dited version of your private ruling

Authorisation Number: 1052409734949

Date of advice: 17 June 2025

Ruling

Subject: CGT - 15-year exemption

Question 1

Do A and B meet the "in connection with" retirement requirements under paragraph 152-105(d)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) in order to claim the CGT small business 15-year exemption in Subdivision 152-B of the ITAA 1997 on the sale of the farmland?

Answer 1

Yes. A and B meet the in connection with retirement requirements as there will be at least a significant reduction in the number of hours they work or a significant change in the nature of their present activities to be regarded as a retirement for the purposes of paragraph 152-105(d)(i) of the ITAA 1997.

This ruling applies for the following period:

1 July 20XX to 30 June 20XY

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.              A and B operate a primary production business in a partnership alongside the trustee for AB Trust.

2.              A and B are over 55 years old.

3.              A and B have two adult children C and D.

4.              All family members are beneficiaries of the trust, with A and B being the ultimate controllers.

5.              C and D have both been working in the business and intend on purchasing part of the farmland to continue the farming operation, and to create their own farming business.

6.              A and B intend to sell the entire land X to D in the 20XX financial year.

7.              A and B intend to sell a portion of land Y to C in the 20XX financial year.

8.              A and B intend to sell a portion of land Z to C in the 20XX financial year.

9.              The properties will be purchased at market value.

10.          C and D will fund the purchase by taking equal responsibility of an existing debt. They will be gifted $XXX,XXX each by A and B, with the remainder held as a second mortgage with interest payments used to help provide retirement income.

11.          C and D will enter the partnership by 30 June 20XX.

12.          A and B will continue to hold other parts of the farmland.

13.          A and B intend on living on a portion of the farmland and will then move off the farm and leave the farming operation to C and D. A and B began searching for a suitable retirement home.

14.          After building equity, C and D intend on purchasing the remaining land when it is financially possible, as they will be unable to take on the entire debt at once.

15.          All properties subject to this ruling are post-CGT assets and would therefore be subject to CGT.

16.          B used to work 80 hours per week performing physical labour and was directly involved in the primary production business. In recent years, B's hours decreased to 40 hours. It is expected that the significant reduction is expected to continue as their children begin to increase their capabilities, and the hiring of a full-time employee. After the transfer of the properties to C and D, B's working hours will reduce to half (20 hours) and will further reduce to 10 hours per week.

17.          A worked 25-30 hours per week performing duties directly related to the business (administration, debt management, budgeting etc). After the transfer, A's hours will reduce to less than 10 hours per week.

18.          A and B began training C and D on how to run the business. This included long-term planning, and financial management.

19.          A and B intend on joining meetings held within the business on a weekly basis to provide training and knowledge to C and D.

20.          C and D will receive A's and B's share (25% each) of their individual interests in the assets to be transferred with the land.

21.          A and B will be working on an ad hoc basis after the sale of the properties by acting as mentors when called upon by their children.

22.          A and B will not receive income from their hours worked on the farm. Their sources of income will be from trust distributions, interest and investment property lease income.

23.          A and B will not have an official role in the business after the sale of the properties.

24.          A and B will continue to control AB Trust in the short term and intend to transfer control of the trust to C and D in 2 to 3 years.

25.          A and B will officially retire and exit the partnership within the next 2 to 3 years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

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