Edited version of private advice

Authorisation Number: 1052281115464

Date of advice: 1 August 2024

Ruling

Subject: CGT - small business concession

Question 1

Is Person B an affiliate of Person D as defined by section 328-130 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of the Property for a specified period, when Person B solely operated a farming business?

Answer

Yes.

After reviewing the relevant factors and conditions, pursuant to section 328-130 of the ITAA 1997 the Commissioner will consider Person B to be an affiliate of Person D's. This is on the basis of Person B's close family relationship, the business dependency on the use of the Property for no consideration, the lack of formal arrangements and the consultation around business decisions. It is reasonable to conclude that Person D acted in accordance with Person B's directions or wishes, or in concert with Person B, in relation to the affairs of their business.

Question 2

Are you and Person C affiliates of Person D as defined by section 328-130 of the ITAA 1997 in relation to the sale of the Property for a specified period?

Answer

Yes.

After reviewing the relevant factors and conditions, pursuant to section 328-130 of the ITAA 1997 the Commissioner will consider you and Person C to be an affiliate of Person D's. This is on the basis of your and Person C's close family relationship, the business dependency on the use of the Property for no consideration, the lack of formal arrangements and the consultation around business decisions. It is reasonable to conclude that Person D acted in accordance with your and Person C's directions or wishes, or in concert with you and Person C, in relation to the affairs of their business.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

General facts

Person A (you), Person B, and Person C are siblings and Person D is also your sibling.

Person D's aggregated turnover was under $X million for the relevant income year, and he met the definition of a Small Business Entity for the purposes of the Small Business CGT concessions.

Property ownership

You and all of your siblings owned a farm property as tenants in common. You provided us with details on the address of the Property and when the Property was sold.

The Property was purchased on a specified date and was acquired jointly between your parent, Person B and Person D.

Your parent passed away in a specified year, and their one-third interest in the Property was inherited by their spouse, Person E who is your parent and also the parent of Person B, Person C and Person D.

Person E passed away in 20XX and her one-third interest in the Property was equally inherited between you and Person C.

You, Person B, Person C and Person D had been considering selling the Property for some time prior to the sale of the Property. All of the Property owners jointly decided to sell the Property on a specified date.

At the time of the sale, the Property was held as tenants in common, with interest as follows:

•         Person A - one-sixth interest,

•         Person C - one-sixth interest,

•         Person B - one-third interest, and

•         Person D - one-third interest.

Farming business

On purchase of the Property, the Property was used in a farming business which was operated as partnership between your parent, Person B and Person D with equal interests until 19XX.

Your parent and Person B continued operating the farming business on the Property for a specified period. This was done by way of an informal 2-person partnership.

Person B operated the farming business alone for this specified period on the Property. During this period Person B did not pay any rent to Person D or Person E. Person D was working and living overseas for the majority of this period.

Person B ceased the farming business on a specified year to pursue other employment.

Person D began his own farming business on the Property since Person B ceased his farming business, which they continued until the property was sold in the 20XX-XX income year, this was the only business activity conducted by Person D. Person D did not pay rent to any of the other co-owners during this period.

Property use

Since their parent passed away, the use of the Property has been determined through an informal family agreement between all owners of the Property. Person B and Person D never paid rent to the other co-owners while they conducted their own farming businesses on the Property. Informal agreements are as follows:

a)    Person D and Person E agreed that Person B would farm the land and would not pay rent to Person D or Person E.

b)    Person B and Person E agreed that Person D could farm the land without paying any rent to Person B and Person E.

c)    After Person E passed away, you, Person B and Person C agreed that Person D could continue your farming business on the Property and that Person D would not pay rent to you, Person B and Person C.

Without the agreement of the other owners that rent would not be charged, it would have been more difficult for Person D's farming business had he had to pay market value rental to the other owners.

Since your parent passed away in 20XX, Person B, Person C, and you have consulted each other as a family unit for any significant decisions regarding the Property, including whether it should be made available to a sibling for farming on a rent-free basis. This culminated in their collective decision to sell the Property in the 20XX income year after more than a specified number of years of family ownership.

During their co-ownership, all the siblings shared certain costs related to the Property, such as council rates and insurance. You personally organised the collective payment of these costs among the co-owners.

In recent years, while Person D was away from the Property, you, Person B and Person C helped monitor the Property.

Since Person B ceased farming business in the Property, you, Person B and Person C were aware of and consented to any changes Person D made to the Property, such as fencing works and major repairs.

Whilst Person D was running his farming business, Person B allowed Person D to use various items of farming equipment that Person B owned on a rent-free basis. The items were originally purchased jointly by Person B, Person D and your parent when all of you conducted the farming business as a partnership. Full ownership of these items reverted to Person B after Person D left the partnership and your parent passed away. Person B used this equipment for their own farming business and left it on the Property when they ceased farming. They then informally allowed Person D to use the equipment rent-free since Person D started their farming business until the Property was sold.

Person B gave a description of various farming equipment owned by them.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Division 152-A

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 328-130