Edited version of private advice

Authorisation Number: 1051927555945

Date of advice: 2 December 2021

Ruling

Subject: Small business CGT concessions

Question

Is the property owned by the trust an 'active asset' under section 152-40 of the Income Tax Assessment Act 1997?

Answer

Yes, the property owned by the trust is an active asset under section 152-40 of the Income Tax Assessment Act 1997.

Question

Does Person 2 control the trust?

Answer

No, Person 2 does not have control of the trust.

Question

Does Person 2 have sufficient influence over the trust?

Answer

No, Person 2 does not have sufficient influence over the trust even as a joint appointor (with Person 1) of the trust.

Question

Can the trust apply the Small Business CGT Concessions on the disposal of the property?

Answer

Yes, the Trust is eligible to apply the Small Business CGT Concessions on the disposal of the property.

Question

Is the trust eligible to apply the Small business retirement exemption on the disposal of the property under Subdivision 152-D of the Income Tax Assessment Act 1997?

Answer

Yes, the trust is eligible to apply the Small business retirement exemption on the disposal of the property under Subdivision 152-D of the Income Tax Assessment Act 1997.

This ruling applies for the following period:

Year ended 30 June XXXX

The scheme commences on:

1 July XXXX

Relevant facts and circumstances

The trust is a family discretionary trust.

The trust acquired the first property was in late December XXXX and the trust subsequently acquired more land in late December XXXX.

The properties were used by the partnership from the dates they were acquired in carrying on the partnership primary production business, which is also the date the partnership started.

Person 1 is a significant stakeholder of the partnership having a 20% interest.

The appointers of the trust are Person 1 and Person 2 jointly.

Person 1 is the sole shareholder and sole director of the trustee company.

In the 20XX and 20XX income years there were no distributions issued. Person 1 received 100% of distributions in the 20XX and 20XX income years.

Person 1 has operated the trust without Person 2's involvement and they solely manage all their financial affairs. Person 1 signed an undertaking of non-disclosure regarding investment decisions in 20XX that requires Person 2 to be at arms-length for all investment activities.

Person 1 in their capacity as sole director and sole shareholder of the trustee company takes sole responsibility for the day-to-day management and operation of the trust.

Person 2 does not control the trust either directly or in conjunction with Person 1, despite their role as a joint appointer.

The Trust's asset is used by Person 1 in partnership for business purposes, that is to carry out the farming activities.

The turnover of the Partnership was more than $2 million.

At the time of sale, the maximum net asset value calculation for Person 1 and the trust were less than $6 million.

For the 20XX financial year, the trustee resolved to distribute 99% of the income of the trust to Person 1 and 1% to Person 2. Therefore, Person 1 would be a significant individual as they have a small business participation percentage greater than 20%.

As Person 2's small business participation percentage is greater than zero and Person 1 is a significant individual, they are both CGT concession stakeholders.

At the end of the 20XX income year, Person 1 was XX years of age (born in MM 19XX) and Person 2 was XX years of age (born in MM 19XX).

Based on Person 2 being under 55 years old, the trust will make the payment to a complying super fund on their behalf.

The trust has kept a written record of the amount they choose to disregard and each stakeholder's percentage of the exempt amount. They will make the payments within seven days of making their choice to disregard the capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 section 152-20

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-47

Income Tax Assessment Act 1997 section 152-50

Income Tax Assessment Act 1997 section 152-60

Income Tax Assessment Act 1997 section 152-305

Income Tax Assessment Act 1997 section 152-325

Income Tax Assessment Act 1936 section 318

Income Tax Assessment Act 1997 section 328-130(1)