ATO ID 2002/494: CGT small business concessions - retirement exemption - making an eligible termination payment years later.
Date of decision: 12 February 2002
Year of income: Year ending 30 June 2003
Business line: Private Groups and High Wealth Individuals

Issue
Can the taxpayer, a private company, make an eligible termination payment under subsection 152-325(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to a CGT concession stakeholder several years after the CGT concession stakeholder ceased to be an employee of the taxpayer?

Decision
Yes. The taxpayer can make an eligible termination payment under subsection 152-325(1) of ITAA 1997 in relation to a CGT concession stakeholder who was an employee of the taxpayer several years after the employment was terminated provided the payment is made in consequence of the termination of that employment.

Facts
The taxpayer sold a business which was acquired after 20 September 1985. A capital gain arose on the sale of a CGT asset of the business. Capital proceeds from the sale of the CGT asset will be paid in instalments over a number of years. A CGT concession stakeholder of the taxpayer ceased to be an employee of the taxpayer on the sale of the business. The taxpayer meets the basic conditions contained in Subdivision 152-A of ITAA 1997 for small business relief.

Reasons for decision
Summary: A company can choose to disregard all or part of a capital gain under the small business retirement exemption if, amongst other things, the conditions set out in section 152-325 of ITAA 1997 are satisfied. Subsection 152-325(1) of ITAA 1997 requires a company to make an eligible termination payment in relation to a CGT concession stakeholder each time it receives an amount of capital proceeds from a CGT event for which it has chosen the retirement exemption. An eligible termination payment in relation to a person means any payment made in respect of the person in consequence of the termination of any employment of the person. Employment includes the holding of an office (subsection 27A(1) of the Income Tax Assessment Act 1936 ). If the termination of an employment is either a cause or an antecedent of the payment the payment is made in consequence of that termination. A gap of several years between the termination of the employment and the making of the payment will not destroy this connection. In these circumstances the entitlement to the payment was not dependent upon the occurrence of any other event or upon the consent of any other person. An employment has terminated and that termination is the reason for the payment. Consequently the payment is an eligible termination payment.

Legislative references: Income Tax Assessment Act 1936 subsection 27A(1)
Subject references: Capital gains tax CGT concession stakeholder Eligible termination payments Sale by instalments Small business retirement exemption