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Edited version of private advice
Authorisation Number: 1052052768222
Date of advice: 1 November 2022
Ruling
Subject: Small business concessions
Question
Will a payment made by the Company to its CGT concession stakeholders be exempt under section 152-125 of the Income Tax Assessment Act (ITAA 1997)?
Answer
Yes. The Company will use the small business 15-year exemption in section 152-110 upon sale of the Company's business to disregard any capital gain. The Company will make a payment representing the exempt amount to the X shareholders of the Company within two years of the sale of the Company's business including a Trust. The Trust will then distribute this amount to the sole beneficiary, Person A within two years of the Company's Sale. The amount ultimately received by Person A from the Company will not exceed an amount that is their individual participation percentage multiplied by the amount of the exempt capital gain.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Company has operated a business for over 15 years.
The Company has X shareholders, including shares held beneficially for a Trust. Person A is the sole trustee and beneficiary of the Trust.
The Company is currently in negotiations to sell the business in connection with Person B's retirement (the Sale). Person B is over 55 years old and will be a significant individual of the Company just before the sale of the business.
In the year of sale, the Company will meet the basic conditions for small business relief under section 152-10 of the ITAA 1997.
The Company will have continuously owned the business for the 15-year period ending just before it's sale.
The Company will have had a significant individual for at least 15 years during which it owned the business.
The Company will apply the small business 15-year exemption under section 152-110 of the ITAA 1997 to disregard any capital gain arising from sale of the business.
The Company will make payments representing the exempt amount to X shareholders and the Trust within two years of the sale of the business. The Trust will then make a distribution to Person A only representing his share of the exempt amount within two years of sale.
The amount ultimately received by Person A (as CGT concession stakeholder through the interposed Trust) will not exceed an amount that is their individual participation percentage multiplied by the amount of the exempt capital gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-10
Income Tax Assessment Act 1997 Section 152-110
Income Tax Assessment Act 1997 Section 152-125