Edited version of private advice

Authorisation Number: 1052290866516

Date of advice: 14 August 2024

Ruling

Subject: CGT concessions - in connection with retirement

Question 1

Was the sale of the land at Station 1, 2 and 3 in connection with Person A's retirement for the purposes of subparagraph 152-105(d)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Was the sale of the land at Station 2 and 3 in connection with Person B's retirement for the purposes of subparagraph 152-105(d)(i) of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

Person A owned Station 1 and both Person A and Person B owned Station 2 and 3.

Person A and Person B operated a business of grazing animals on the land through their partnership.

Person A and Person B sold the 3 stations with a view to reducing their workload and retiring.

At the time of sale, Person A and Person B were over 55 years of age.

Person A and Person B moved to be closer to medical services they will need in retirement.

Person A and Person B purchased a significantly smaller parcel of land. XXXX grazing is no longer a part of the business and XXXX numbers have reduced by 50%.

Person A and Person B have reduced their weekly work hours since selling the 3 stations. The work hours will continue to reduce as they intend to gift the grazing business and new parcel of land to their children within the coming years.

Relevant legislative provisions

Income Tax Assessment Act 1997 subparagraph 152-105(d)(i)

Reasons for decision

Section 152-105 of the ITAA 1997 states you can disregard a capital gain arising from a capital gains tax (CGT event) if all the 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;

(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;

(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.

This phrase 'in connection with your 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 your retirement', nor does it give any indication of the degree of retirement for the purposes of the 15-year exemption. Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case.

The Macquarie Dictionary 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 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 subparagraph152-105(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.

In this case, Person A and Person B have significantly reduced their farming operation by reducing the land size. XXXX grazing is no longer a part of the business and XXXX numbers have been reduced by 50%. Person A and Person B's working hours have reduced significantly. As such, the Commissioner is satisfied that the sale of the land is in connection with their retirements.