Edited version of private advice

Authorisation Number: 1051921364837

Date of advice: 11 November 2021

Ruling

Subject: CGT - 15 year exemption

Question 1

Can the capital gain made on the sale of the assets be disregarded under paragraph 104-10(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Can the small business 15 year exemption in Subdivision 152-B of the ITAA 1997 be applied to disregard the capital gain from the sale of the assets?

Answer

No.

This private ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In June 19XX an individual commenced a business as a sole trader.

In September 20XX, Company A commenced and operated the business.

The directors of Company A were the individual and their spouse.

Due to a relationship breakdown between the individuals the assets of Company A were transferred to Company B and Company C with a leasing agreement in place.

From 31 July 20XX Company B was commenced and ran the business.

The business has been registered and operating the activities throughout the different legal structures over the years.

The busines has used the same equipment where possible and the same phone number.

The business was sold in the 20XX financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 104-10(5)(a)

Income Tax Assessment Act 1997 section 104-23

Income Tax Assessment Act 1997 section 120-20

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 section 152-110

Reasons for decision

Question 1

Under section 120-20of the ITAA 1997, an entity will make a capital gain or a capital loss if a CGT event happens to a CGT asset.

A capital gain on the disposal of an asset can be disregarded under paragraph 104-10(5)(a) of the ITAA 1997 if it was acquired prior to 20 September 1985.

Application to your circumstances

In this case, company B has sold the assets of the business. Company B commenced operations in 20XX. The assets of the business were not acquired prior to 20 September 1985 and are therefore not exempt from CGT under paragraph 104-10(5)(a) of the ITAA 1997.

Question 2

Section 152-110 of the ITAA 1997 provides a small business 15-year exemption for companies and trusts. Under this section, a company can disregard the capital gain from the disposal of a CGT asset if:

(a)    the company satisfies the basic conditions in Subdivision 152-A of the ITAA 1997 for the small business CGT concessions

(b)    the company continuously owned the CGT asset for the 15-year period ending just before the CGT event happened

(c)     the company had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which time the company owned the CGT asset; and

(d)    an individual who was a significant individual of the trust just before the CGT event was either:

-       at least 55 years old at that time and the event happened in connection with their retirement or

-       permanently incapacitated at that time.

Application to your circumstances

In this case, Company B commenced operations in 20XX. The assets of the business were sold in the 20XX financial year. As the company has not continuously owned the assets for a period of 15 years the conditions for the small business 15 year exemption have not been satisfied.