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Edited version of private advice
Authorisation Number: 1052223476020
Date of advice: 22 February 2024
Ruling
Subject: CGT - retirement exemption
Question
Does the company have a significant individual under section 152-55 of the Income Tax Assessment Act 1997 in the year of CGT event for the purpose of meeting the criteria for the small business CGT concession retirement exemption?
Answer
Yes. An individual is a significant individual in a company or trust if they have a small business participation percentage in the company or trust of at least 20%. This 20% can be made up of direct and indirect percentages.
An entity's direct small business participation percentage in a company is the percentage of:
• voting power that the entity is entitled to exercise
• any dividend payment that the entity is entitled to receive
• any capital distribution that the entity is entitled to receive, or
• if they are different, the smallest of the three definitions above.
All classes of shares (other than redeemable shares) are taken into account in determining an entity's participation percentage in a company.
In this case, regardless of which class of share distributions are made to, both Individual A and Individual B will receive at least 20% of the distributions and be significant individuals of the company.
This ruling applies for the following period:
Year ended 30 June 20YY
The scheme commenced on:
1 July 20YY
Relevant facts and circumstances
The company sold its business satisfies all basic conditions and the other requirements for the retirement exemption.
The company had the following share structure just before the sale of the business:
• Ordinary Shares: Individual A & Individual B - 40% each
• B Class Shares: Family Trust A & Family Trust B - 50% each
• Each class of share have equal dividend and voting rights
Individual A is the 50% shareholder and joint director of the trustee company for Family Trust A. As per the most recent distribution resolution, Individual A is entitled to 50% of capital and 50% of income distributions. Individual A is over 55.
Individual B is the sole shareholder and director of the trustee company for Family Trust B. As per most recent distribution resolution, Individual B is entitled to 50% of all capital and 50% of income distributions. Individual B is over 55.
No individuals involved have affiliates.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-55
Income Tax Assessment Act 1997 section 152-65
Income Tax Assessment Act 1997 section 152-70