Edited version of private advice

Authorisation Number: 1052054608387

Date of advice: 10 November 2022

Ruling

Subject: CGT - small business 15-year exemption

Question

Is the Company eligible to apply the small business 15-year exemption under section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard any capital gain upon the sale of the business?

Answer

Yes.

A Company can entirely disregard a capital gain arising from a CGT event when the basic conditions under section 152-10 of the ITAA 1997 are satisfied and the Company continuously owned the CGT asset for the 15-year period ending just before the CGT event, it had a significant individual for a total of at least 15 years of the whole period of ownership, and the individual who was a significant individual just before the CGT event was either at least 55 years old at the time and the event happened in connection with their retirement, or permanently incapacitated at that time.

In this case, the Company intends to sell the business (goodwill) to an unrelated party which will trigger CGT event A1 and result in a capital gain. Your CGT asset is an intangible asset, and it is inherently connected with a business that is carried on by the Company. The Company have held the asset for more than 15 years and it has been used as an active asset for at least 7.5 years during the time of ownership. The Company had a significant individual for a total of at least 15 years of the whole period of ownership, and the individual who will be a significant individual just before the CGT event occurs will be at least 55 years old at the time and the event will happen in connection with their retirement. Accordingly, the Company will be entitled to apply the small business 15-year exemption to disregard any capital gain made upon the sale of your business.

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 was incorporated more than 15 years ago and was operated as a family business.

The Company's shares are ordinary shares.

Individual A was a 100% shareholder and a sole director of the Company for 9 years.

In the relevant year, Individual A sold 30.3% of their shareholding to family members.

Several years later, Individual A purchased 4.6% of shareholding back and was holding a total of 74.3% of the shares.

In the relevant year, Individual B was appointed as a sole director of the Company.

In the same year, Individual A sold 49.5% of the shareholding to Individual B.

Several years later, Individual B bought the remainder of Individual 1 shares, increasing their shareholding to 74.3%.

The Company had a significant individual for a total of at least 15 years of the whole period of ownership.

Individual B will be a significant individual just before the CGT event, and is over 55 years old and will retire upon the sale of the business.

The Company is anticipating the sale of its business to occur in the year ending 30 June 2023.

The Company's maximum net asset value is under $X million.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-55

Income Tax Assessment Act 1997 section 152-65

Income Tax Assessment Act 1997 section 152-110