Edited version of private advice

Authorisation Number: 1052162125199

Date of advice: 29 August 2023

Ruling

Subject: CGT - small business concessions

Question 1

Does the property satisfy the active asset test under subsection 152-35(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. A comparative analysis on the mixed use of the property on both an area and income basis show that the majority of the business turnover and area was used for the related business activity rather than to derive rent. The property satisfies the active asset test as it has been used by a connected entity in running a business for over 7.5 years while being owned for over 15 years.

Question 2

Will you satisfy the conditions in section 115-25 of the ITAA 1997 to apply the discount capital gain you made from the capital gain in disposal of the property?

Answer

Yes. Since you have owned the property for more than 12 months before the disposal had occurred, you can apply the capital gain discount to the capital gain you made from the disposal from the property.

Question 3

Will you satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 to be able to apply the small business capital gains tax (CGT) concessions to the disposal of the property?

Answer

Yes. A CGT event will happen when you dispose of the property, and you will make a capital gain on the disposal. You meet the maximum net asset value test. The property satisfies the active asset test as it has been owned for more than 15 years and was an active asset of yours for a total of at least 7.5 years. Further information about the small business CGT concessions can be found by searching for 'QC 22655' on ato.gov.au

Question 4

Will you satisfy the conditions in section 152-205 of the ITAA 1997 to apply the small business CGT 50% active asset reduction?

Answer

Yes. As you meet the basic conditions to apply the small business CGT concessions you are automatically entitled to apply the 50% active asset reduction, unless choose you it not to apply. Further information about the 50% active asset reduction concession can be found by searching for 'QC 52289' on ato.gov.au

Question 5

Will you satisfy the conditions in section 152-305 of the ITAA 1997 to apply the small business retirement exemption to a capital gain made on the disposal of the property?

Answer

Yes. As you meet the basic conditions to apply the small business CGT concessions and you are over 55, you can choose to disregard up to the lifetime limit of $500,000 per individual, or CGT concession stakeholder for a company or trust. You must keep a written record of the amount you choose to disregard (the CGT exempt amount). Further information about the small business retirement exemption can be found by searching for 'QC 52290' on ato.gov.au.

This ruling applies for the following period

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased the property.

The majority of the premises was used in business by a related family trust of which the beneficiaries were you and your spouse.

A comparative analysis based on information you provided shows that the rental income received for part of the property over an 8-year period consisted of approximately 3-4% of total business turnover. And approximately 25% of the business floor space was rented out to external third parties.

You sold the business in July 20XX.

You retired in September 20XX.

In July 20XX you rented the majority of the premises to the purchaser of the business with a verbal understanding that they would continue to rent the premises until they were financially ready to purchase the property as well as giving time to move to that location and settle in.

On DDMM 20XX you sold the premises

Another portion of the business was also rented to an unrelated business from the time of purchase until the time of sale.

You were over 60 years old at the time of retirement.

You satisfy the Maximum Net Asset Value (MNAV) test.

You have not previously accessed any of the $500,000 personal lifetime limit applicable to the small business retirement exemption.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 115-25

Income Tax Assessment Act 1997 Section 152- 205

Income Tax Assessment Act 1997 Subsection 152-35(1)

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subdivision 152-D