Edited version of private advice

Authorisation Number: 1052243558612

Date of advice: 19 April 2024

Ruling

Subject: CGT - small business concessions

Question

Will the sale of the property be 'in connection' with the retirement of person A under subparagraph 152-110(1)(d)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

In the 19XX income year, the trust acquired a commercial property (the property).

The trustee of the trust is a company.

Person A and person B are the sole shareholders of the company, each with a X% ownership of the company shares.

The property was used by person A and person B in the course of carrying on a business for over 15 years.

Person A was a significant individual of the trust for more than 15 years.

The business was sold in 20XX.

Person A continued to work after the sale of the business to the current date.

From 20XX to the current date, the property was used to derive rental income.

The trust intends to sell the property in the 20XX income year.

Person A intends to cease all work activities once the property is sold.

Person A and person B intend to contribute the proceeds of the sale of property into their superannuation.

Person A is over the age of 55.

The trust satisfies the basic conditions for small business relief.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 subsection 152-110(1)

Income Tax Assessment Act 1997 subparagraph 152-110(1)(d)(i)

Reasons for decision

Small business concessions - 15-year exemption

Subsection 152-110(1) of the ITAA 1997 provides that a company or trust can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied:

(a)  the basic conditions for small business relief under Subdivision 152-A of the ITAA 1997 are satisfied;

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

(c)   the entity had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which the entity owned the CGT asset; and

(d)  the individual who was the significant individual of the company or trust just before the CGT event was 55 or over at the time of the CGT event and the event happens in connection with your retirement.

In connection with retirement

Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce.

The words 'in connection with' can also apply where the CGT event occurs sometime before retirement. This type of case would depend on its own particular facts and would need to be considered on a case-by-case basis. It is possible that the CGT event could occur either in anticipation of, or after, the retirement. While it may be a question of fact, the essential element will be to demonstrate that the CGT event happens as part of an actual retirement plan.

Application to your circumstances

In this case, the trust is taken to have satisfied the basic conditions for relief and owned the property continuously for more than 15-years, with intention to sell it in the 20XX income year. Person A, who is over the age of 55, has been a significant individual of the trust for more than 15-years, during which the trust owned the property.

While the business was sold in 20XX, person A continued to work in the industry from its sale to the current date. Thus, it can be established that person A did not retire in 20XX as they are still involved in profit-making activities.

However, after the property is sold person A intends to cease all work activities. As this is a significant change in the nature of their present activities, they will be taken to have retired when this occurs. Moreover, as person A and person B intend to contribute the proceeds of the sale of property into their superannuation, it is likely that the sale of property is part of person A and person B's retirement plan.

Therefore, it can be established that the sale of the property will be 'in connection' with the retirement of person A under subparagraph 152-110(1)(d)(i) of the ITAA 1997.