Edited version of private advice

Authorisation Number: 1052344457261

Date of advice: 18 December 2024

Ruling

Subject: Share farming - active asset

Question 1

Are you considered to be carrying on a business for at least X days for a specified period through your share farming agreement for the purposes of section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

Considering your circumstances and based on the information you provided, we accept that for at least X days from a specified date you were actively engaged in carrying on a business through your share farming agreement.

Question 2

If the answer to question 1 is no, is Person C an affiliate of yours according to section 328-10 of the ITAA 1997 in relation to the primary production business conducted on the land?

Answer 2

Not applicable.

Question 3

Does the disposal of your interest in the lease of land meet the active asset test under section 152-35 of the ITAA 1997?

Answer 3

Yes.

Based on the information provided, you held a CGT asset, namely a lease over the land, and held the lease for more than X years. This lease was held or used in carrying on your business activities for at least X years. Consequently, the disposal of the lease of land satisfies the active asset test for small business CGT Concessions.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Background and lease surrender

Person A, your spouse, solely owned the land at a specified address (The Land).

You and Person A resided at another address, which you provided the address of to us. You remained there after their death until you entered a residential aged care facility.

Person B and Person C are two children of you and Person A.

Person A passed away on a specified date.

Prior to Person A's passing the following transactions in relation to the Land were entered into:

•                     The Land was transferred from Person A to Person B on a vendor financed basis for consideration of a specified sum. This was considered the market value of the land at the time of the transfer.

•                     Person A forgave Person B's obligation to pay the purchase price of a specified sum leaving a specified sum outstanding. The amount outstanding was secured by a mortgage originally granted to Person A, and subsequently assigned to you.

•                     As a condition of the forgiveness, Person B granted a lease to you and Person A for a specified period with only nominal rent payable for the entire term of the lease.

In consequence of Person A's death:

•                     The debt on account of unpaid purchase price for the land was inherited by you.

•                     Person A's mortgage was assigned to you.

•                     You registered a Caveat Registration over the land to secure a leasehold interest.

At a specified time, Person B decided to sell the Land and reached an agreement with an arm's length party for the sale of the Land.

You entered into an agreement with Person B on a specified date to surrender the Lease with a specified number of years remaining on the lease.

The surrender of the lease was agreed in consideration of payment of an agreed sum by Person B to you.

Other terms of the lease surrender were that you and Person C agreed to remediation and maintenance work on the land as well as continuing to farm until settlement of the land.

The execution of the Deed or Surrender of Lease did not occur in connection with your retirement.

You provided the date the land settled.

Business activities

You carried on a business under a partnership, in equal shares, with Person A, for a specified number of years.

You provided the date that you commenced carrying on your business activities on the Land through your partnership.

The partnership between you and Person A ceased due to the death of Person A.

After the partnership ceased, you carried on a business on the Land as a sole trader until a specified date.

Business A (partnership between Person C and their spouse) commenced carrying on a business on the Land by way of share work agreement between you as Lessee of the Land and Person C the day after you ceased carrying on your activities as a sole trader.

You have maintained ABN and GST registrations with proceeds of sales being declared as business income for all relevant years.

You provided your aggregated turnover for the 20XX income year.

You provided a copy of your profit and loss statement for the 20XX and 20XX income years.

You were profitable in those years.

You provided Business A aggregated turnover for the 20XX income year.

Share work agreement

You entered a written share work agreement with Person C on a specified date for an initial term of X years, with the agreement commencing on a specified date.

After the expiration of the initial term, the share work agreement was to continue for successive further terms until terminated by one party with no less than X months' notice.

The share work agreement provides you with a percentage of the gross proceeds of sale or disposal of the annual crop.

The split in sales was determined as a reasonable figure for you to recoup your living expenses with a small margin.

Your share work arrangement has not been treated as a partnership for tax purposes. Based on the agreement:

•                     You authorise Person C and Business A to enter the land in your capacity as lessee of the Land.

•                     You fund expenses by making a personal overdraft facility available to Person C.

•                     You incur the expenses as obligated under the provisions of the Lease as lessee such as rates, taxes, and other outgoings such as insurance.

Between 20XX and 20XX you attended regular site meetings either on the Land or at your main residence. You provided us with details of what was discussed at the meetings.

You provided us with details on your administrative functions, along with other duties that you undertook.

In a specified year you reduced your tasks and involvement in the business due to illness, however the share work arrangement continued until disposal of the lease.

From a specified year you travelled from the aged care facility to the Land with Person C at least fortnightly, and when otherwise required, to assist with light farm duties, attend meetings and conduct monitoring activities.

You also continued to assist with harvests and travelled more often to Land during this time.

You continued to provide work management, perform light duties and attend regular management meetings held at your residential aged care facility or at the property through the share work agreement until the disposal of the lease.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-5

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 328-120

Income Tax Assessment Act 1997 section 328-130

Income Tax Assessment Act 1997 section 995-1