Edited version of private advice

Authorisation Number: 1051858931468

Date of advice: 29 June 2021

Ruling

Subject: Small business CGT concessions - active asset

Do the properties qualify as 'active assets' 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 both properties and both were 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 15-year exemption for the capital gains made from the disposal of his interest in both properties under subsection 152-105 of the ITAA 1997?

Answer

Yes. We consider that you satisfy the conditions to apply the small business 15-year exemption to the sale of your interest in the two properties. The properties satisfy the active asset test as you owned your interest in the properties for over 15 years and they were used in carrying on a business by an entity connected to you during your ownership period. You are over 55 and are retiring. The capital gain upon the sale of the properties is therefore disregarded.

Further information on the small business 15-year exemption can be found by searching 'QC 52288' on ato.gov.au.

This ruling applies for the following 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.

You are over 55 years old and are retiring.

You intend to sell your interest in the two farms. Your siblings intend selling their interests in one of the properties and purchasing your interest in the other property.

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 shares in the corporate trustee.

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

Being the XXXX, you have effectively been the head of the business operations. While you may be the predominant decision maker, most business decisions are made in conjunction with your 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