Edited version of private advice

Authorisation Number: 1051857876328

Date of advice: 29 June 2021

Ruling

Subject: Small business CGT concessions - active asset

Question 1

Does the property qualify as an 'active asset' within the meaning of that term in section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. You have an interest in the property and it was used in the course of carrying on a business by an entity that is a connected entity to you (the unit trust). The unit trust is a connected entity as you and your siblings are affiliates and together control the unit trust through the corporate trustee.

Further information on active assets can be found by searching 'QC 52272' on ato.gov.au.

Further information on affiliates and connected entities can be found by searching 'QC 52285' and 'QC 52286' respectively on ato.gov.au.

Question 2

Are you eligible to apply the small business 50% reduction contained in section 152-205 of ITAA 1997 to reduce your share of the capital gain made by 50% in relation to the capital gain made from the disposal of your interest in the property?

Answer

Yes. We consider that you satisfy the conditions to apply the small business 50% reduction to the sale of your interest in the property. The property satisfies the active asset test as you owned your interest in the property for over 15 years and it was used in carrying on a business by an entity connected to you during your ownership period.

Further information on the small business 50% reduction can be found by searching 'QC 52289' on ato.gov.au.

Question 3

Are you eligible to apply the small business retirement exemption for the capital gain made from the disposal of your interest in the property under subsection 152-305(2) of the ITAA 1997?

Answer

Yes. In your case, we consider that you satisfy the conditions to apply the small business retirement exemption to the sale of your interest in the property. The property satisfies the active asset test as you owned your interest in the property for over 15 years and it was used in carrying on a business by an entity connected to you during your ownership period. You need to keep a written record of the amount you chose to disregard (the CGT exempt amount). Given you are over 55 you do not need to make a personal contribution equal to the exempt amount to a complying super fund or retirement savings account.

Further information on the small business retirement exemption can be found by searching 'QC 52290' on ato.gov.au.

This ruling applies for the following period periods:

Income year ended 30 June 20XX

Income year ended 30 June 20YY

Income year ended 30 June 20ZZ

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You and your siblings own two farms in partnership.

Your oldest sibling is over 55 and is retiring.

You are over 55.

You intend selling your interest in one of the properties and purchasing your oldest sibling's interest in the other property, along with your other sibling.

These properties were acquired over 15 years ago and were farmed since acquisition.

A related unit trust conducts the primary production business and has done so for over 15 years. Each sibling is a director of the corporate trustee of the unit trust and owns equal of the shares in the corporate trustee.

Each sibling has a discretionary family trust which owns equal units issued by the unit trust.

While the XXXX was effectively the head of the business operations, most business decisions are made in conjunction with you and your other siblings. You have all always acted in the best interest of one another and the group as a whole.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-105

Income Tax Assessment Act 1997 section 152-205

Income Tax Assessment Act 1997 section 152-305