Edited version of private advice

Authorisation Number: 1052198369685

Date of advice: 30 November 2023

Ruling

Subject: CGT - small business concessions

Question 1

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

Answer

Yes.

An entity may choose to apply the small business relief set out in Division 152 of the ITAA 1997 to reduce or disregard a capital gain if the basic conditions set out in Subdivision 152-A are satisfied. The basic conditions under subsection 152-10(1) of the ITAA 1997 being:

(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)  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 CGT small business entity for the income year and the CGT asset is an interest in 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 (see section 152-35).

A CGT event occurred when you disposed of the property, and you made a capital gain on the disposal. You are a CGT small business entity (SBE). The property satisfies the active asset test as it had been owned for less than 15 years or less and for more than half of the ownership period was an active asset, that was used in your SBE.

Further information about the small business CGT concessions can be found by searching for 'QC 22655' on ato.gov.au.

Question 2

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

Answer

Yes.

As the partnership satisfied all the basic conditions in subsection 152-10(1) of the ITAA 1997, you are eligible to apply the small business 50% active asset reduction to reduce the amount of capital gain remaining after applying Step 3 of the method statement in subsection 102-5(1) of the ITAA 1997, unless you choose not to apply it.

Further information about the 50% active asset reduction concession can be found by searching for 'QC 52289' on ato.gov.au.

Question 3

Do the partners each 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 Lot B?

Answer

Yes.

As the basic conditions in Subdivision 152-A of the ITAA 1997 have been satisfied for the capital gain made on disposal of the property, and you were over 55 years of age at the time the choice is to be made, the requirements in subsection 152-305(1) are satisfied, entitling you to choose to apply the small business retirement exemption.

You can choose to disregard up to the lifetime limit of $500,000 per individual. You must keep a written record of the CGT exempt amount you choose to disregard.

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 ended 30 June 20XX

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

Person A and Person B purchased 2 lots of land - Lot A and Lot B, for a combined sum of money.

Person A and Person B entered into a partnership agreement and registered the partnership for goods and services tax (GST) and proceeded to prepare the property for a primary production business.

The primary production business was operated out of the partnership which utilised the land owned by the 2 individuals.

The business was in operation for less than 15 years.

During ownership of the land the partnership contoured banks, planted trees, and fenced the property to protect livestock.

The partnership also conducted regular weed and feral animal control activities on the property.

The business was commercially viable.

A taxable profit was made in the year ended 30 June 20XX.

The individuals live on another property and Lot A and Lot B were not used for any other purpose.

Lot B sold during the 2022-23 financial year through a private sale.

At the time of the CGT event, both partners were over 55 years of age.

The partnership is a CGT SBE with an aggregated turnover of less than $2 million.

The partners have not applied the SBE retirement exemption in the past.

The business is still in operation utilising Lot A.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 152-A

Income Tax Assessment Act 1997 subsection 152-10(1)

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

Income Tax Assessment Act 1997 subsection 152-40(1)

Income Tax Assessment Act 1997 subsection 152-35(2)

Income Tax Assessment Act 1997 section 152-205

Income Tax Assessment Act 1997 subsection 102-5(1)

Income Tax Assessment Act 1997 section 152-305