Edited version of private advice

Authorisation Number: 1051741498369

Date of advice: 20 August 2020

Ruling

Subject: CGT - small business concessions

Question 1

Can you apply the small business 15 year exemption to reduce any capital gains made on the disposal of the shares you acquired more than 15 years ago to nil?

Answer

Yes.

You meet the requirements to apply the 15 year exemption to any capital gains made on the sale of the shares you acquired more than 15 years ago. You meet the basic conditions as you satisfy the maximum net asset value test, the shares meet the active asset test and the additional basic condition for shares (that is, just before the CGT event you will be a CGT concession stakeholder and the Company will meet the modified maximum net asset value test and modified active asset test).

Further, you have held these shares for more than 15 years, will be over 55 years at the time of the disposal and will retire in connection with the disposal. Finally, in accordance with Taxation Determination TD 2006/77, redeemable preference shares are ignored for the purposes of determining if a Company has a significant individual, therefore the Company has had a significant individual for more than 15 years.

Question 2

Can you apply the active asset reduction, retirement exemption and/or rollover to any capital gains made on the sale of the shares you inherited from your spouse?

Answer

Yes.

As determined above, the basic conditions will be met in relation to the disposal of the shares. Accordingly, the 50% active asset reduction will apply to any capital gain made on the disposal and you can choose to apply the small business rollover. Provided you make a written record of your choice, and you do not exceed your lifetime CGT retirement exemption limit of $500,000 you may also choose to reduce any capital gain by the small business retirement exemption.

Further information on the CGT small business concessions can be found at www.ato.gov.au by searching for 'QC 22165'.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are over 55 years of age.

The Company was incorporated more than 15 years ago.

The Company conducts a business.

From incorporation, you and your spouse each held X% of the shares in the Company and were the only shareholders in the Company.

Redeemable preference shares were issued for a period of time.

Less than 15 years ago, your spouse passed away and all of their shares in the company passed to you.

You currently hold all of the ordinary shares on issue.

The main assets held by the Company are trade debtors, plant, equipment and stock. There have not been any major changes in asset holdings.

For more than XX years of your ownership period, more than 80% of the Company's assets are active assets.

The Company does not hold any interests in any other entities of value.

You intend to dispose of all of your shares in the Company to your children as a part of your retirement from the family business.

You will satisfy the maximum net asset value test at the time of the disposal.

You will retire as director and secretary of the Company.

You currently act as managing director of the Company, overseeing all high level decisions of the business. You work an average of X hours a week.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-50

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-D

Income Tax Assessment Act 1997 Subdivision 152-E