Edited version of private advice

Authorisation Number: 1051854764247

Date of advice: 25 June 2021

Ruling

Subject: CGT small business concession

Question

Was the sale of the assets (i.e. the relevant CGT event) 'in connection' with the retirement of Person A and Person B for the purposes of subparagraph 152-110(1)(d)(i) of the Income Tax Assessment Act (ITAA) 1997?

Answer

Yes

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A and Person B are the partners (the partners) of the partnership.

The partners purchased a block of primary production land, known as XX in 19XX and another block of primary production land, known as XX in 20XX (the assets).

The partnership used the assets for farming XX.

From 1 July 20XX, the partners leased the assets and machinery to a company (the trading company) that is a connected entity with the partners.

The trading company is a small business entity that carried out XX business using the assets.

The partners entered a contract on XX 20XX to dispose the assets to an un-related party (the CGT event).

When the CGT event occurred, the partners were over the age of 55.

Person A and Person B entered a lease agreement with the un-related party to lease the assets from the un-related party's acquisition date for under XX months.

The purpose of the lease is for Person A and Person B to complete the last season's crop.

After the under XX months period, Person A and Person B will permanently retire.

Relevant legislative provisions

Income Tax Assessment Act 1997, Paragraph 152-110(1)(d)

Reasons for decision

Summary

The CGT event was 'in connection with your retirement' even if it occurred 9 months before the retirement.

Detailed reasoning

Paragraph 152-110(1)(d) of the ITAA 1997 requires that an individual just before the CGT event was either:

(i) 55 or over at that time and the event happened in connection with the individual's retirement; or

(ii) permanently incapacitated at that time.

Whether a CGT event happens 'in connection' with an individual's retirement depends on the particular circumstances of each case. A CGT event may be in connection with your retirement even if it occurs at some time before retirement.

The Explanatory Memorandum (EM) to the New Business Tax System (Capital Gains Tax) Bill 1999 makes the following comments about the requirement to be permanently incapacitated or retiring as one of the conditions for the concession:

1.68 One of the requirements of this concession for an individual small business taxpayer is that they must be either permanently incapacitated at the time of the CGT event, or at least 55 years old and using the capital proceeds for their retirement.

The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with a taxpayer's retirement', nor does it give any indication of the degree of retirement required in order to take advantage of this concession. It could be argued that the phrase 'in connection with retirement' means that the capital gain arising from the disposal of active assets is to be used to provide funds for a person's retirement rather than to precipitate retirement at the time of the CGT event. The words used in the EM support this interpretation.

In your circumstances, the intention and action to complete the last season's crop that caused the short delay for the retirement did not materially affect the intention to use the capital gain to provide funds for your retirement. As such, the Commissioner is satisfied that the sale of the assets was in connection with your retirement for the purpose of subparagraph 152-110(1)(d)(i) of the ITAA 1997.