Edited version of private advice

Authorisation Number: 1051614981755

Date of advice: 9 December 2019

Ruling

Subject: CGT small business concessions

Question

Can the Trust apply the small business 50% active asset reduction, retirement exemption and/or the small business rollover to any capital gains made on the disposal of the assets?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2019

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased was over 55 years of age at the time of their death.

The deceased conducted a business through a family trust (the Trust).

The deceased controlled the corporate trustee of the Trust by majority shareholding.

The deceased had acquired a number of assets in their own name.

The Trust also acquired some assets.

All of the assets held by the Trust were used in its business from the date of acquisition to the deceased's death.

The Trust's turnover was less than $2million in the past four income years. There are no other entities whose income would need to be included for the small business entity test.

The deceased received more than 40% of the income and capital distributions in the four financial years prior to their death.

There have been claims over the ownership of the assets and several claims have been made against the deceased's estate in relation to the assets.

Since the deceased's death, all but one asset have been leased to an unrelated third party. The deceased's child continues to remaining asset.

The disputes are ongoing and the assets cannot be disposed of until these disputes are finalised.

In the year that the assets are disposed of, the recipient beneficiaries (expected to be 3 beneficiaries) will receive at least 20% of the income and capital distributions from the Trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-D

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Section 328-110

Reasons for decision

To qualify for the small business capital gains tax (CGT) concessions, you must satisfy several conditions that are common to all the concessions. These are called the 'basic conditions'. Each concession also has further requirements that you must satisfy for the concession to apply (except for the small business 50% active asset reduction which applies if the basic conditions are satisfied).

CGT small business entity

If, during an income year, you are winding up a business that you previously carried on, subsection 328-110(5) of the ITAA 1997 will treat you as a CGT small business entity in that year. In this case, the Trust carried on a business with a turnover of less than $2million. Following the deceased's death, there have been ongoing legal disputes that have prevented the Trust from disposing of the business assets. Accordingly, subsection 328-110(5) of the ITAA 1997 will apply to treat the Trust as a CGT small business entity.

CGT small business concessions

In this case, it is accepted that the Trust will meet the basic conditions due to the following:

·        a CGT event will occur when the assets are disposed of

·        the event will result in a gain

·        the Trust is a small business entity under the winding up provisions as discussed above; and

·        the assets meet the active asset test as they were continuously used in the Trusts business for more than half of the ownership period.

Accordingly, the Trust can apply the 50% active asset reduction and the small business rollover.

To apply the retirement exemption, the Trust must also satisfy the significant individual test. As there will be 3 beneficiaries that receive at least 20% of the income and capital distributions in the CGT event year this condition will also be met.

The Trust must keep a written record of the amount disregarded under the retirement exemption noting each CGT concession stakeholder's allocated percentage of the exempt amount (which cannot exceed their individual lifetime CGT retirement exemption limit of $500,000). A payment must be made to each CGT concession stakeholder in line with seven days of making the choice. If the CGT concession stakeholder is under 55 at the time of making the payment, the payment must be made to a complying superannuation fund on their behalf.