Edited version of private advice

Authorisation Number: 5010111313090

Date of advice: 23 June 2025

Ruling

Subject: Small business CGT concessions - 15-year exemption

Question

Are Person A and Person B eligible for the small business CGT 15-year exemption under section 152-105 of the ITAA 1997 to disregard the gain made on the disposal of the property?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2025

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

The property was purchased by Person A and Person B in 20XX.

Person A and Person B spent several years from purchase date preparing the property to be suitable for livestock. This include restoring fences, providing electrical supply and irrigation.

Person A engaged in agistment activities on the property after purchasing it to support their income from 20XX.

Under the agistment agreement, all calves born on the property would be kept by Person A so that they could grow their own heard via natural increase.

The agistment actives occurred simultaneously with the development of the property to be suitable for cattle herds.

The first calves were born in 20XX and the herd continued to be established over the years until Person A was able to commence their own primary production business.

In the 20XX income year, Person A and Person B commenced a partnership for the same business activity.

In the 20XX income year, the partnership had no sales and declared a loss.

In 20XX, a stock agent from the local sales yard visited the farm to inspect cattle and advise on market price for imminent sale. The stock agent brought a private buyer with him to the inspection.

The taxpayers have recently arranged a direct sale of cattle to the local buyer who attended the meeting with their stock agent. The cattle were scheduled for pickup on before the end of the financial year.

After the sale of stock, there are an estimated X head of cattle remaining.

There is a draft contract to sell the property in the 20XX income year. The final sale is expected to occur before 30 June 20XX.

Activities undertaken by the partnership in the 20XX income year include cattle feeding, watering, health checks, maintenance, record keeping, pasture management, breeding and calving, transporting and marketing.

The partnership will cease operating when the property is sold.

Person A will fully retire from employment as a fire fighter on in July 20XX. Person B is currently working for cashflow purposes until the property is sold. Once the property is sold, they will no longer be engaged in paid employment. The gain from the sale of the property will be used to fund their retirement.

The business recorded an aggregated turnover of less than $X in each year.

Person A and Person B are over 55 years old.

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 152-47

Income Tax Assessment Act 1997 section 152-105

Income Tax Assessment Act 1997 section 152-130

Income Tax Assessment Act 1997 section 328-130

Reasons for decision

If you are an individual, you can disregard any capital gain arising from a CGT event if you meet the basic conditions for relief, you have continuously owned the CGT asset for 15 years ending just before the CGT event and you are either 55 or over at the time of the CGT event and the event happens in connection with your retirement or you are permanently incapacitated at the time of the CGT event.

You meet the basic conditions for relief if:

   (a) A CGT event occurs in relation to a CGT asset of yours, and the event results in a gain

   (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

      (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, or an asset you own that is not an interest in a partnership asset but is used in the business of the partnership.

   (c) you do not carry on a business (other than as a partner) but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.

The CGT asset satisfies the active asset test

A CGT asset satisfies the active asset test if; you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half the period from when you purchased the asset from when you sell it; or, if you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7 ½ years from when you purchased the asset, from when you sell the asset.

A CGT asset is an active asset at a time if, at that time, you own the asset, and it is used, or held ready for use, in the course of carrying on a business that is carried on by you, your affiliate, or another entity that is connected with you.

You are a CGT small business entity for an income year if you carry on a business in the current year, and your aggregated turnover for the current year is likely to be less than $X. You are also a small business entity for an income year if you carry on a business in the current year and your aggregated turnover for the previous year was less than $X.

A spouse is taken to be an affiliate when:

   (a) the asset owner owns the asset, and

      (i) it is used, or held ready for use in the course of carrying on a business in an income year by another entity, or

      (ii) the asset is inherently connected with a business that is carried on in an income year by another entity, and

   (b) the business entity is not, apart from this section, an affiliate of, or connected with, the asset owner.

Spouses of an individual are considered affiliates when determining if the business entity is an affiliate or connected with the asset owner.

Application to your circumstances

Person A

A CGT event will occur in the 2025 year on the upcoming sale of Person A's share of the property, and this CGT event will result in a gain.

Person A has operated a primary production business on the property as a sole trader since 20XX when their business was fully established, as earning income from agistment activities is not typically considered being in business.

Person A's share of the property will need to be an active asset for at least a total of 7.5 years or more in order to satisfy the active asset test. This is because Person A's share of the property has been owned by Person A for more than 15 years.

Person A used their share of the property to run a primary production business as a solder trader for XX years. This satisfies the active asset test.

Person A still operates the primary production business in partnership with Person B and will operate the business until the 20XX year when the property is sold. The partnership is a small business entity with an aggregated turnover of less than $X in the CGT event year. Person A also intends to retire from all forms of work and business once the property has been sold. Because Person A is also over the age of 55, they meet all of the criteria to be eligible for the 15-year CGT exemption under section 152-105 of the ITAA 1997 and can therefore disregard the capital gain made on the sale of their share of the property.

Person B

Person B has been a partner in the partnership with Person A, since the 20XX income year, operating a small business of primary production. The partnership is a CGT small business entity with an aggregated turnover of less than $X in the CGT event year.

Person B's share of the property will need to be an active asset for at least a total of 7.5 years or more in order to satisfy the active asset test. This is because Person B's share of the property has been owned by them for more than 15 years. Person B used their share of the property in running a business in partnership with Person A for a total of X years. This does not satisfy the active asset test.

Therefore, in order to satisfy the active asset test, we must take into account the period in which Person B's spouse used the property.

Person B's share of the property was used in the primary production business operated by Person A as a sole trader from 20XX, to 20XX. Because Person B is a spouse of Person A, then we consider that Person B is an affiliate of Person A during this period. We can then use this period to count towards the years in which Person B's share of the property was an active asset to satisfy the active asset test. Therefore, the share of the property was an active asset for a total of X years. Therefore, the active asset test is satisfied.

Person B intends to retire from all forms of work once the property has been sold. Also, because they are over the age of 55, Person B meets all of the criteria to be eligible for the 15-year CGT exemption under section 152-105 of the ITAA 1997 and can therefore disregard the capital gain made on the sale of their share of the property.