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Edited version of private advice
Authorisation Number: 1051617703206
Date of advice: 10 December 2019
Ruling
Subject: CGT Concessions
Question
In relation to the proposed disposal of certain assets by X and Y, would the CGT retirement exemption amount under section 152-305 of the Income Tax Assessment Act 1997 (ITAA 1997) attributable to taxpayers A and B be up to the capital gain tax (CGT) retirement exemption limit of $500,000 in section 152-320 of the ITAA 1997 for each of taxpayers A and B?
Answer
Yes.
This ruling applies for the following period:
01 July 20XX to 30 June 20XX
The scheme commences on:
01 July 20XX
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 taxpayers are shareholders of X and Y.
The taxpayers do not carry on a business in their own rights.
The taxpayers are over the age of 55.
The taxpayers have never utilised any CGT small business relief concession in the past.
Should the proposed disposal of certain assets by X and Y proceed, X and Y would make a choice for their CGT concession stakeholders, taxpayers A and B, under section 152-305 of the ITAA 1997 to the CGT retirement exemption limit, $500,000 per CGT concession stakeholder.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 103
Income Tax Assessment Act 1997 Division 152
Reasons for decision
Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997).
Detailed reasoning
Pursuant to section 152-310, if a company makes the choice mentioned in section 152-305 for any part of the capital gain from the CGT asset, that part of the capital gain equal to its CGT exempt amount is exempt.
For a company, the amount chosen cannot exceed the CGT retirement exempt limit of each individual for whom the choice is made: paragraph 152-315(2)(b).
The CGT retirement exemption limit is a lifetime limit of $500,000 and is reduced by any previous amounts disregarded under the small business retirement exemption: subsection 152-320(1).
If an individual is one of at least two CGT concession stakeholders of a company, and the company makes a choice for the individual, only the individual's percentage of the asset's CGT exempt amount counts towards that individual's CGT retirement exemption limit: subsection 152-320(2).
The CGT exempt amount must be specified in writing in the choice to apply the retirement exemption: subsection 152-315(4).
The way in which the tax return is prepared is not sufficient evidence of the choice.
If a company or trust is making the choice and it has more than one CGT concession stakeholder, it must specify in writing the percentage of each CGT asset's CGT exempt amount that is attributable to each of those stakeholders. One or more of the percentages may be nil, but all of the percentages must add up to 100%: subsection 152-315(5).
The choice must be made by the date of lodgement of the company tax return for the relevant income year in which the CGT event occurs, or such further time as the Commissioner allows: section 103-25.
On the facts, should the proposed disposals proceed, both X and Y propose to make a choice for their CGT concession stakeholders, taxpayers A and B, under section 152-305, it is determined that X makes the choice in the first place before Y does. Both taxpayers A and B would be CGT concession stakeholders of X and Y.
On the basis that taxpayers A and B have never utilised or accessed any retirement exemption in the past, the company or trust conditions in section 152-325 are satisfied, and after application of the small business 50% reduction under section 152-205, X and Y would be eligible to choose to disregard a capital gain amount up to the respective CGT retirement exemption limit for taxpayers A and B under Subdivision 152-D.
Under the proposed choice(s) of X and Y, and on the basis that X and/or Y are/is to make the choice(s) by the date of lodgement of the company tax return for the relevant income year in which the proposed disposals occur (or such further time as allowed by the Commissioner), as well as that X and/or Y are/is to specify in writing the percentage of each CGT asset's CGT exempt amount that is attributable to each of those stakeholders, the amount chosen will be up to the respective CGT retirement exemption limit for taxpayers A and B, $500,000 per person.