Edited version of private advice

Authorisation Number: 1052288940425

Date of advice: 12 August 2024

Ruling

Subject: CGT - small business retirement exemption

Question

Are you eligible to apply the small business retirement exemption in Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997) to your share of the capital gain made from the sale of the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You own an interest in a property.

A company was incorporated with you, and your relative, as shareholders, directors and secretary.

You later resigned as director from the company and disposed of your shares. You then subcontracted to the company via your own ABN.

You and your relative would continue to discuss the viability of the company's jobs and their prices.

You and the company used the property in the course of carrying on respective businesses.

The proportion of the land used for business activities was at least 75%.

A contract for the sale of the Property was signed.

You are over 55 years of age.

Your aggregated turnover, including any affiliates and connected entities is less than $2million.

The aggregated turnover of the company, its affiliates and connected entities, is less than $Xmillion.

You will keep a written record of the amount of the capital gain you choose to disregard under the retirement exemption.

You have not previously used the small business retirement exemption.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 subsection 152-35(1)

Income Tax Assessment Act 1997 subsection 152-40(1)

Income Tax Assessment Act 1997 Subdivision 152-D

Reasons for decision

Subdivision 152-D of the ITAA 1997 sets out the conditions for the small business retirement exemption. If you are an individual, you can choose to disregard all or part of a capital gain under this provision if:

•         you satisfy the basic conditions

•         you keep a written record of the amount you chose to disregard (the CGT exempt amount), and

•         if you are under 55 years of age just before you choose to use the retirement exemption, you make a personal contribution equal to the exempt amount to a complying superannuation fund or retirement savings account

•         you do not exceed the lifetime CGT retirement limit of $500,000

In this case, you satisfy the basic conditions contained in section 152-10 of the ITAA 1997 because:

•         a CGT event occurred when you disposed of your interest in the property

•         the event resulted in a gain

•         you, or an entity that was your affiliate, was a small business entity at the time of the event, and

•         you owned your interest in the property for less than 15 years and the property was an active asset for a total of at least half of your ownership period

In addition,

•         you have not previously used any of your retirement exemption cap

•         you were at least 55 years old when you disposed of your interest in the property, and

•         you will keep a written record of the amount of the gain you choose to disregard.

Therefore, you are entitled to choose to apply the small business CGT retirement exemption to the capital gain made on the disposal of your interest in the property.