Edited version of private advice

Authorisation Number: 1052278542400

Date of advice: 18 July 2024

Ruling

Subject: CGT - 15 year exemption

Question

Are you entitled to apply the small business 15-year exemption in section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard your share of the capital gain made on the sale of the property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You purchased a property over 15 years ago.

You conducted a primary production business on the property through a partnership throughout the ownership period.

The partnership's turnover was less than $2 million at all times.

The sale of the property will result in a capital gain.

You are now fully retired and will be over 55 when the property is sold.

Relevant legislative provisions

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

Detailed reasoning

Section 152-105 of the ITAA 1997 provides a small business 15-year exemption for individuals. Under this section, you can disregard the capital gain from the disposal of a CGT asset if you:

(a)           satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 for the small business CGT concessions

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

(c)           if the CGT asset is a share in a company or an interest in a trust - the company or trust 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 you owned the CGT asset; and

(d)           you are:

(i)            at least 55 years old at that time and the event happened in connection with your retirement, or

(ii)            permanently incapacitated at that time.

Basic conditions

The basic conditions in subsection 152-10(1) 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 (apart from this Division) have resulted in a gain

(c)          at least one of the following applies:

(i)            you are a small business entity for the income year

(ii)            you satisfy the maximum net asset value test

(iii)            you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership, or

(iv)            you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.

(d)          the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

Small business entity

An entity is a CGT small business entity for an income year if:

(a)          it carries on a business in the current year, and

(b)          one or both of the following applies:

(i)            it carried on a business in the income year (the previous year) before the current year and its aggregated turnover for the previous year was less than $2 million, and

(ii)            its aggregated turnover for the current year is likely to be less than $2 million (subsections

(iii)            152-10(1AA) and 328-110(1)).

Active asset

Under subsection 152-35(1) of the ITAA 1997, a CGT asset satisfies 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.

The test period begins when you acquired the asset and ends at the time of the CGT event (subsection 152-35(2) of the ITAA 1997).

Application to the circumstances

A CGT event will occur when you sell your share of the property and you will make a capital gain on the sale.

You carry on a business of XXXX farming in partnership and your aggregated turnover is less than $2 million.

You have owned your share of the property for more than 15 years and the property was used in the business of the partnership for a total of at least 7 ½ years of your ownership period.

You will have continuously owned your share of the property for the 15 year period ending just before the CGT event.

You will be at least 55 years when you dispose of your share of the property and the sale will occur in connection with your retirement.

Therefore, you qualify for the small business 15-year exemption in section 152-105 of the ITAA 1997 in relation to the property and can disregard your share of the capital gain made on its disposal.