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Edited version of private advice
Authorisation Number: 1052026545431
Date of advice: 8 September 2022
Ruling
Subject: CGT - 15 year exemption
Question
Will the payment of part of the pre-capital gains tax (CGT) capital gain by the company to individual A be exempt under section 152-125 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes, in this case the company satisfies subsection 152-125(1) of the ITAA 1997 as the company would have been able disregard the capital gain made from the disposal of the property under 152-110(1) of the ITAA 1997, except that the capital gain was disregarded anyway because the property was acquired before 20 September 1985. Further the company intends to make a payment within 2 years of the CGT event to a CGT concession stakeholder of the company, individual A.
Provided the payment does not exceed the stakeholder's participation percentage multiplied by the exempt amount, as per subsection 152-125(2) of the ITAA 1997, it will not be a dividend or frankable distribution to individual A.
This private ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
In 20XX the company sold primary production land.
The property was acquired before 20 September 1985.
The company has made a capital gain of approximately $X.
All of the ordinary shares in the company are pre capital gains tax shares other than the X shares which were inherited by individual A.
At no time since 19 September 1985 has it been the case that there has been a deemed re-acquisition of land under Division 149 of the ITAA 1997.
Prior to the sale of the property, individual A and their spouse operated a business on the property through a partnership.
Individual A is the sole director of the company.
The company is a small business entity with a turnover of less than $X million.
The property passes the active asset test.
Individual A is above 55 years of age and intends to retire.
The company will make a payment to individual A within 2 years of the sale.
Individual A is a CGT concession stakeholder in the company.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-110
Income Tax Assessment Act 1997 section 152-125
Income Tax Assessment Act 1997 subsection 152-125(1)
Income Tax Assessment Act 1997 subsection 152-125(2)