Edited version of private advice

Authorisation Number: 1052208831403

Date of advice: 29 January 2024

Ruling

Subject: CGT - small business concessions

Question 1

Does the trustee of the trust, satisfy the basic conditions for the availability of small business relief from capital gains tax set forth in Subdivision 152-A 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 property is used in a business carried on by a small business entity that is a connected entity of the trust. The property 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 connected entity for more than 7.5 years. As such, the trust satisfies the small business CGT basic conditions for the disposal of the property.

Question 2

Where the answer to question 1 is positive, does the trustee of the trust satisfy the extended conditions for the availability of specific relief from capital gains tax set forth 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.

Question 3

Where the answers to both question 1 and question 2 are positive, will any payment made by the trustee to spouse A, sourced from the disregarded capital gain be excluded from their assessable income under section 152-125 of the ITAA 1997 if it is made within 2 years of the CGT event happening?

Answer

Yes. The capital gain made on the disposal of the property is exempt and the trust will make one or more payments relating to the exempt amount to a CGT concession stakeholder within 2 years of the CGT event. Spouse A will be a concession stakeholder just before the CGT event. Therefore, the payments will be exempt and not included in their assessable income.

Question 4

Where the answer to question 1 is positive but the answer to question 2 negative, does the trustee of the trust satisfy the conditions for the availability of specific relief from capital gains tax set forth in Subdivision 152-C of the ITAA 1997?

Answer

Not applicable.

Question 5

Where the answer to question 1 is positive but the answer to question 2 negative, does the trustee of the trust satisfy the conditions for the availability of specific relief from capital gains tax set forth in Subdivision 152-D of the ITAA 1997?

Answer

Not applicable.

This private ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

Spouse A is over 55 years old.

Spouse A was raised on farming properties and throughout their adult life has been a farmer.

Spouse A married spouse B, (the deceased). The deceased died over 9 years ago.

By deed of settlement over 50 years ago, the trust was established as a discretionary trust with company A, as settlor and company B as trustee.

Some 30 years ago, company B was replaced as trustee by another company C (the trustee). The trustee is a company incorporated in the financial year 19XX-XX, 100% of the shares in which are owned by spouse A.

Company D is a company which was incorporated in the 19XX-XX financial year, the shares of which remain jointly owned by spouse A and the estate of the deceased. Spouse A is entitled to 50% of dividend distributions and 50% of its capital upon winding up.

Company D has no affiliates.

Company D carries on a business and its aggregated turnover is less than $Xm.

Over XX years ago, the trustee purchased a property, (the property) on behalf of the trust and is suitable for farming and contains a large main residence, secondary residences and buildings used in the farming business.

Upon its acquisition, the trustee entered into an unwritten agreement with company D for the latter to use the property in its farming business. Company D paid a fee to farm the land and was later discontinued and recontinued at different points. Lease fees have been paid by company D to the trustee in recent years.

Based upon an appraisal in the 20XX/XX financial year, the property's value has increased in the region of $XX million to $XX million from the date of acquisition.

The trust doesn't carry on a business.

In the year ended 30 June 20XX, the trust entirely distributed its trust law and tax law income to spouse A.

In the year ended 30 June 20XX, the trustee of the trust also has resolved to distribute 100% of its income to spouse A.

The trust has had a significant individual for a total of at least 15 years during the ownership period.

Spouse A is stepping back from their role as the provider of the primary source of labour to company D and has engaged a family member to take over from them.

Additionally, spouse A is conscious of their mortality and before they die, their wish is for the trust to transfer the property to them in their capacity as a beneficiary of the trust estate. This is so that the property may form part of their testamentary estate, and upon their passing, may be devised under the terms of their will to their children. However, should the trust be incapable of disregarding the capital gain that would arise from the proposed transfer, then the transfer will not proceed.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 section152-40

Income Tax Assessment Act 1997 section 152-55

Income Tax Assessment Act 1997 section 152-60

Income Tax Assessment Act 1997 section 152-78

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 section 152-125

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-D

Income Tax Assessment Act 1997 section328-110

Income Tax Assessment Act 1997 section 328-115

Income Tax Assessment Act 1997 section 328-125

Income Tax Assessment Act 1997 section 328-130