Edited version of private advice

Authorisation Number: 1052244157380

Date of advice: 18 June 2024

Ruling

Subject: CGT - small business concessions

Question

Are you eligible to claim the 15-year exemption for small business concessions under subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. You are able to claim the CGT exemption under this subdivision as you have continuously owned the asset (the property) for a period of greater than 15 years, you are over the age of 55 and the sale of the property is in connection to your retirement. Furthermore, you meet the basic conditions for relief.

This ruling applies for the following period:

X of XX 20XX to X of XX 20XX

The scheme commenced on:

X of XX 20XX

Relevant facts and circumstances

You purchased the property on XX of X 19XX

You used the whole property to run your business as a sole trader.

You have an aggregated annual turnover of less than $XXX.

You entered into a deed of option to purchase with a third-party.

The option to purchase the property was exercised at a later date.

You were over the age of 55 at the time of the CGT event and the event happened in connection with your retirement.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-105

Reasons for decision

Section 152-105 of the ITAA 1997states that an individual can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied:

(a)  The basic conditions in section 152-10 of the ITAA 1997 are satisfies for the gain.

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

(c)   You are 55 or over at the time of the CGT event and the event happens in connection with your retirement.

The basic conditions for relief under section 152-10 of the ITAA 1997 are:

(a)  A CGT event happens in relation to a CGT asset of yours in an income year.

(b)  The event would have resulted in a gain.

(c)   At least one of the following applied:

(i)    You are a CGT small business entity for the income year.

(ii)   You satisfy the maximum net asset value test.

(d)  The CGT asset satisfies the active asset test.

You entered into a deed of option to purchase with a third party, and the purchaser exercised the right to purchase at a later date. According to subsection 104-10(2) of the ITAA 1997, you dispose of a CGT asset if the change of ownership occurs from you to another entity. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. Therefore, the CGT event occurred when the purchaser exercised their right to purchase the property.

The capital gain event resulted in a gain.

A CGT asset satisfies the active asset test if 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 7 ½ years from when the asset was acquired until the CGT event (section 152-35 of the ITAA 1997). Furthermore, a CGT asset is an active asset a time if, at that time you own the asset and it us used, or held ready to use, in the course of carrying on a business that is carried on by you (section 152-40 of the ITAA 1997). You have owned the asset for more than 15 years, and the property was used in the process of running your business. Therefore, the property satisfies the active asset test.

You are over the age of 55 and the sale of the property was in connection with your retirement.

You have satisfied the conditions for relief under section 152-105 of the ITAA 1997 and can therefore disregard any capital gain arising from the sale of the property.