Edited version of private advice

Authorisation Number: 1052348595113

Date of advice: 22 January 2025

Ruling

Subject: CGT - small business concessions

Question

Are you eligible for the CGT small business retirement exemption on the sale of their share of the property under Subdivision 152-D of the Income Tax Assessment Act 1997

Answer

Yes. You are eligible for the CGT small business retirement exemption for their share of the sale of the property and can disregard all, or part, of the capital gain made on your share of the property up to a lifetime cap of $500,000. This is because you satisfy the basic conditions under section 152-10 of the ITAA 1997. Furthermore, because you are over the age of 55, they do not have to make a contribution to a complying superannuation fund that is equal to the assets CGT exempt amount.

This ruling applies for the following period:

Year ended X of XX 20XX

Relevant facts and circumstances

You are over the age of 55.

You and person 1 are spouses.

You and person 1 purchased the property jointly between you.

Person 1 operates a business from the property.

You are involved in the business in an unpaid capacity.

You and person 1 will have an aggregated turnover of less than $2 million in the 20YY income year.

The sale of the property is anticipated to occur in the 20YY financial year.

Once the property sells, you and person 1 will cease work in any capacity.

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 152-47

Income Tax Assessment Act 1997 section 152-305

Income Tax Assessment Act 1997 section 328-110

Reasons for decision

If you are an individual, you can choose the small business retirement exemption to disregard all or part of a capital gain under section 152-305 of the ITAA 1997 if you meet the conditions in subdivision 152-A of the ITAA 1997, and, if you are under the age of 55, you contribute an amount equal to the asset's CGT exempt amount to a complying superannuation fund.

You satisfy the basic conditions of relief under subdivision 152-A of the ITAA 1997 if:

a.            a CGT event occurs that results in a gain, and

b.            at least one of the following applies:

              I.         you are a CGT small business entity for the income year;

              II.         you satisfy the maximum net asset value test under section 152-15 of the ITAA 1997;

              III.         you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership

              IV.         the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year;

c.            the CGT asset satisfies the active asset test.

The conditions in subsection 152-10(1A) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year if:

a)            your affiliate, or an entity that is connected with you, is a CGT small business entity for the income year; and

b)            you do not carry on a business in the income year (other than in a partnership); and

c)            if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and

d)            in any case - the CGT small business entity referred to in paragraph (a) is an entity that, at a time in the income year, carries on the business in relation to the CGT asset.

Under section 152-47 of the ITAA 1997, and an asset owner owns a CGT asset, and the asset is used in the course of carrying on a business, and you are a spouse of the individual, then you are considered affiliates.

A CGT asset satisfies the active asset test under section 152-35 of the ITAA 1997 if you have owned that asset for more than 15 years and the asset was an active asset for a total of at least 7 ½ years from when it was purchased to when it was sold.

A CGT asset is an active asset under section 152-40 of the ITAA 1997 if you own the asset and it is used in the course of carrying on a business that is carried on by your affiliate.

Application to your circumstances

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

You satisfy the conditions under subsection 152-10(1A) of the ITAA 1997 because your affiliate, person 1, is a CGT small business entity (152-10(1AA) ITAA 1997) for the income year, you do not carry on a business in the income year, and person 1 carries on a business in relation to the property.

You are an affiliate of person 1 according to section 152-47 of the ITAA 1997 because you are spouses, you own part of the property, and person 1 is a CGT small business entity who uses the asset in the course of carrying on their business.

The property satisfies the active asset test because you have owned it for over 15 years, and it was an active asset for at least 7 ½ years from when it was purchased to when it will potentially be sold.

The property is an active asset because it was used in the course of carrying on a business by an affiliate.

You are eligible for the CGT small business relief retirement exemption because you meet the basic conditions under Subdivision 152-A of the ITAA 1997. Therefore, you can disregard a capital gain on the sale of the property, with a lifetime cap of $500,000. Furthermore, because you are over the age of 55, you do not have to contribute any amounts to a complying superannuation fund.