Edited version of private advice

Authorisation Number: 1052043353964

Date of advice: 10 October 2022

Ruling

Subject: Small business concessions

Question 1

Do X and Y meet the basic eligibility conditions of the small business capital gains tax concessions?

Answer

Yes

X and Y satisfy the basic conditions because a CGT event happened in relation to a CGT asset that resulted in a gain. They also satisfy the conditions of the active asset test as the property was used to carry on a business and they satisfy the maximum net asset value test. Therefore X and Y meet the basic eligibility conditions under section 152-10 of the ITAA 1997.

Question 2

Does the asset satisfy the active asset test?

Answer

Yes

X and Y owned the CGT asset for over 15 years, and it was used in the course of carrying on a business for over 7 ½ years during the period starting when they acquired the asset and ending at the time of the CGT event. Therefore, the asset satisfies section 152-135 of the ITAA 1997 and meets the active asset test.

Question 3

Is X eligible for the small business 15-year exemption?

Answer

Yes

X is eligible for the small business 15-year exemption under section 152-105 of the ITAA 1997 because they continuously owned the asset for the 15-year period ending just before the CGT event; they are over 55 years old and the CGT event has happened in connection with their retirement.

Question 4

Is Y eligible for the retirement exemption?

Answer

Yes

Y is eligible for the retirement exemption under section 152-305 of the ITAA1997 because they meet the basic eligibility conditions. Because Y is over 55 years old, they are not required to pay any amount to a complying superannuation fund. They are eligible to disregard a capital gain of up to $500,000, reduced by any previous CGT exempt amounts they have disregarded under the retirement exemption. Note: Y is not eligible for the 15-year exemption as the CGT event (sale of property) did not happen in connection with their retirement which occurred many years prior.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

X and Y ran a business from 19XX to 20XX.

X and Y jointly purchased adjacent properties between 19XX and 19XX.

In 19XX parts of the properties merged onto one title.

In 20XX this property was subdivided into 2 lots.

Lot 2 was sold in 20XX.

Contract date was XX March 20XX.

Settlement date was XX June 20XX.

X and Y's total assets are less than $6 million.

X and Y satisfies the maximum net asset value test.

The property was used in the partnership from acquisition to 20XX.

The CGT asset satisfies the active asset test.

X and Y rented the commercial property tenants until XX May 20XX.

Y retired in 20XX when they sold their business.

X retired in April 20XX.

The CGT event occurred in connection with X's retirement.

X and Y are using the proceeds to fund their retirement.

Since the tenants vacated, they no longer have any income and will rely on the proceeds from the sale for their living expenses.

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 152-35

Income Tax Assessment Act 1997, section 152-105

Income Tax Assessment Act 1997, section 152-305