at the time.
In your case, the basic conditions contained in Subdivision 152-A of the ITAA 1997 will be satisfied because:
· a CGT event will occur when you dispose of the property
· the event will result in a gain
· you will satisfy the maximum net value asset test at the time of the event, and
· you have owned the property for more than 15 years and it has been used in a business carried on by you for a total of at least seven and a half years of your ownership period.
In addition,
· you will have continuously owned the property for the 15 year period ending just before the CGT event
· you have had a significant individual (both E and H) for a total of at least 15 years during which you have owned the property, and
· E is a significant individual who due to a medical condition is permanently incapacitated and it is expected that E will continue to be so at the time of the property disposal.
You qualify for the small business 15 year exemption in section 152-110 of the ITAA 1997 in relation to the property. You can disregard the capital gain you make on its disposal.