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Edited version of private advice
Authorisation Number: 1052176867391
Date of advice: 27 October 2023
Ruling
Subject: CGT - small business - 15-year exemption
Question 1
Does the disposal of the land constitute the mere realisation of a capital asset, with the taxation implication to be determined exclusively under the Capital Gains Tax (CGT) provisions contained in Part 3-1 of the ITAA 1997?
Answer
Yes. The land was only used for farming and as a family home. The transaction was not entered into, and the profit was not made in the course of carrying on a business or in carrying out a business operation or commercial transaction. Therefore, the disposal of the property is a mere realisation of a capital asset, and the proceeds will be determined under the CGT provisions contained in Part 3-1 of the ITAA 1997.
Question 2
Will the capital gain arising under CGT Event A1 satisfy the requirements of section 152-105 contained within the Small Business 15-year exemption in subsection 152-B of the ITAA 1997, specifically the 'in connection with retirement' requirement?
Answer
Yes. You are a partner in a partnership that is a CGT small business entity for the income year and the land is used in the partnership. You have owned the asset for more than 15 years and it was used in the partnership for the entire ownership period. The land was continuously owned for a 15-year period before the CGT event. You are over 55 years old and intend on retiring after the settlement of the sale of the land.
This ruling applies for the following period:
Year Ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You have carried on a grazing business in partnership since the land was acquired and for more than 15 years.
The land was also the family home from date of acquisition.
The only plan or intention for the land on its acquisition was that it be used for farming and as the family home.
In 20XX a contract of sale was executed for the undeveloped land.
Settlement is to take place in 20XX.
You intend to retire following the sale of the land.
You intend to continue the farming operation until settlement.
At the time of settlement, you will be over 55 years old. It is intended that you will retire completely after settlement and no longer carry on any income producing activities.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-10
Income Tax Assessment Act 1997 section 152-35
Income Tax Assessment Act 1997 Subdivision 152-B
Income Tax Assessment Act 1997 section 152-105
Income Tax Assessment Act 1997 Part 3-1