Edited version of private advice

Authorisation Number: 1051916074366

Date of advice: 29 October 2021

Ruling

Subject: CGT - small business concessions - 15-year exemption

Question

Do you meet the conditions to apply the small business 15-year exemption under section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made on the disposal of the property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are over 55 years and intend to retire.

After 20 September 1985 you inherited a property (the property) when your parent (C) passed away.

Your other parent (L) was provided a life interest in the property under C's will.

Since 20XX, the property has been used by the Trust (trust) in its business.

The trust's annual turnover is less than $2 million.

You are the sole shareholder and a director of the trustee company.

L intends to extinguish their life interest in the property.

You intend to transfer your ownership of the property to a retirement trust. The retirement trust will lease the property to an unrelated third party and provide you with an income stream for retirement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision152-A

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-105

Reasons for decision

The small business 15-year exemption takes priority over the other small business concessions and the CGT discount. If the small business 15-year exemption applies, you entirely disregard the capital gain so there is no need to apply any further concessions.

Section 152-105 of the ITAA 1997 provides that an individual can entirely disregard any capital gain if all of the following conditions are satisfied:

1. you satisfy the basic conditions
2. you continuously owned the CGT asset for the 15-year period ending just before the CGT event
3. you are either:
   • 55 or over at the time of the CGT event and the event happens in connection with your retirement; or
   • permanently incapacitated at the time of the CGT event.

Basic conditions

Section 152-10 of the ITAA 1997 contains the basic conditions that must be satisfied to be eligible to apply the CGT small business concessions. These conditions are:

1. a CGT event happens in relation to a CGT asset in an income year.
2. the event would (apart from this Division) have resulted in the gain.
3. at least one of the following applies:
   1. you are a small business entity for the income year;
   2. you satisfy the maximum net asset value test;
   3. you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership, or
   4. you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate, or an entity connected with you.
4. the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

In your case, you intend to transfer ownership of the property to a retirement trust which will trigger CGT event A1 and result in a capital gain. You do not carry on a business however the property is used in the primary production business carried on by the trust which is a small business entity that is connected with you. You satisfy the active asset test as you have been the beneficial owner of the property since 19XX and the property has been used in the business of your connected entity (the trust) for more than 7.5 years that you have held the property. As such you will meet the basic conditions under section 152-10 of the ITAA 1997 to apply the CGT small business concessions.

You also meet the additional conditions required under section 152-105 of the ITAA 1997 to apply the small business 15 year exemption as you have continuously held the property for more than 15 years, you are over 55 years of age and you intend to retire upon transfer of the property to the retirement trust. As you have met all the conditions under section 152-105 of the ITAA 1997, you are entitled to apply the small business 15 year exemption to disregard any capital gain made upon transfer of the property.