Edited version of private advice

Authorisation Number: 1052169741717

Date of advice: 3 October 2023

Ruling

Subject: CGT - small business concessions

Question 1

Will the disposal of the land satisfy the small business CGT concessions basic conditions in section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. A CGT event will occur resulting in a capital gain. The trust does not carry on a business, but the land is used in a business carried on by a small business entity that is the trust's affiliate. The land is an active asset because the trust has owned it for more than 15 years and it has been used in a business carried on by the trust's affiliate for more than 7.5 years. As such, the trust satisfies the small business CGT basic conditions for the disposal of the land.

Question 2

Will the disposal of the land satisfy the 15-year exemption in Subdivision 152-B of the ITAA 1997?

Answer

Yes. The trust satisfies the basic conditions. The trust continuously owned the land for the 15-year period ending just before the CGT event. The trust had a significant individual for a total of at least 15 years, and the significant individual at the time of the CGT event was over 55 years old and the event was in connection with their retirement. As such, the capital gain on the disposal of the land can be disregarded.

This ruling applies for the following periods:

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

The beneficiaries of the trust are Person A, Person B, and 4 other persons.

The sole shareholder of the trustee company is Person A.

The trust does not carry on a business.

The trust owns property. The related entity began leasing the property from the trust for its own primary production business. Person B is the sole shareholder of the related entity. The director is Person A.

The trust decided to list the property for sale by expression of interest.

The related entity will progressively reduce the number of livestock maintained on the land after its sale and eventually will no longer require the land for its livestock activity.

The business activities of the trust and the activities of the related entity occur in concert with each other at all times.

The related entity is a small business entity and the aggregated turnover of the entity will be less than $2m turnover in the 20XX and 20XX income years.

Person A is over 55 years old, and presently involved in managing the livestock business carried on by the related entity and recently retired from other employment.

Person B is over 55 years old and will retire as a result of the property sale.

The trustee company nominated Person A and Person B to be controllers of the trust for the relevant years.

The trust made a distribution of income to Person B in the 20XX income year of at least XX%. In the 20XX income year the trust made a distribution of income of XX% to each Person A and Person B.

If the trust has net income in any of the 20XX and 20XX income years, the trust distributions for that year will be XX% each to Person A and Person B.

If no net income is reported in the 20XX or 20XX years, the trust will nominate Person A and Person B as being controllers of the trust.

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 Subdivision 152-B