Edited version of private advice

Authorisation Number: 1052219481086

Date of advice: 5 April 2024

Ruling

Subject: Capital gains tax - 15-year exemption

Question 1

Do you satisfy the basic conditions for relief in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of the property?

Answer

Yes, the basic conditions in subsection 152-10(1) of the ITAA 1997 are satisfied. A capital gains tax (CGT) event will occur when you sell the property, which will result in a capital gain. You will be a CGT small business entity for the income year. The active asset test under section 152-35 of the ITAA 1997 is satisfied as the asset was owned for more than 15 years and was used in your farming business as an active asset for more than 7.5 years during the ownership period.

Question 2

Can you disregard the capital gain made on the sale of the property pursuant to section 152-105 of the ITAA 1997?

Summary

Yes, the small business CGT concessions basic conditions have been met, you have owned the property for over 15 years, you will be over 55 at the time of the CGT event, and the CGT event will be in connection with your retirement. Therefore, you satisfy the requirements to apply the small business 15-year exemption to the disposal of the property.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The property was originally owned by a family company that was established by your parent.

The property has been used in the farming enterprise by the family company since before 1985.

Following the liquidation of the company in or about 19XX, you acquired the property from the company.

The property was and still is used in the farming enterprise operating a livestock business that has been carried on by you as a sole trader since the property was acquired by you.

The property is X hectares in size, and you currently have X head of livestock.

Various improvements were carried out on the property including the construction of storage sheds, fencing and cattle yards, installation and maintenance of water dam.

You reside at the property and as per the contract of sale you will remain residing at the property after the property is sold.

You entered into a contract of sale with the purchaser in the financial year ending 30 June 20YY, the purchaser intends on developing the land.

You will have no involvement other than owning a minority interest among many others in the purchaser entity. This minority interest will entitle you to a vote on decisions based on your ownership interest.

You made no improvements to the property in relation to the development.

You worked X hours per week up until the financial year ending 30 June 20YY, when you became ill, and you have reduced your hours to less than X hours per week and are completely retiring.

You will be a small business entity in the year the property is sold.

You are over the age of 55 at the time of the CGT event.

The aggregated turnover of the farming business has at all relevant times been less than $2 million per income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 152-A

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-105