Edited version of private advice

Authorisation Number: 1052252884445

Date of advice: 20 May 2024

Ruling

Subject: CGT - small business concessions

Issues

Question 1

Does the 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 his 100% interest in the XXXXX Property in relation to the sale of the XXXXX Property?

Answer

Yes

Question 2

ls the small business 50% reduction allowed under Subdivision 152-C ITAA 1997 in working out the capital gain of the Taxpayer in relation to sale of the XXXX Properties?

Answer

Yes

Question 3

Does the Taxpayer satisfy the requirements in section 152-305 of the ITAA 1997 to apply the small business retirement exemption with respect to his 100% interest in the XXXX Properties in relation to the sale of the XXXX Properties?

Answer

Yes - to the extent all of the other relevant requirements in Subdivision 152-D of the ITAA 1997 are met, the Taxpayer is eligible to choose to disregard the relevant CGT exempt amount.

This ruling applies for the following periods:

1 July XXXX to 30 June XXXX

Relevant facts and circumstances

The Taxpayer acquired A Road Property and grants pursuant to the War Service Land Settlement Act 1950 relating to B Road Grants.

The Taxpayer paid the Crown on XXXX to release X B Road and X B Road from the soldier's settlement agreement - thereby converting them to estates in fee simple (B Road Properties).

The Taxpayer and their spouse moved into X B Road prior to the Taxpayer's acquisition of the A Road Property and B Road Grants on XXXX. Their family home is on X B Road.

The Taxpayer and their spouse have been conducting a primary production business through the Family Trust (Family Trust) on the A Road Property and B Road Grants which were subsequently converted to the B Road Properties. The corporate trustee of the Family Trust is the Trustee. The Trustee commenced conducting the primary production business on the A Road Property and the B Road Grants/B Road Properties prior to the Taxpayer's acquisition of the properties and continued to conduct the business throughout the period of the Taxpayer's ownership of the properties.

The Taxpayer and their spouse are both directors of the Trustee and make operational and strategic decisions jointly.

The Taxpayer and their spouse are beneficiaries of the Family Trust.

The Family Trust's aggregated turnover was less than $X million in the XXXX income year.

The Taxpayer sold the A Road Property and B Road Properties by contracts entered into on XXXX (with settlement taking place on XXXX). The sale of each property gave rise to a capital gain for the purposes of Parts 3-1 and 3-3 of the ITAA 1997.

All livestock was sold with the Properties and the last sale occurred with settlement on XXXX.

The Taxpayer is over 55 years and has retired.

The combined net asset value of the Taxpayer (and any other relevant entity - but excluding any superannuation fund) is more than $X 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 subsection 152-205

Income Tax Assessment Act 1997 subsection 152-305

Income Tax Assessment Act 1997 section 328-110

Income Tax Assessment Act 1997 section 328-125

Reasons for decision

Questions 1, 2 and 3

Summary

The basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied with respect to the sale of the A Road Property and the B Road Properties.

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

As the basic conditions in Subdivision 152-A are satisfied with respect to the sale of the B Road Properties, the small business 50% discount under Subdivision 152-C of the ITAA 1997 will apply unless a choice is made not to apply it, as the 15-year exemption under Subdivision 152-B of the ITAA 1997 does not apply.

The requirements in section 105-305 of the ITAA 1997 will be satisfied for the purposes of Subdivision 152-D of the ITAA 1997 with respect to the sale of the B Road Properties. As such, the Taxpayer is eligible to choose to disregard the relevant CGT exempt amount.

The Taxpayer may choose not to apply the small business 50% reduction under Subdivision 152-C of the ITAA 1997 prior to applying the small business retirement exemption with respect to capital gain from the sale of the B Road Properties.

Detailed reasoning

Subdivision 152-A of the ITAA 1997 - basic conditions

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.

A CGT asset is defined in section 108-5 of the ITAA 1997 to mean:

• any kind of property, or
• a legal or equitable right that is not property.

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).

Passively held assets - affiliates and entities connected with you

Section 152-10(1A) of the ITAA 1997 provides that the conditions in this subsection are satisfied in relation to the CGT asset in the income year if:

a)    your affiliate, or an entity that is connected with you, is a *CGT small business entity for the income year; and

b)    you do not carry on a business in the income year (other than in partnership); and

c)    if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and

d)    in any case - the CGT small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b) ) in relation to the CGT asset

Where you do not carry on a business in your personal capacity, it is necessary to consider if the property is used in a business carried on by your affiliate, or an 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:

a)    either entity controls the other entity, or

b)    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:

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

b)    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:

a)    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

b)    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.

Small business entity

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 in Subdivision 328-C of the ITAA 1997 - subject to the winding up exception under subsection 328-110(5), the entity must:

• be carrying on a business; and
• satisfy any 1 of 3 tests based on turnover:

o   the entity carried on a business in the income year (the previous year) before the current year and the entity's *aggregated turnover for the previous year was less than $10 million (subparagraph 328-110(1)(b)(i) of the ITAA 1997);

o   the entity's aggregated turnover for the current year is likely to be less than $10 million provided the turnover when the business was carried on in both of the 2 previous years was not $10 million or more (subparagraph 328-110(1)(b)(ii) and subsection 328-110(3) of the ITAA 1997); or

o   the aggregated turnover of the entity for the current year (worked out as at the end of that year) is less than $10 million (subsection 328-110(4) of the ITAA 1997).

Pursuant to subsection 328-110(5) of the ITAA 1997 an entity is a small business entity if:

a)    the entity is winding up a business it formerly carried on; and

b)    it was a small business entity in the income year that it stopped carrying on the business.

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.

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.

Subdivision 152-B - 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 Subdivision 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

Refer to the discussion above.

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.

Subdivision 152-C of the ITAA 1997 - small business 50% reduction

Pursuant to section 152-205 of the ITAA 1997, the amount of a capital gain remaining after applying step 3 of the method statement in subsection 102-5(1) is reduced by 50% if the basic conditions in Subdivision 152-A are satisfied for the gain.

However, you may choose not to apply the reduction mentioned in section 152-205 of the ITAA 1997 to a particular capital gain (section 152-220).

The small business 50% reduction will not apply to a capital gain to which the 15-year exemption applies (section 152-215 of the ITAA 1997).

Subdivision 152-D of the ITAA 1997 - small business retirement exemption for individuals

Relevantly, for an individual, subsection 152-305(1) of the ITAA 1997 sets out the following requirements:

Individual

152-305(1)

If you are an individual, you can choose to disregard all or part of a *capital gain if:

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

(b) if you are under 55 just before you make the choice - you contribute an amount equal to the asset's *CGT exempt amount to a *complying superannuation fund or an *RSA; and

Note:

For the non-deductibility of the contribution, see subsection 290-150(4) .

(c) the contribution is made:

(i) if the relevant CGT event is CGT event J2, J5 or J6 - when you made the choice; or

(ii) otherwise - at the later of when you made the choice and when you received the proceeds.

Note 1:

Section 103-25 tells you when the choice must be made.

Basic conditions

Refer to the discussion above.

Contribution to a complying superannuation fund or retirement savings account (RSA)

If individual is under 55 years old just before they make the choice, they must contribute an amount equal to the asset's CGT exempt amount to a complying superannuation fund or retirement savings account (RSA). There is no requirement to make this contribution if the individual was 55 years old or older at the time.

There are other requirements that must be satisfied, including the following:

• For an individual, the CGT exempt amount must not exceed the CGT retirement exemption limit specified in paragraph 152-315(2)(a) of the ITAA 1997.

An individual's CGT retirement exemption limit at a time if $500,000 reduced by the CGT exempt amounts of CGT assets specified in choices previously made by or for the individual for the purposes of Subdivision 152-D of the ITAA 1997 (section 152-320 of the ITAA 1997).

• Generally, the choice must be made by the day the individual lodges their income tax return for the income year in which the CGT event happened.

Application in these circumstances

Relevantly in this case:

The A Road Property

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

• The A Road Property is a CGT asset for the purposes of section 108-5 of the ITAA 1997. The sale of the A Road Property resulted 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.
• The A Road Property was a passively held asset used in a business carried on by a small business entity that was connected with the Taxpayer for the purposes of section 152-10(1A) of the ITAA 1997. The condition in subparagraph 152-10(1)(c)(iv) of the ITAA 1997 is satisfied.

The Family Trust satisfies the requirements of a CGT small business entity for the purposes of section 152-10(1AA) of the ITAA 1997. The Family Trust was carrying on a business (primary production business) at the time of the CGT event for the purposes of section 328-110 of the ITAA 1997.

The A Road Property was used by the Family Trust in carrying on its business and the Family Trust was connected with the Taxpayer at the relevant time (refer to the discussion below).

• The A Road Property satisfies the active asset test as it was used in a business by an entity connected with the Taxpayer (i.e. the Family Trust) 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 Family Trust's business and not by the Taxpayer, that is relevant. 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 A Road Property was active for a total of at least 7.5 years (from when the Taxpayer acquired it on XXXX to XXXX) and whether the Family Trust (being the entity that used the A Road Property in carrying on its business) is an entity connected with the Taxpayer.

The Taxpayer needs to satisfy the control tests in subsections 328-125(3) or (4) of the ITAA 1997 to establish that the Family Trust is an entity connected with him for the relevant period. Relevantly, subsection 328-125(3) can be satisfied if it can be demonstrated that the Corporate Trustee acted, or could reasonably have been expected to act, in accordance with the directions or wishes of the Taxpayer. The Taxpayer is a joint director of the Corporate Trustee - the Trustee has acted at all times in accordance with the Taxpayer (and their spouses) directions. Consequently, for the purposes of subsection 328-125(3), the Taxpayer had direct control over Trustee (they had influence over the Corporate Trustee through their role as director of the Corporate Trustee).

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

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

• The basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied (as set about above).
• the Taxpayer had continuously owned the CGT asset (i.e. the A Road Property) for the 15-year period ending just before the CGT event - i.e. from the acquisition of the A Road Property in XXXX to the contract for the sale of A Road Property in XXXX).
• The Taxpayer was over 55 years of age and at the time of the CGT event and has retired.

As such, the Commissioner is satisfied that in these circumstances the sale of the A Road Property by the Taxpayer is in connection with his retirement for the purposes 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 A Road Property can be disregarded under Subdivision 152-B with respect to the Taxpayer's interest in the A Road Property.

B Road Properties

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

• Each B Road Property is a CGT asset for the purposes of section 108-5 of the ITAA 1997. The sale of each B Road Property resulted 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.
• Each B Road Property was a passively held asset used in a business carried on by a small business entity that was connected with the Taxpayer for the purposes of section 152-10(1A) of the ITAA 1997. The condition in subparagraph 152-10(1)(c)(iv) of the ITAA 1997 is satisfied.

The Family Trust satisfies the requirements of a CGT small business entity for the purposes of section 152-10(1AA) of the ITAA 1997. The Family Trust was carrying on a business (primary production business) at the time of the CGT event for the purposes of section 328-110 of the ITAA 1997.

Each B Road Property was used by the Family Trust in carrying on its business and the Family Trust was connected with the Taxpayer at the relevant time (refer to the discussion below).

• Each B Road Property satisfies the active asset test as it was used in a business by an entity connected with the Taxpayer (i.e. the Family Trust) 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 Family Trust's business and not by the Taxpayer that is relevant. 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 less than 15 years. In this case, it is necessary to establish whether each B Road Property was active for a total of at least half of the period (from when the Taxpayer acquired the properties on XXXX to XXXX) and whether the Family Trust (being the entity that used the B Road Properties in carrying on its business) is an entity connected with the Taxpayer.

The Taxpayer needs to satisfy the control tests in subsections 328-125(3) or (4) of the ITAA 1997 to establish that the Family Trust is an entity connected with him for the relevant period. Relevantly, subsection 328-125(3) can be satisfied if it can be demonstrated that the Corporate Trustee acted, or could reasonably have been expected to act, in accordance with the directions or wishes of the Taxpayer. The Taxpayer is a joint director of the Corporate Trustee - the Trustee has acted at all times in accordance with the Taxpayer (and their spouse's) directions. Consequently, for the purposes of subsection 328-125(3), the Taxpayer had direct control over Trustee (they had influence over the Corporate Trustee through their role as director of the Corporate Trustee).

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

•         The conditions for relief in Subdivision 152-C of the ITAA 1997 are satisfied.

As the basic conditions in Subdivision 152-A are satisfied with respect to the sale of the B Road Properties, the small business 50% discount will apply unless a choice is made not to apply it, as the 15-year exemption under Subdivision 152-B of the ITAA 1997 does not apply.

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

• The basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied (as set about above).
• The Taxpayer was over 55 years of age at the time of the CGT event and has retired.

Consequently, if all of the other requirements of Subdivision 152-D of the ITAA 1997 are met, the Taxpayer may choose to disregard the capital gain from the sale of the B Road Properties to the extent the amount does not exceed his CGT retirement limit (i.e. making to the choice to disregard the amount of capital gain, in the event the proceeds are paid in instalments making the choice with respect to each instalment and ensuring the amount does not exceed the $500,000 limit).