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Edited version of private advice
Authorisation Number: 1052072450067
Date of advice: 20 December 2022
Ruling
Subject: CGT - small business concessions
Question
Can the in-specie transfer of the farmland from Company Pty Ltd to the related Family Trust, which triggers the CGT event eligible for the 15-year exemption, and subsequent vesting of the land from the Family Trust to the related significant individual, be treated as a payment of the CGT exempt amount to the CGT concession stakeholder under section 152-125 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Company Pty Ltd owns land.
100% of the shares in Company Pty Ltd are currently held by the related Family Trust.
Related individual X is under 55 years old and is permanently incapacitated. They are indirectly a significant individual of Company Pty Ltd, and directly a significant individual of the Family Trust for the 20XX financial year.
The company will transfer the land will be transferred in-specie to the Family Trust which will trigger a CGT event.
The land will then be vested from the Family Trust to individual X.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-125
Under section 152-125 of the ITAA 1997 if a capital gain made by a company or trust is disregarded under the small business 15-year exemption any distributions made by the company or trust of the exempt amount to the CGT concessions stakeholders are:
• not included in the assessable income of the CGT concession stakeholders, and
• not deductible to the company or trust
if certain conditions are satisfied.
The provision requires the company or trust to make a payment to an individual (whether directly or indirectly through one or more interposed entities) within 2 years of the relevant CGT event. The payment must be made to an individual who was a CGT concession stakeholder of the company just before the CGT event. Further, as per subsection 152-125(2) of the ITAA 1997, the payment must not exceed an amount determined by multiplying the CGT concession stakeholder's participation percentage by the exempt amount.
Application to your circumstances
In this case Company Pty Ltd is transferring land to the Family Trust which results in a CGT event eligible for the 15-year exemption. The Family Trust then intends to transfer the land to individual X. We do not consider that the transfer from the trust to individual X will satisfy the requirements of 152-125 of the ITAA 1997 and be considered a payment of the exempt amount.
The relevant provision requires the company to disregard a capital gain (the exempt amount) under the 15-year exemption. It then allows the company to make a payment of this exempt amount to the relevant CGT concession stakeholders. We consider that the payment of the exempt amount must be separate to the transfer of the property.
In addition to the above, even if we did consider the property could be considered a payment it would not meet the requirements of subsection 152-125(2) of the ITAA 1997 as the value of the property would be more than the exempt amount.