Edited version of private advice

Authorisation Number: 1052221042577

Date of advice: 22 March 2024

Subject: CGT - sale of property

Issues

Question

Did each Taxpayer satisfy the requirements in section 152-105 of the ITAA 1997 to apply the 15-year exemption with respect to their X% interest in the Property in relation to the sale of the Property?

Answer

Yes.

This ruling applies for the following periods:

1 July XXXX to 30 June XXXX

Relevant facts and circumstances

The Property

Individual A and Individual B (collectively the Taxpayers) purchased the Property on XXXX for $X, as tenants in common (with Individual A and Individual B each having a 50% interest in the Property).

The Taxpayers first started earning rental income from the Company from XXXX until the business was sold in XXXX. The Company paid rent at market rates to the Taxpayers each year.

The Property was then rented to the purchaser of the business until the Property was sold in XXXX.

The Taxpayers sold the Property for $X. The contract of sale was entered into on XXXX (CGT Event). The sale was completed on XXXX.

Individual A

Individual A is a director of the Trustee Company.

Individual A was a director and an employee of the Company.

Individual A began operating a new business in XXXX. Individual A operates X, a business specialising in producing X produce:

•         It is a significant commercial activity.

•         There is an intention to make a profit to supplement Individual A's retirement income.

•         The activity is systematic, organised and carried on in a business like manner.

•         There is a business plan. The business has been making a profit and is forecast to continue making a profit.

•         The activity is regular and recurring.

•         Individual A has the relevant knowledge or skill to carry out an activity.

•        There is commercial sale of a product.

Individual A's aggregated turnover was less than $2 million in the XXXX and XXXX income years (i.e. Individual A's aggregated turnover is less than $2m in the income year in which the Taxpayers entered into the contract to dispose of the Property and the previous income year).

Individual A's engagement in their businesses involves significantly reduced hours compared with their time at the Company.

Individual A was over 55 years of age at the time of the CGT event.

Individual B is Individual A's spouse.

Individual B

Individual B is a director of the Trustee Company.

Individual B was a director (from XXXX to XXXX) and an employee of the Company

Individual B continued operating their own business which they had begun in XXXX. Individual B operates X, a business specialising mainly in providing X:

•         It is a significant commercial activity.

•         There is an intention to make a profit to supplement Individual B's retirement income.

•         The activity is systematic, organised and carried on in a business like manner.

•         There is a business plan. The business has been making a profit and is forecast to continue making a profit.

•         The activity is regular and recurring.

•         Individual B has the relevant knowledge or skill to carry out an activity.

•         There is commercial sale of a product.

Individual B's aggregated turnover was less than $2 million in the XXXX and XXXX income years (i.e. Individual B's aggregated turnover is less than $2m in the income year in which the Taxpayers entered into the contract to dispose of the Property and the previous income year).

Individual B's engagement in their businesses involves significantly reduced hours compared with his time at the Company.

Individual B was over 55 years of age at the time of the CGT event.

Individual A is Individual B's spouse.

The Company

The Company operated a business out of the Property from XXXX to XXXX. The Company conducted business affairs in accordance with the directions and wishes of the directors for relevant years.

The historical share structure is as follows:

Pre 1 July XXXX:

Individual A:

•         X X Class Shares

•         X X Class Shares

•         X Ordinary Shares

Individual B:

•         X X Class Shares

•         X X Class Shares

•         X Ordinary Shares

Post 1 July XXXX

Only ordinary shares were on issue and 100% owned by the Holding Company, which in turn is owned 100% by the Trustee Company as trustee for the Family Trust.

The Company's aggregated turnover was less than $2 million in the XXXX and XXXX income years (i.e. the Company's aggregated turnover is less than $2m in the income year in which the Taxpayers entered into the contract to dispose of the Property and the previous income year).

Family Trust

The corporate trustee of the Trust is the Trustee Company

Individual A and Individual B are beneficiaries of the Trust.

History of trust distributions:

Table 1: family trust distribution

The combined net asset values of Individual B, Individual A and the Trust (and any other relevant entity - but excluding any superannuation fund) is more than $6 million.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 subsection 152-105

Income Tax Assessment Act 1997 section 328-110

Income Tax Assessment Act 1997 section 328-125

Reasons for decision

Question

Did each Taxpayer satisfy the requirements in section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply the 15-year exemption with respect to their X% interest in the Property in relation to the sale of the Property?

Summary

As the requirements in section 152-105 of the ITAA 1997 have been satisfied, the capital gain from the sale of the Property can be disregarded for the purposes of Subdivision 152-B of the ITAA 1997.

Detailed reasoning

Small business 15-year exemption for individuals

Subdivision 152-B of the ITAA 1997 allows a CGT small business entity to disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met.

Relevantly, for an individual, section 152-105 of the ITAA 1997 provides:

152-105 15-year exemption for individuals

If you are an individual, you can disregard any *capital gain arising from a *CGT event if all of the following conditions are satisfied:

(a) the basic conditions in 152-A are satisfied for the gain;

(b) you continuously owned the *CGT asset for the 15-year period ending just before the CGT event;

...

(d) either:

(i) you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or

(ii) you are permanently incapacitated at the time of the CGT event.

Basic conditions in Subdivision 152-A of the ITAA 1997

Subsection 152-10(1) of the ITAA 1997 sets out the basic conditions.

A *capital gain (except a capital gain from *CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain:

(a) a *CGT event happens in relation to a *CGT asset of yours in an income year;

Note: This condition does not apply in the case of CGT event D1: see section 152-12.

(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).

The following requirements are relevant in these circumstances.

CGT event giving rise to a capital gain

Section 102-20 of the ITAA 1997 provides that a capital gain or capital loss is made if a CGT event happens to a CGT asset.

The Property is a CGT asset (section 108-5 of the ITAA 1997).

Relevantly, under subsection 104-10(1) of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset.

Under subsection 104-10(2) of the ITAA 1997, you dispose of a CGT asset when a change of ownership occurs from you to another entity.

The effect of CGT event A1 happening is that you make a capital gain if the capital proceeds from the disposal are more than the asset's costs base or a capital loss if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(5) of the ITAA 1997).

The time of the event is when you enter into the contract for the disposal, or, if there is no contract, when the change occurs (subsection 104-10(3) of the ITAA 1997).

Small business entity

If you carry on a business (other than in partnership) you cannot rely on subsection 152-10(1A) to satisfy the requirements of Subdivision 152-10 of the ITAA 1997. In that case, the small business entity test under paragraph 152-10(1)(c)(i) would apply to determine to your eligibility to the small business CGT concessions in Division 152 of the ITAA 1997.

Pursuant to subsection 152-10(1AA) of the ITAA 1997, you are a CGT small business entity for an income year if:

a)            you are a small business entity for the income year; and

b)            you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million.

As defined in section 995-1 of the ITAA 1997, a small business entity has the meaning given by subsection 328-110(1) of the ITAA 1997, as follows:

You are a small business entity for an income year (the current year) if:

a)            you carry on a business in the current year; and

b)            one or both of the following applies:

i)              you carried on a business in the income year (the previous year) before the current year and your aggregated turnover for the previous year was less than $10 million;

ii)             your aggregated turnover for the current year is likely to be less than $10 million.

Taxation Ruling TR 97/11 Am I Carrying on a Business of Primary Production (TR 97/11) discusses the relevant indicators to consider in determining whether a taxpayer's activities amount to carrying on a primary production business and these indicators are equally relevant when determining whether a taxpayer is carrying on a business generally. TR 97/11 lists the following indicators as having emerged from case law as relevant:

•         Whether the activity has a significant commercial purpose or character.

•         Whether the taxpayer has more than just an intention to engage in business.

•         Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

•         Whether there is repetition and regularity of the activity.

•         Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business.

•         Whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit.

•         The size, scale and permanency of the activity.

•         Whether the activity is better described as a hobby, a form of recreation or a sporting activity.

Whether there is a business being carried on is a question of fact and involves an inquiry into matters such as whether the transactions are entered into in a systematic, organised and 'businesslike' way; the repetition or regularity of the transactions; the scale of the transactions; whether the transactions are related to, or part of, other activities of a businesslike character; the purpose of the taxpayer; the degree of skill employed in how the taxpayer engages in the transactions

Active asset test

Under subsection 152-35(1) of the ITAA 1997, a CGT asset will satisfy the active asset test if:

a)            you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the test period, or

b)            you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the test period.

Under subsection 152-35(2) of the of the ITAA 1997 the period:

a)            begins when you acquired the asset; and

b)            ends at the earlier of:

i)              the CGT event; and

ii)             if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business.

Subsection 152-40(1) of the ITAA 1997 provides that a CGT asset is an active asset at a time if, at that time you own the asset and it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you.

Connected with

Under subsection 328-125(1) of the ITAA 1997, an entity is connected with another entity if:

•         either entity controls the other entity, or

•         both entities are controlled by the same third entity in a manner described in the section.

Control may be direct or indirect.

Relevantly, subsection 328-125(7) of the ITAA 1997 sets of an indirect control test, which is designed to look through business structures that include interposed entities. This test applies to all entities, including discretionary trusts.

Broadly, an entity is taken to indirectly control a third entity where:

•         the entity directly controls a second entity (the interposed entity); and

•         the interposed entity controls (whether directly or indirectly) the third entity.

In other words, if Entity A controls Entity B and Entity B controls C, Entity A is also taken to control Entity C.

The tests to determine control are applied in respect of each entity. The direct control rules in subsections 328-125(2) to 328-125(6) of the ITAA 1997 apply to determine whether the first entity controls the interposed entity. Either the direct or indirect control rules can apply to determine whether the interposed entity controls the third entity.

Section 328-125 of the ITAA 1997 sets out the various ways an entity is taken to control another entity including the circumstances in which beneficiaries of a discretionary trust are taken to control the trust.

Broadly, an entity directly controls a discretionary trust if a trustee either:

•         acts, or could reasonably be expected to act, in accordance with the directions or wishes of the entity and/or its affiliates (subsection 328-125(3)of the ITAA 1997), or

•         in any of the last 4 income years, pays or applies at least 40% of any distributions of income or capital of the trust to the entity and/or its affiliates subsection 328-125(4) of the ITAA 1997).

Influence over trustee

Whether an entity acts in accordance with the directions or wishes of an entity and/or its affiliates depends on the particular facts and circumstances.

Re Gutteridge and Commissioner of Taxation 2013 ATC 10-347 sets out the principles that are relevant to determining whether a person or entity exercised effective control over the trustee of a discretionary trust for the purposes of subsection 328-125(3) of the ITAA 1997:

•         treating another person's instructions or wishes as a sufficient reason so to act, rather than making personal decisions where those wishes or instructions are merely a factor considered, meets the test of being accustomed so to act;

•         it is not necessary that the behaviour be universal, at least some decisions, one or more important decisions, would be enough, some or all decision making is the focus;

•         decisions made in pursuit of one's own business goals even, if consistent with the wishes of another party, do not necessarily render the decision maker accustomed to acting in accordance with the other party's wishes. The other party may have superior bargaining power;

•         while not significantly different, acting in accordance with a person's wishes covers a wider field than acting in accordance with a person's instructions, and

•         it is necessary to undertake a critical assessment of the way in which the trustee is managed.

Decision Impact Statement Gutteridge and Commissioner of Taxation explains that the Commissioner does not accept that the reasonable expectation test can be substituted with an accustomed to act test in all cases:

However, while the circumstances in this case allow for a finding that a person could reasonably be expected to act in a certain way because they were 'accustomed to act' in that way, the Commissioner does not accept that the 'reasonable expectation' test in subsection 328-125(3) of the ITAA 1997 can be substituted with an 'accustomed to act' test in all cases. It depends, as the AAT said at paragraph 21, on an examination of all the circumstances of a case. For example, if there is no history at all of a trustee having acted on the directions of another, there may nonetheless be an expectation (reasonably founded) that they would act on the directions of a particular person, were such directions to be given.

Relevantly, subsection 328-125(2) of the ITAA 1997 sets out the direct control of an entity other than a discretionary trust:

•         except if the other entity is a discretionary trust, Entity A controls Entity B if Entity A, its affiliates, or Entity A together with its affiliates own, or have the right to acquire the ownership of, interests in Entity B that carry between them the right to receive at least 40% (the control percentage) of any income or capital distribution by entity B (general control test) pursuant to paragraph 328-125(2)(a); or

•         Entity A also controls Entity B that is a company if Entity A, its affiliates, or Entity A together with its affiliates own, or have the right to acquire the ownership of, equity interests in the company that carry between them the right to exercise, or control the exercise of, at least 40% of the voting power in the company (voting control test) pursuant to paragraph 328-125(2)(b).

The control tests in this context focus on legal ownership, rather than beneficial ownership. The provisions apply to interests held by trusts, life insurance companies and superannuation funds in the same way as to other entities.

Affiliates

Affiliate is defined in subsection 328-130(1) of the ITAA 1997 as an individual or company that acts, or could reasonably be expected to act, in accordance with the entity's directions or wishes, or in concert with the taxpayer, in relation to the business affairs of that individual or company.

An individual or company is not automatically an affiliate merely because of the legal nature of a business relationship: subsection 328-130(2) of the ITAA 1997. For example, a company and its directors are not affiliates by reason only of the nature of the business relationship they share.

Relevantly, section 152-47 of the ITAA 1997 provides that spouses or children taken to be affiliates in certain circumstances.

The Explanatory Memorandum to the Tax Laws Amendment (2009 Measures No. 2) Bill 2009 explains the intended operation of section 152-47 of the ITAA 1997:

...

2.33 The amendments repeal subsection 152-40(1A) and insert a rule that treats an individual's spouse or child (under 18 years of age) as an affiliate of the individual for the purposes of determining whether the individual or an entity in which the individual has an interest, or is a beneficiary of, is eligible for the small business CGT concessions where one entity owns a CGT asset and:

•         that asset is used, or held ready for use, in the course of carrying on a business by another entity; or

•         is inherently connected with a business carried on by another entity.

Schedule 2, items 11 and 14, subsections 152-47(1)and 2)

2.34 The rule applies only if the 'business' entity is not otherwise an affiliate of, or connected with, the asset-owning entity. This means that if the business entity is an affiliate of the asset-owning entity as a result of applying section 328-130 of the ITAA 1997, an individual's spouse or child (under 18 years of age) would not be treated as an affiliate of the individual. Similarly, if the business entity is already connected with the asset-owning entity via section 328-125 of the ITAA 1997, an individual's spouse or child (under 18 years of age) would not be treated as an affiliate of the individual. [Schedule 2, item 14, paragraph 152-47(1)(c)]

2.35 The rule is applied in two stages. The first stage treats an individual's spouse or child (under 18 years of age) as their affiliate, for the purposes of Subdivision 152-A of the ITAA 1997, when determining whether the entity that uses the CGT asset, or holds it ready for use, in its business is an affiliate of, or is connected with, the entity that owns the CGT asset. [Schedule 2, item 14, subsection 152-47(2)]

2.36 If the conditions of the first stage are met, the second stage will apply to treat the spouse or child (as the case may be) as an affiliate of the individual for the purposes of Subdivision 152-A of the ITAA 1997 and for the purposes of sections 328-110 to 328-125 of the ITAA 1997 to the extent that these sections relate to Subdivision 152-A. For example, if by the application of the first stage of the rule, the entity is taken to be an affiliate of, or an entity connected with, the entity that owns the asset, the asset is an active asset (subparagraph 152-40(1)(a)(ii) in its proposed new form, or new subparagraph 152-40(1)(a)(iii), or paragraph 152-40(1)(b) in its proposed new form). [Schedule 2, item 14, subsection 152-47(3)]

...

It is noted that for the purposes of section 152-40 of the ITAA 1997 it is the use of the asset in the business, and not by the taxpayer who owns it, that is relevant. Where the taxpayer treats any use by their affiliate, or an entity that is connected with them, as their use, it is that entity's use of the property in their business that is relevant in this context. As such, property would not be excluded on the basis that it is a rental property in the hands of the taxpayer.

Continuously owned the CGT asset

The Commissioner explains in Taxation Determination TD 94/89 Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? that, generally for CGT purposes, ownership in relation to the disposal of property is determined with reference to settlement:

3. However, a taxpayer is not required to include any capital gain or loss in the appropriate year until an actual change of ownership occurs. Settlement effects a change of ownership and a disposal (subsection 160M(1)) which then triggers the operation of subsection 160U(3). When settlement occurs, the taxpayer is then required to include any capital gain or loss in the year of income in which the contract was made (subsection 160U(3)). If an assessment has already been made for that year of income, the taxpayer may need to have that assessment amended.

However, whether an entity has continuously owned the CGT asset for the 15-year period set out in paragraph 152-105(1)(b) of the ITAA 1997 is determined with reference to when the CGT asset commences to be owned by the entity to just before the CGT event (in the case of CGT event A1, the date of the contract for the sale of the CGT asset).

In connection with retirement

This phrase 'in connection with their retirement'has no statutory definition.

The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with their retirement', nor does it give any indication of the degree of retirement for the purposes of this concession.

Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case.

The Explanatory Memorandum to the New Business Tax System (Capital Gains Tax) Bill 1999 makes the following comments about the requirement to be permanently incapacitated or retiring as one of the conditions for the concession:

Requirement to be permanently incapacitated or retiring

1.68 One of the requirements of this concession for an individual small business taxpayer is that they must be either permanently incapacitated at the time of the CGT event, or at least 55 years old and using the capital proceeds for their retirement.

The legislation does not define 'retirement' for the purpose of subparagraph 152-105(d)(i) of the ITAA 1997. Consequently, it takes its ordinary meaning.

The Macquarie Dictionary (online version, downloaded February 2024) defines 'retirement' to mean 'removal or retiring from service, office, or business, especially in reaching the end of one's working life'.

Given the potential width of the words 'in connection with', the question remains in a particular case what kind of relationship will suffice to establish the connection contemplated by the statute. This in turn will be a question of fact and degree.

In Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 (Pozzolanic), the court observed that:

The words 'connected with' are capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote. As Sheppard and Burchett JJ observed in Australian National Railways Commission v Collector of Customs (SA) [(1985) 69 ALR 367 at 377-378; 8 FCR 264, at 265] the meaning of the word 'connection' is wide and imprecise, one of its common meanings being 'relation between things one of which is bound up with, or involved in, another': Shorter Oxford English Dictionary.

In Claremont Petroleum NL v Cummings (1992) 110 ALR 239 (Claremont), the court, in considering whether payments made were in connection with the retirement of certain individuals, made the following observations regarding the phrase 'in connection with':

The phrase "in connection with" is one of wide import, as I had occasion to observe in a different context in Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 at p479-80; 77 ALR 577 at pages 591-2:

The words 'in connexion with'...do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985)8 FCR 153 at 154, 160, 163; 63 ALR 237at 238, 244, 247. They may be used to describe a relationship with a contemplated future event: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364, Johnson v Johnson [1952] P 47 at 50-1. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given 'jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act', had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase 'in connection with' covered matters leading up to, or which might lead up to an assessment. He said...: 'One of the very generally accepted meanings of "connection" is "relation between things one of which is bound up with or involved in another"; or, again "having to do with". The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase "having to do with" perhaps gives as good a suggestion of the meaning as could be had.'

Having regard to the context of subparagraph 152-105(d)(i) of the ITAA 1997, the Commissioner considers that it would be reasonable to adopt the meaning given to the phrase 'in connection with' in Claremont such that it is not necessary for there to be a permanent and everlasting retirement from the workforce; however, there would need to be at least a significant reduction in the number of hours worked or a significant change in the nature of the activities to be regarded as a retirement for the purposes of paragraph 152-105(d)(i).

Similarly, the words 'in connection with' can apply where the CGT event occurs sometime after retirement. Again, this would depend on the particular facts, and would need to be considered on a case-by-case basis.

Application in these circumstances

Relevantly in this case:

•         The basic conditions for relief in Subdivision 152-A of the ITAA 1997 are satisfied as follows.

o   The sale of the Property will result in a capital gain for the purpose of CGT event A1. The conditions in paragraphs 152-10(1)(a) and 152-10(1)(b) of the ITAA 1997 are satisfied.

o   Individual A and Individual B are small business entities. The condition in subparagraph 152-10(1)(c)(i) of the ITAA 1997 is satisfied.

Having regard to the nature of their business activities as it relates to their businesses, Individual A and Individual B are each carrying on a business at the time of the CGT event for the purposes of section 328-110 of the ITAA 1997.

o   The Property satisfies the active asset test as it was used in a business by an entity that was connected with or an affiliate of both Taxpayers (i.e. the Company) for the period specified in subsection 152-35(2) of the ITAA 1997. For the purposes of section 152-40 of the ITAA 1997 it is the use of the asset in the Company's business and not by the Taxpayers, that is relevant (i.e. the Property would not be excluded on the basis that it is a rental property in the hands of the Taxpayers). The condition in paragraph 152-10(d) of the ITAA 1997 is satisfied.

Relevantly, the test in paragraph 152-35(1)(b) of the ITAA 1997 relates to an asset that has been owned for more than 15 years. In this case, it is necessary to establish whether the Property was active for a total of at least 7.5 years covering the dates below and whether the Company (being the entity using the Property in carrying on its business) is connected with or an affiliate of Individual A and Individual B:

Table 2: Asset owned by individual A or Individual B

In this case, as the control of Company during Period 1 is less than the 7.5 years, it is necessary to establish at least one year of control of the Trust in Period 2 for the purposes of paragraph 152-35(1)(b) of the ITAA 1997.

Period 2 - Both individuals will need to satisfy the control tests in subsections 328-125(3) or (4) of the ITAA 1997 to establish the trust is a connected entity to each individual. The trust can't be an affiliate so that option isn't available. Subsection 328-125(3) can be satisfied if it can be demonstrated that the trustee acts, or could reasonably be expected to act, in accordance with the directions or wishes of both individuals. Alternatively, the facts required to satisfy subsection 328-125(4) are about distributions to either individual in any of the 4 years before a year of control (i.e. 2014 to 2021 income years).

For Period 1

Individual A and Individual B own the Property that is used by the Company in carrying on its business.

Individual A and Individual B were the directors of the Company for this period - the Company acted in accordance with their directions and wishes while each was a director of the company. Therefore, the Company is an affiliate of both Individual A and Individual B during this 7 year period.

For Period 2

There is at least one year in which Individual A and Individual B each received 40% of the Trust distributions (see XXX and XXXX income years).

It is also noted that Individual A and Individual B are the joint directors of the Trustee Company - the Trustee acted in accordance with their directions. The Company follows the instructions of the Holding Company which follows the instructions of the Trustee Company (delivered via Individual A and Individual B).Relevantly, pursuant to subsection 328-125(7) of the ITAA 1997, the Taxpayers have direct control over Trustee( they have influence over the Trustee through their roles as directors of the Trustee Company) and the Trustee has control over the Holding Company as it holds 100% of the shares on issue which would carry the right to receive at least 40% of any income or capital distribution by the Company or voting power in the Company.

The Company was carrying on a business for the purposes of section 328-110 of the ITAA 1997 for the relevant income years.

•         Individual A and Individual B have continuously owned the CGT asset (i.e. the Property) for the 15-year period ending just before the CGT event - i.e. from the acquisition of the Property in XXXX to the contract for the sale of Property in XXXX.

•         Individual A and Individual B are both over 55 years of age and at the time of the CGT event, and work reduced hours in their respective businesses following the sale of the business conducted by the Company.

As such, the Commissioner is satisfied that in these circumstances the sale of the Property by the Taxpayers is in connection with their retirement for the purpose of subparagraph 152-105(d)(i) of the ITAA 1997. As all the conditions in section 152-105 of the ITAA 1997 are satisfied, the capital gain from the sale of the Property can be disregarded under Subdivision 152-B with respect to Individual A and Individual B's interests in the Property.