Edited version of private advice

Authorisation Number: 1051789491940

Date of advice: 16 December 2020

Ruling

Subject: Income tax - small business concessions

Question 1

Does the company satisfy the basic conditions for the small business concessions under Division 152 of the Income Tax Assessment Act 1997 (ITAA) for the disposal of the asset?

Answer

Yes. The company satisfied the basic conditions under section 152-10 of the ITAA 1997, as it was a small business entity at the time of CGT event on XX/XXXX. The company had an aggregated turnover less than $2 million and the asset is considered an active asset.

In this case, CGT event A1 happens upon the sale of the property which resulted in a capital gain. Applying the principles in Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business?,the Company is considered to carry on a business. As the Company had net assets of less than $6m in the income year in which the CGT event occurred and had net income of less than $2m, it is a CGT small business entity in that income year. The property has been owned by the Company for more than 15 years and used in the Company's business for more than seven and a half of those years, therefore the property satisfies the active asset test. Accordingly, the Company has met the basic conditions to apply the small business CGT concessions.

You can find further information on our website by searching QC52266.

Question 2

Can the company disregard the remaining capital gain (after applying 50% active asset reduction) on the disposal of the asset by choosing to apply the small business retirement exemption?

Answer

The company can apply the 50% active asset reduction.

Yes. In this case, the company satisfied the basic conditions and the significant individual test. The company must make a choice to apply the retirement exemption and keep a record of it. As the CGT concession stakeholder was under the age of 55 years old the company must make the payment to a complying superannuation fund. The conditions for the retirement exemption have been satisfied.

You can find further information on our website by searching QC 52290.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 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 company was incorporated in Australia on XX/XX/XXXX.

The company acquired a commercial property during the 20XX financial year.

The company used the premises to carry on a business from this time until the 20XX financial year.

The company ceased running this business during the 20XX financial year.

From this time the company rented the property until XX/XXXX.

The property was put on the market at this time.

The property was sold during the 20XX financial year.

The company has only 1 share on issue owned by one individual. This individual has 100 percent of the voting and distribution rights.

The individual was X years of age when the commercial property was sold.

The individual would like to utilise the 50 percent active asset reduction and the retirement exemption.

The individual would put any net capital gains into a complying superannuation fund.

You have advised that the aggregated turnover of the company, being its turnover plus the turnover of its connected entities plus the turnover of its affiliated entities, for FY20XX was less than $2 million per annum.

You have advised that the net value of the CGT assets owned by the company and its connected entities and its affiliated entities is less than $6 million when the sale of the commercial premises happened.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-200

Income Tax Assessment Act 1997 section 152-300

Income Tax Assessment Act 1997 section 152-305

Income Tax Assessment Act 1997 section 152-310

Income Tax Assessment Act 1997 section 152-315

Income Tax Assessment Act 1997 section 152-320

Income Tax Assessment Act 1997 section 152-325