Edited version of private advice

Authorisation Number: 1052055325605

Date of advice: 8 November 2022

Ruling

Subject: Small business concessions

Question 1

Will the company meet the basic conditions under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply the small business capital gains tax (CGT) concessions?

Answer

Yes, based on the information provided the company will satisfy the basic conditions under section 152-10 of the ITAA 1997. You will also satisfy the significant individual test in section 152-50 of the ITAA 1997. You will need to keep a written record of the amount you choose to disregard (the exempt amount) and, if there are more than one CGT concession stakeholders, each stakeholder's percentage of the exempt amount (one may be nil, but together they must add up to 100%)

The company has held the business for 15 years or less and the business was an active asset of yours for a total of at least half of the period of ownership. The business therefore satisfies the active asset test in section 152-35 of the ITAA 1997, satisfying the condition under paragraph 152-10(1)(d) of the ITAA 1997.

Question 2

Do you satisfy the conditions for the small business 50% active asset reduction pursuant to section 152-200 of the ITAA 1997 in relation to the sale of the business?

Answer

Yes, based on the information provided you satisfy the basic conditions. Accordingly, you are eligible to apply the 50% active asset reduction to the sale of the business. Further information can be found by searching for 'QC 52289' on the ATO website.

Question 3

Does the company meet the conditions to apply the small business retirement exemption to any capital gain made on the sale of the business under subdivision 152-D of the ITAA 1997?

Answer

Yes. As you satisfy the basic conditions you are eligible for the small business retirement exemption up to a lifetime limit of $500,000 each. As you were both over 55 years of age at the time of the CGT event, there is no requirement to pay any amount to a complying superannuation fund or retirement savings account. Further information can be found by searching 'QC 52290' on the ATO website

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You carried on a business which was sold in the 20XX/20XX financial year.

Individual A and Individual B are the only shareholders of the company, each holding 1 ordinary share.

Individual A and Individual B are CGT concession stakeholders in the company.

You applied the small business CGT concession on the sale of the business, and utilised the rollover relief. You did not apply the small business 50% active asset reduction.

You purchased a new business in the 20XX/20XX financial year as a replacement asset and did not use the full amount of the small business rollover.

A CGT event J6 occurred at the end of the replacement period (20XX financial year) as the capital gain you disregarded under the small business rollover exceeded the 'amount incurred' in relation to your replacement asset.

Individual A and Individual B are both over 55 years of age.

You state that the company is a small business entity.

You state that the company has an aggregated turnover of less than $2 million.

You state that there are no other affiliates or entities 'connected with' the company.

You intend to put the business on the market and expect to make a capital gain.

You intend to make the 'choice' to apply the CGT small business retirement exemption when you lodge your income tax return when the business is sold.

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 152-50

Income Tax Assessment Act 1997 section 152-305

Income Tax Assessment Act 1997 subsection 104-198(3)