Edited version of private advice

Authorisation Number: 1052070337836

Date of advice: 13 December 2022

Ruling

Subject: CGT - active asset test

Question 1

Will the land known as the Property held by the Taxpayer, (aside from the component of the land containing his main residence and adjacent land) satisfy the 'active asset test' as set out in section 152-35 of the Income Tax Assessment Act 1997 (Cth) ('ITAA 97')?

Answer

Yes.

Question 2

Will the Taxpayer satisfy the other basic conditions to access the small business capital gains tax ('CGT') concessions as set out in section 152-10 of the ITAA 97?

Answer

Yes.

Question 3

Will the Taxpayer be eligible to apply the small business 15-year exemption as set out in section 152-105 of the ITAA 97 and therefore be able to disregard the capital gain he will make on the sale of the Property in full?

Answer

Yes.

This ruling applies for the following periods:

x XX 20XX to yy YY 20YY

x XX 20YY to yy YY 20ZZ

Relevant facts and circumstances

Background information

1.      The Taxpayer was born xx YY 19XX and is presently xx years of age.

2.      The Taxpayer acquired land consisting of a number of parcels and totalling approximately xy acres, situated at XYZ, in early 19XY for approximately $xyz as sole proprietor.

3.      Within the first couple of years, the Taxpayer built a home on the corner of the land, which then became his main residence and continues to be his main residence to date.

4.      In YY 20YZ, the Taxpayer transferred one parcel of approximately xx acres, being the eastern most portion, to his self-managed superannuation fund ('SMSF').

5.      The remaining parcels, including the Taxpayer's main residence, ('the Property') comprises approximately yy acres and includes cattle yards and some farm sheds.

6.      The Capital Gains Tax ('CGT') cost base attributable to the Property (including the Taxpayer's main residence) is approximately $xyz.

7.      Following further acquisitions of farmland throughout 20XX to 20YY, the Taxpayer currently has direct and indirect interests in farmland totalling about zzz acres ('the Farmland').

8.      In addition, the Taxpayer also leased the adjoining land from a third party to provide additional feed for his cattle.

9.      Since 19XX until yy YY 20YY, the Taxpayer, as a sole trader, has conducted primary production activities on the Farmland, consisting of beef cattle farming and growing pasture for the beef cattle.

10.    From y YY 20YY, the Taxpayer formed a partnership with his wife Taxpayer B, known as the Partnership, to continue with the cattle farming activities on the Farmland.

11.    There was no change in ownership of the Property in conjunction with the farm business structure changing to a Partnership. The title remained solely in the name of the Taxpayer.

12.    The Taxpayer was registered for GST from x Y 20XX until yy YY 20YY.

13.    The Partnership is now registered for GST from y YY 20YY.

14.    The aggregated turnover of the Partnership for the financial year ended yy YY 20YY is expected to be about $xxx.

15.    The Taxpayer maintains his own accurate accounting records of expenditures and sales relating to the cattle farming operations.

16.    The Taxpayer has historically always disclosed income and expenditure associated with his cattle farming operations in the business schedule of his income tax return.

17.    Aside from the Taxpayer's long involvement in cattle farming, he also worked in another profession for many years. He retired from that profession in 20XY and is now solely engaged in his cattle farm business operations. His current average daily time commitment in the cattle farming operations is x-y hours per day.

Use of Property

18.    Following the acquisition of land in early 19XX, the Taxpayer leased the Property briefly to an unrelated party for approximately a year, before starting to use the Property in connection with his own cattle farming activities.

19.    From 19XY, the Property was used for cattle farming activities, whether conducted by the Taxpayer as a sole trader or more recently by the Partnership.

20.    The Property was stocked in the same manner as the remaining Farmland.

Farming activity details

21.    In the earlier years, the beef cattle farming activities included the purchase of weanlings which were sold as beef cattle once grown to maturity, but for the past xx years, the Taxpayer was more focused on breeding beef cattle.

22.    The Taxpayer's involvement in the cattle farming activities to date included the following:

•           Monitoring and managing livestock, including assisting calving, tagging, moving stock between paddocks, moving hay and silage, arranging transport to market, monitoring animal health and hand feeding as required, etc

•           Repair and maintenance of fences and tracks, equipment and water troughs.

•           Paddock management, including slashing, weed control and removing fallen trees.

•           Administrative management, including maintaining stock records, paying bills, maintaining all banking and accounting records.

23.    The Taxpayer is accredited in PIC / LPA, including the following areas:

•           Safe responsible animal treatment (Cattle);

•           Stock feed, fodder crops, grain and pasture treatment;

•           Preparation for dispatch of livestock (Cattle);

•           Livestock transactions movements;

•           Biosecurity;

•           Animal Welfare (Cattle); and

•           MSA Accreditation (Beef).

24.    Over the years, the Taxpayer engaged consultants with respect to his farming activities and a desire to achieve 'best practice'.

25.    Previously the Taxpayer, and presently the Partnership, trade under the name of 'XYZ'.

Proposed sale

26.    The Taxpayer has recently received an offer from a land developer to sell the Property and the adjoining parcel of xx acres held by the SMSF for $yy million and subsequently other interested parties have also been in contact.

27.    It is the Taxpayer's current intention to sell the Property to a developer in the current (20XX) income year ('the Transaction'), however this may be protracted beyond the end of the 20XX year.

28.    The reasons for the Taxpayer now considering the Transaction are as follows:

•         The Taxpayer retired from his profession in 20XX and also intends to retire from farming in the next x-y months;

•         The Taxpayer intends to gradually pass the remainder of his farming land to his relative as part of his overall retirement and succession plans.

•         The Taxpayer has received an attractive offer.

Retirement

29.    As part of his overall retirement and succession plans, the Taxpayer intends to transfer the remaining Farmland to his relative, who also runs a cattle farming operation in close proximity. The Taxpayer and his wife intend to transfer the xx acres to their relative within the next few months.

30.    Originally, the Taxpayer and his wife intended to transfer the Farmland to their relative in stages to maintain some of the income received therefrom for their retirement. In light of the Transaction, there is no longer a need to further delay the transfer of the remaining Farmland, and the Taxpayer and his wife now intend to accelerate their plans in this regard.

31.    Whilst the Taxpayer is unsure for which purpose and extent he will use the proceeds from the Transaction, the Taxpayer envisages that he will use some of the proceeds for his next home and will invest a significant amount to fund his retirement, which in turn will allow him and his wife to transfer the remaining Farmland to their relative earlier than originally anticipated.

32.    The Taxpayer currently spends about x-y hours each day on cattle farming activities, which will significantly reduce as the remaining Farmland is transferred to his relative.

Information provided

33.    You have provided several documents containing detailed information in relation to the Taxpayer, including:

a.      Private Binding Ruling ('PBR') Application, dated xx YY 20XX

b.      Information provided following request for further information by ATO

34.    We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Assumption(s)

Not applicable.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Section 152-1

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-15

Income Tax Assessment Act 1997 Section 152-20

Income Tax Assessment Act 1997 Section 152-35

Income Tax Assessment Act 1997 Section 152-40

Income Tax Assessment Act 1997 Section 152-105

Income Tax Assessment Act 1997 Section 995-1

Further issues for you to consider

Not applicable.

REASONS FOR DECISION

All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.

SUMMARY - QUESTION 1:

The land known as the Property held by the Taxpayer, (aside from the component of the land containing his main residence and adjacent land) does satisfy the 'active asset test' as set out in section 152-35 of the ITAA 1997.

SUMMARY - QUESTION 2:

The Taxpayer does satisfy the other basic conditions to access the small business capital gains tax ('CGT') concessions as set out in section 152-10 of the ITAA 1997.

SUMMARY - QUESTION 3:

The Taxpayer is eligible to apply the small business 15-year exemption as set out in section 152-105 of the ITAA 1997 and is able to disregard the capital gain he will make on the sale of the Property in full.

DETAILED REASONING

35.    As stated in section 152-1 of the ITAA 1997, subdivision 152-A of the ITAA 1997 sets out the 'basic conditions' which must be satisfied in order for small business entities to qualify for any of the CGT small business concessions to reduce their capital gain by the various concessions in Division 152 of the ITAA 1997.

Basic conditions for small business concessions

36.    Subsection 152-10(1) of the ITAA 1997 sets out the basic conditions which must be satisfied for a capital gain to be reduced or disregarded under this Division, as follows:

A capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain:

(a)    a CGT event happened in relation to a CGT asset of yours in an income year;

(b)    the event would (apart from this Division) have resulted in the gain;

(c)    at least one of the following applies:

(i)      you are a CGT small business entity for the income year;

(ii)     you satisfy the maximum net asset value test (see section 152-15);

(iii)   you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership;

(iv)   the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year;

(d)    the CGT asset satisfies the active asset test in section 152-35.

Passively held assets - Partnerships

Section 152-10(1B) The conditions in this subsection are satisfied in relation to the CGT asset in the income year if:

(a)    you are a partner in a partnership in the income year; and

(b)    the partnership is a *CGT small business entity for the income year; and

(c)    you do not carry on a *business in the income year (other than in partnership); and

(d)    the CGT asset is not an interest in an asset of the partnership; and

(e)    the business you carry on as a partner in the partnership referred to in paragraph (a) is the business that you, at a time in the income year, carry on (as referred to in subparagraph 152-40(1)(a)(i) or paragraph 152-40(1)(b)) in relation to the CGT asset.

CGT Events and Assets

37.    As defined in section 995-1 of the ITAA 1997, a CGT event means any of the CGT events described in Division 104 of the ITAA 1997. A CGT event described by number (eg. CGT event A1) refers to the relevant event in that Division.

38.    Subsection 108-5(1) of the ITAA 1997, outlines a CGT asset to be:

(a) any kind of property; or

(b) a legal or equitable right that is not property.

39.    To avoid doubt, subsection 108-5(2) lists the following as CGT assets:

(a) part of, or an interest in, an asset referred to in subsection (1);

(b) goodwill or an interest in it;

(c) an interest in an asset of a partnership;

(d) an interest in a partnership that is not covered by paragraph (c).

CGT small business entity

40.    As defined in section 995-1 of the ITAA 1997, a CGT small business entity has the meaning given by subsection 152-10(1AA), as follows:

You are a CGT small business entity for an income year if:

(a) you are a small business entity for the income year; and

(b) you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million.

41.    As defined in section 995-1 of the ITAA 1997, a small business entity has the meaning given by subsection 328-110(1), as follows:

You are a small business entity for an income year (the current year) if:

(a) you carry on a business in the current year; and

(b) one or both of the following applies:

(i) you carried on a business in the income year (the previous year) before the current year and your aggregated turnover for the previous year was less than $10 million;

(ii) your aggregated turnover for the current year is likely to be less than $10 million.

42.    As defined in section 995-1 of the ITAA 1997, a business includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

43.    As defined in subsection 328-115 of the ITAA 1997, aggregated turnover is defined as the sum of all relevant annual turnovers. The relevant annual turnovers are outlined in subsection 328-155(2) and exclude any amounts covered by subsection 328-155(3).

44.    Section 328-120 of the ITAA 1997 sets out the meaning of annual turnover as follows:

An entity's annual turnover for an income year is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business.

45.    The term ordinary income is defined in section 6-5 of the ITAA 1997 as 'income according to ordinary concepts'. An entity's annual turnover therefore, includes all income according to ordinary concepts derived in the ordinary course of carrying on a business.

46.    The term 'in the ordinary course of carrying on a business' is not defined in the ITAA 1997. The term therefore, takes its ordinary meaning.

47.    In Doutch v FC of T [2016] FCAFC 166, which was an appeal against the decision of the AAT in respect of small business entity concessions, the Full Federal Court confirmed the following reasoning provided by the Tribunal:

70 The phrase "in the ordinary course of carrying on a business", as it appears in

s 328-120(1) of the ITAA 1997, is not defined in the ITAA 1997 and it is necessary to construe those words. In engaging in the exercise of statutory construction, the Court is to consider the text of the statute in context. The High Court in Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 observed as follows at [39]:

"This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text" [Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at 46 [47]]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.

48.    The extrinsic materials to which the High Court referred includes an explanatory memorandum, as follows:

72 The definition of "annual turnover" in s 328-120(1) of the ITAA 1997 was inserted into the ITAA 1997 by Tax Laws Amendment (Small Business) Act 2007 (TLASBA 2007). The "Explanatory Memorandum" to the Tax Laws Amendment (Small Business) Bill 2007 (EM), which Bill was ultimately enacted as the TSLABA 2007, commencing from the 2008 income year, states:

What does 'in the ordinary course of carrying on a business' mean?

2.15 In general, income is derived in the ordinary course of carrying on a business if the income is of a kind that is regularly or customarily derived by the entity in the course of carrying on its business, arising out of no special circumstance or event. Similarly, the income is derived in the ordinary course of carrying on a business if the income although not regularly derived, is a direct result of the normal activities of the business.

49.    Therefore, according to the EM, income is derived in the ordinary course of carrying on a business where:

(a) the income is of a kind that is regularly or customarily derived by an entity in the course of carrying on its business, arising out of no special circumstance or unusual event; and

(b) the income, although not regularly derived, is derived as a direct result of the normal activities of the business.

Maximum net asset value test

50.    The term maximum net asset value test is defined in section 152-15 of the ITAA 1997 as follows:

You satisfy the maximum net asset value test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000:

(a) the net value of the CGT assets of yours;

(b) the net value of the CGT assets of any entities *connected with you;

(c) the net value of the CGT assets of any *affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)).

51.    Section 152-20 of the ITAA 1997 sets out the meaning of net value of the CGT assets as follows:

The net value of the CGT assets of an entity is the amount (whether positive, negative or nil) obtained by subtracting from the sum of the market values of those assets the sum of:

(a) the liabilities of the entity that are related to the assets; and

(b) the following provisions made by the entity:

(i) provisions for annual leave;

(ii) provisions for long service leave;

(iii) provisions for unearned income;

(iv) provisions for tax liabilities.

Active asset test

52.    Section 152-35 of the ITAA 1997 outlines the active assets test, as follows in subsection 152-35(1):

A CGT asset satisfies the active asset test if:

(a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period specified in subsection (2); or

(b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years during the period specified in subsection (2).

53.    Further, subsection 152-35(2) of the ITAA 1997 outlines that the period:

(a) begins when you acquired the asset; and

(b) ends at the earlier of:

(i) the CGT event; and

(ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business.

54.    Section 152-40 of the ITAA 1997 outlines the meaning of active asset at subsection 152-40(1) as follows:

A CGT asset is an active assetat a time if, at that time:

(a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by:

(i) you; or

(ii) your affiliate; or

(iii) another entity that is connected with you; or

(b) if the asset is an intangible asset - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you.

15-year exemption for individuals

55.    As stated in section 152-100 of the ITAA 1997, subdivision 152-B of the ITAA 1997 sets out that a CGT small business entity can disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met.

56.    Section 152-105 of the ITAA 1997 outlines the 15-year exemption for individuals as follows:

If you are an individual, you can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied:

(a)     the basic conditions in Subdivision 152-A are satisfied for the gain;

(b)     you continuously owned the *CGT asset for the 15-year period ending just before the CGT event;

Note: Section 152-115 allows for continuation of the period if there is an involuntary disposal of the asset.

(c)   if the CGT asset is a share in a company or an interest in a trust-the company or trust had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which you owned the CGT asset;

(d)   either:

(i)     you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or

(ii)    you are permanently incapacitated at the time of the CGT event.

Primary production business

57.    Subdivision 995-1(1) of the ITAA 1997 defines a 'primary production business' as:

'you carry on a primary production business if you carry on a business of:

(a)    cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or

(b)    maintaining animals for the purpose of selling themor their bodily produce (including natural increase); or

(c) manufacturing dairy produce from raw material that you produced; or

(d) conducting operations relating directly to taking or catching fish, turtles, dugong, bêche-de- mer, crustaceans or aquatic molluscs; or

(e) conducting operations relating directly to taking or culturing pearls or pearl shell; or

(f) planting or tending trees in a plantation or forest that are intended to be felled; or

(g) felling trees in a plantation or forest; or

(h) transporting trees, or parts of trees, that you felled in a plantation or forest to the place:

(i) where they are first to be milled or processed; or

(ii) from which they are to be transported to the place where they are first to be milled or processed.

58.    Paragraph 9 of Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production' ('TR 97/11') provides that:

A person is carrying on a business of primary production for the purposes of the ITAA 1997 if:

a.      he/she produces 'primary production', as defined in subsection 995-1(1) of the ITAA 1997; and

b.      that activity amounts to the carrying on of a business.

60.   Paragraph 13 of TR 97/11 provides an overview of the Commissioner of Taxation's (the 'Commissioner') view of the factors used to determine if you are in business for tax purposes. Paragraph 13 notes that:

"The courts have held that the following indicators are relevant:

•         whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

•         whether the taxpayer has more than just an intention to engage in business;

•         whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

•         whether there is repetition and regularity of the activity;

•         whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

•         whether the activity is planned, organised and carried on in a business-like manner such that it is directed at making a profit;

•         the size, scale and permanency of the activity; and

•         whether the activity is better described as a hobby, a form of recreation or a sporting activity."

61.   The Commissioner notes in paragraphs 15 and 16 of TR 97/11 as follows:

"15. We stress that no one indicator is decisive (Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922), and there is often a significant overlap of these indicators. For example, an intention to make a profit will often motivate a person to carry out the activity in a systematic and organised way, so that the costs are kept down, and the production and the price obtained for the produce are increased."

"16. The indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the 'large or general impression gained' (Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' (Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case."

APPLICATION TO YOUR CIRCUMSTANCES

Question 1:

59.    For the purpose of this private ruling, a determination is to be made whether the land known as the Property held by the Taxpayer, satisfies the 'active asset test' for the CGT small business concessions pursuant to section 152-35 of the ITAA 1997 when the Property is sold in the 20XX financial year.

60.       Section 152-40 of the ITAA 1997 outlines the meaning of active asset at subsection 152-40(1) as follows:

A CGT asset is an active asset at a time if, at that time:

(a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on...

61.    Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? ('TR 97/11') provides the Commissioner's view of the factors used to determine if a taxpayer is in business for tax purposes. Its principles are not restricted to questions of whether a primary production business is being carried on.

62.   Paragraph 13 of TR 97/11 provides an overview of the Commissioner of Taxation's (the 'Commissioner') view of the factors used to determine if you are in business for tax purposes. Paragraph 13 notes that:

"The courts have held that the following indicators are relevant:

•         whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

•         whether the taxpayer has more than just an intention to engage in business;

•         whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

•         whether there is repetition and regularity of the activity;

•         whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

•         whether the activity is planned, organised and carried on in a business-like manner such that it is directed at making a profit;

•         the size, scale and permanency of the activity; and

•         whether the activity is better described as a hobby, a form of recreation or a sporting activity."

62.    The period for determining if the Taxpayer's Property satisfies the active asset test begins in 19XX, when the Taxpayer acquired the Property and ends at the time of the CGT event occurring at the time the Taxpayer disposes of the Property. Therefore, the applicable period is in excess of xx years.

63.    The Property will qualify as an active asset at a time when the Taxpayer owned the Property and used it, or held it ready for use, in the course of carrying on a business that was carried on (whether alone or in partnership) by the Taxpayer unless the Property's main use was to derive rent.

64.    The Property was used by the Taxpayer and more recently by the Taxpayer in partnership since 19YY, about a year after the Taxpayer acquired the Property.

65.    The predominant use of the Property at all material times from about 19YY was the cattle farming activities described in the background facts. This has been the case at times when the Taxpayer operated these farming activities solely or in partnership.

66.    The cattle farming activities carried on from 19YY to date meet a number of the indicators for carrying on a business set out in Paragraph 13 of TR 97/11. In particular:

•         The size and scale of the Taxpayer's farming operations have always been material as evidenced by the average number of cattle maintained, annual expenditures incurred, and annual levels of sales revenue. These all objectively indicate a commercial character or purpose.

•         The farming activities have been carried on constantly by the Taxpayer and more recently the Partnership, for more than xx years. This indicates significant long-term regularity and repetition of activity.

•         The Taxpayer has always kept accurate accounting records of expenditure and sales and in relation to the cattle farming operations. The Taxpayer previously held an ABN and was registered for GST. More recently the partnership of the Taxpayer and his wife obtained an ABN and are GST registered. The Taxpayer has always disclosed assessable income and deductions in the business schedule of his income tax return. The Taxpayer's detailed record keeping, tax registrations, and compliance with tax reporting obligations, all objectively support a business-like approach to his cattle farming activities.

•         The investment of personal time of the Taxpayer in the cattle farming activities has always been considerable, even when he was also formerly engaged in another profession. Now that the Taxpayer has ceased that profession he personally still spends on average around x-y hours per day working on the cattle farming activities. He is also personally trained and credentialled in various aspects of cattle farm operations, and regularly engages other consultants and experts as required in relation to matters relating to these operations. His personal time commitment, professional farming credentials, and regular engagement of other experts are objectively consistent with someone engaged in a business operation as distinct from a mere hobby or pastime.

•         The Taxpayer has traded, and more recently the Partnership trades, under the business name "XYZ". This is a further indicator to the general public of the conduct of a business operation.

67.    When these indicators are considered in combination and as a whole, it should be concluded that the Taxpayer historically always has, and more recently the Partnership is, carrying on a cattle farming business. Therefore, the Property will qualify as an active asset during this time, being a period in excess of xx years.

68.    This is more than the maximum required active asset period of x years (where the CGT asset has been owned for yy years or more). Consequently, the Property satisfies the active asset test for the purposes of Division 152.

Question 2:

69.    In applying the criteria of Subdivision 152-A of the ITAA 1997 as authority, as outlined above in the 'Detailed Reasoning' section, the basic conditions as set out in subsection 152-10(1) of the ITAA 1997 will be assessed regarding the Taxpayer's circumstances.

70.    There are a number of basic conditions which must be satisfied for a capital gain to be reduced or disregarded under this Division.

71.    The basic conditions for relief are contained in section 152-10 of the ITAA 1997, which are:

a) A CGT event happens in relation to a CGT asset of yours in an income year;

b) The event would (apart from this Division) have resulted in the gain;

c) The conditions mentioned in subsection (1B) are satisfied in relation to the CGT asset in the income year;

d) The CGT asset satisfies the active asset test.

72.    An entity is a CGT small business entity for an income year if:

a) It is a small business entity for the income year; and

b) It would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million.

73.    Subsection 152-10 (1B) provides that the conditions in this subsection are satisfied in relation to a CGT asset in the income year if:

a) You are a partner in a partnership in the income year; and

b) The partnership is a CGT small business entity for the income year; and

c) You do not carry on a business in the income year (other than in partnership); and

d) The CGT asset is not an interest in an asset of the partnership; and

e) The business you carry on as a partner in the partnership referred to in paragraph a) is the business that you, at a time in the income year, carry on in relation to the CGT asset.

74.    The sale of the Property triggers CGT event A1 - disposal of a CGT asset and the sale proceeds are expected to substantially exceed the CGT asset's cost base, resulting in the Taxpayer making a substantial gain.

75.    For the purposes of Question 1 above, it has already been established that the Partnership, in which the Taxpayer is a partner, carries on a cattle farming business in relation to the Property. On the basis that the Partnership's aggregated turnover is expected to be below $2 million for the 20XX year, the Partnership will be a CGT small business entity for the 20XX and 20YY income years.

76.    The Taxpayer does not carry on a business in the 20XX income year (other than in Partnership) and the Property is not an interest in an asset of the Partnership.

77.    Lastly, the Property satisfies the active asset test as established in Question 1 above.

78.    Consequently, the Taxpayer will satisfy all the basic conditions as set out in section 152-10 of the ITAA 1997 and is eligible to access the small business capital gains tax concessions.

Question 3:

79.    The conditions applicable to the 15-year exemption for individuals are contained in section 152-105 of the ITAA 1997, which are as follows:

a) The basic conditions in Subdivision 152-A are satisfied for the gain;

b) You continuously owned the CGT asset for the 15-year period ending just before the CGT event;

c) If the CGT asset is a share in a company or an interest in a trust - the company or trust had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which you owned the CGT asset;

d) Either:

i. You are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or

ii. You are permanently incapacitated at the time of the CGT event.

80.    The Taxpayer will satisfy the basic conditions as established in Questions 1 and 2 above. At the time of sale, the Taxpayer will be over 55 and will have owned the Property for the 15-year period ending just before the CGT event (sale).

81.    The Taxpayer has recently retired from his profession and is now also looking to retire from his farming business activities. The offer for the sale of the Property has been received at a time when the Taxpayer was contemplating the transfer of a substantial portion of the farming land to his son, who will take over the farming operations. In light of the Transaction, the Taxpayer will accelerate his plans in that regard and envisages that he will significantly reduce his duties and involvement in the farming activities in the short term and cease all duties within the next x-y months. As such, the sale will happen in conjunction with a significant reduction in his working hours.

82.    In addition, a significant amount of the proceeds from the Transaction will be used to fund the Taxpayer's retirement. Accordingly, the sale of the Property can be considered to happen in connection with the Taxpayer's retirement.

83.    Consequently, the Taxpayer will satisfy all the relevant conditions as set out in section 152-105 of the ITAA 1997. The Taxpayer is eligible to access the 15-year exemption and disregard the capital gain he will make on the sale of the Property in full.