Edited version of private advice

Authorisation Number: 1051900160800

Date of advice: 5 October 2021

Ruling

Subject: CGT - small business concessions

Question 1

Does the trust satisfy the basic conditions for the small business CGT concessions under section 152-10 of the ITAA 1997?

Answer

Yes. Based on the information provided, The Commissioner is satisfied that the trust meets the basic conditions for the small business CGT concessions under section 152-10 of the ITAA 1997.

Question 2

Is the trust entitled to claim the 15-year exemption under section 152-110 of the ITAA 1997 for a portion of the capital gain arising from the sale of the property?

Answer

Yes. The Trust is entitled to claim the 15-year exemption for the capital gain of the lots purchased in May XXXX and December XXXX as they were owned for more than 15 years and meet the criteria under section 152-110 of the ITAA 1997.

Question 3

Is the appointor of the trust a CGT concession stakeholder such that the capital gain distributed to them is non-assessable?

Answer

Yes. The Appointer satisfies the significant individual test and has 100% of the participation percentage for the small business entity. Therefore, the criteria under sections 152-25, 152-55, 152-60 and 152-70 of the ITAA 1997 has been met and the Appointer will be considered a CGT concession stakeholder.

Question 4

Did the CGT event arising from the sale of the property happen in connection with the appointor of the trust's retirement in accordance with paragraph 152-110(1)(d)(i) of ITAA 1997?

Answer

Yes. The CGT event was in connection with their retirement based on the information provided, the significant changes made to the business and the significant individual being over 55 years of age at the time of the event.

Question 5

Is the appointor of the trust a CGT concession stakeholder of the trust such that the capital gain distributed to them is non-assessable?

Answer

Yes. The appointor of the trust is a significant individual with a small business participation percentage of at least 20% at the time of the CGT event.

Question 6

Is the trust entitled to claim the retirement exemption under section 152-D of the ITAA 1997 for the remaining portion of the capital gain arising from the sale of the property?

Answer

Yes. The trust is entitled to claim the retirement exemption for the capital gain arising from the sale of the two lots purchased in July XXXX.

This ruling applies for the following period:

Year ended 30 June XXXX

The scheme commences on:

1 July XXXX

Relevant facts and circumstances

The discretionary investment trust was established by trust deed in June XXXX with the company as the trustee.

The appointor of the trust/beneficiary is over 55 years of age and is one of the current directors of the company.

The trust purchased lots for an estimated total price of $XX million. These lots were acquired with the intention of carrying on a farming business under the appointor's sole trader ABN (trading as the company trustee).

The lot and deposited plan (DP) details are:

•         Lot XX in DP XXXXX and Lot XX in DP XXXXX were purchased in May XXXX.

•         Lot XX in DP XXXXX, Lots XX and XX in DP XXXXX were purchased from a relative in December XXXX.

•         Lots XX (x2) in DP XXXXX and DP XXXXX were purchased in July XXXX.

•         Lot XX in DP XXXXX and Lot XX in DP XXXXX were purchased in July XXXX.

The lots comprise of vacant rural land with improvements being livestock yards, sheds and managers' cottages.

On XX July XXXX, the trust entered into a contract to sell over XX hectares of the lots for net proceeds of over $XXX. Settlement took place on XX December XXXX.

The trust resolved to distribute 100% of the net capital gain from the sale of the lots to the appointor of the trust to be used for retirement.

From April XXXX up to the date of sale, the lots had been used wholly and exclusively by the appointor of the trust to carry on a primary production business as a sole trader.

The basic conditions for the small business CGT concessions are satisfied.

The trust continuously owned the CGT asset for the 15-year period ending just before the CGT event.

The appointor of the trust was a significant individual because they have received 100% of the trust distributions in the past six income years and they were over 55 years of age when the CGT event occurred.

The significant individual will receive 100% of the capital gain within the 2-year period following the CGT event.

They have 100% of the participation percentage for the small business entity.

The significant individual significantly reduced their working hours 2 years prior to their resignation.

Over 90% of the livestock/business assets were sold and the manager for the business was made redundant.

The trust will make the payment within the later of two years of the CGT event to a CGT stakeholder just before the event.

The payment will not exceed an amount that is determined by multiplying the CGT concession stakeholder's participation percentage.

The CGT concession stakeholder is over 55 years of age and was a significant individual just before the CGT event occurred.

There is a written record of the amount they choose to disregard, and the CGT concession stakeholder was paid their distribution.

The payment was made to the CGT concession stakeholder by the later of seven days after the choice was made to either disregard the capital gain, or the amount of capital proceeds was received by the trust.

The total net capital gain for the remaining lot is less than the lifetime limit of $XXX.

The two lots purchased in July XXXX have not been included in either of the two exemptions as they have not been held for 12 months prior to the CGT event.

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 152-55

Income Tax Assessment Act 1997 Section 152-50

Income Tax Assessment Act 1997 Section 152-60

Income Tax Assessment Act 1997 Section 152-65

Income Tax Assessment Act 1997 Section 152-70

Income Tax Assessment Act 1997 Section 152-110

Income Tax Assessment Act 1997 Section 152-305

Income Tax Assessment Act 1997 Section 152-325

Income Tax Assessment Act 1997 Section 328-110

Income Tax Assessment Act 1997 Subsection 328-125

Income Tax Assessment Act 1997 Section 328-130