Private ruling: Eligibility for CGT small business concessions
Date of advice: 29 October 2025
Published: 15 December 2025
Ruling period: Income tax year ending DDMMYYYY
Date scheme commenced: DDMMYYYY

Ruling: Q1: Pursuant to subsection 328-125 of the Income Tax Assessment Act 1997 (ITAA 1997), was Trust Y connected with you for the 20XX-XX income year for the purpose of subparagraph 152-10(1)(c)(i) in respect of transferring your farmland (the "Land")? | A1: No | Q2: Will the capital gains tax (CGT) small business relief basic conditions in subsection 152-10(1) of the ITAA 1997 be satisfied for the capital gain you will make from transferring the Land in the 20XX-XX income year? | A2: Yes | Q3: Will you be eligible to disregard the capital gain you will make from transferring the Land in the 20XX-XX income year under CGT small business 15-year exemption in Subdivision 152-B of the ITAA 1997? | A3: Yes

Relevant facts and circumstances: In YYYY, Individual A began farming operations (the "Business") as a sole proprietor. A trust, Trust N ("you"), was established by Deed of Trust dated DDMMYYYY, which was amended by deed dated DDMMYYYY (together, the "Trust Deed"). The Business was transferred to you, and you have conducted the Business since that time. The Trustee for Trust N is Company S (the "N Trustee"). Individual A and Individual B have been the directors and equal shareholders of the N Trustee since the trust was established. The following table shows amounts of income of Trust N, the amounts distributed to Individual A, and his percentage of the trust income for relevant years: [Table removed for publication] The planned transfer of your farmland Between DDMMYYYY and DDMMYYYY, you acquired farmland (the Land). The Land has been used in your Business since the acquisition date. In YYYY, Individual A and Individual B began discussions with their family members, Individual C and Individual D, about the Business succession and their retirement. Their retirement plan involves the N Trustee transferring the Land to Individual C and Individual D. The date for this transfer has not yet been determined, but it is expected to happen by DDMMYYYY. Retirement of Individual A Since YYYY, Individual A has been a full-time farmer, managing the farming operations. In MMMYYYY, management of the Business was handed over to Individual C & Individual D and Individual A reduced the amount of time they were spending on the farm. Individual A estimates that they spend around two out of every five weeks on farm. Individual A has reduced their physical work on the farm. Their work on the farm has been dictated by the farm's needs and busy periods. Whilst they no longer manage the cattle trading, they remain involved in the cattle trading decisions to a small degree. They also undertake maintenance jobs on the Land like fencing, weed and pest control, and carry out repairs on plant and machinery. After transferring the Land, the N Trustee intends to cease carrying on the Business and to wind up the trust, and Individual A and Individual B will permanently retire. Trust Y A new trust, Trust Y, was established on DDMMYYYY to undertake farming operations. The Trustee for Trust Y is Company T (the "Y Trustee"). Since establishment, the directors and equal shareholders of the Y Trustee and named beneficiaries of Trust Y have been Individual C and Individual D. In MMMYYYY, Trust Y began purchasing and trading cattle and using the Land. You have continued using the Land for the cattle you still hold. This arrangement will continue until you have fully ceased trading. The Y Trustee made distributions of income of Trust Y for the 20XX-XX income years of at least 40% to Company U and Individual D. For the 20XX-XX income year, no beneficiary received distributions of at least 40% of Trust Y's income. In the 20XX-XX income year, Trust Y had no distributable income. Company U was incorporated on DDMMYYYY and, since that time, has been wholly owned by the Y Trustee as trustee for Trust Y. Other facts relevant to the small business concessions You will not satisfy the maximum net asset value test in section 152-115 of the Income Tax Assessment Act 1997 (ITAA 1997) just before the CGT event. There were no individuals or companies that carried on business in the 20XX-XX income year that were influenced by the N Trustee (in that capacity), or acted in concert with you, in that year. There were no individuals or companies that carried on business in the 20XX-XX income year that were influenced by the Y Trustee (in that capacity), or acted in concert with Trust Y, in that year. Individual A did not control any other entities in a way described in section 328-125 of the ITAA 1997 that carried on businesses in the 20XX-XX income year. Individual B did not control any other entities in a way described in section 328-125 of the ITAA 1997 that carried on businesses in the 20XX-XX income year. Individual A will be over 55 years of age when the Land is transferred.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | subsection 152-10(1) | paragraph 152-10(1)(a) | paragraph 152-10(1)(b) | paragraph 152-10(1)(c) | subparagraph 152-10(1)(c)(i) | subparagraph 152-10(1)(c)(ii) | subparagraph 152-10(1)(c)(iii) | subparagraph 152-10(1)(c)(iv) | paragraph 152-10(1)(d) | section 152-15 | section 152-35 | subsection 152-35(1) | paragraph 152-35(1)(b) | subsection 152-35(2) | subsection 152-40(1) | section 152-55 | section 152-65 | subsection 152-70(1) | subsection 152-70(4), | subsection 152-70(5) and | subsection 152-70(6) | Subdivision 152-B | subsection 152-110(1) | paragraph 152-110(1)(a) | paragraph 152-110(1)(b) | paragraph 152-110(1)(c) | paragraph 152-110(1)(d) | subsection 152-10(1AA) | subsection 328-110(1) | section 328-115 | subsection 328-115(3) | section 328-120 | section 328-125 | subsection 328-125(1) | paragraph 328-125(1)(b) | subsection 328-125(2) | subsection 328-125(3) | subsection 328-125(4) | subsection 328-125(7) | section 328-130 | subsection 328-130(1)

Reasons for decision: Detailed Reasoning - Detailed reasoning: One of the basic conditions to be satisfied for you to be eligible to use the CGT small business concessions is that one of the subparagraphs in paragraph 152-10(1)(c) applies in your circumstances. As you use the Land in your own business (the "Business") and you will not satisfy the maximum net asset value test just before you transfer the Land, subparagraph 152-10(1)(c)(i) is relevant in your circumstances, which requires that you must be a CGT small business entity for the year in which you transfer the Land - as proposed, the 20XX-XX income year. You will be a "CGT small business entity" for the 20XX-XX income year under subparagraph 328-110(1)(b)(i) as modified by subsection 152-10(1AA) (the "modified previous year test"), if: • you carry on the Business in the 20XX-XX income year; and • also carried on a business in the 20XX-XX income year; and • your aggregated turnover for the 20XX-XX income year was less than $2 million. Your "aggregated turnover" for an income year includes, among other things, the annual turnovers for the income year of any entity that is connected with you at any time during the relevant income year (paragraph 328-115(2)(b)). Was Trust Y connected with you at any time during the 20XX-XX income year? An entity is "connected with" another entity if: (a) either entity controls the other entity in a way described in section 328-125; or (b) both entities are controlled by the same third entity in a way described in section 328-125 (subsection 328-125(1)). Subsection 328-125(2) describes direct control of an entity that is not a discretionary trust for the purpose of the small business concessions, as follows: An entity (the first entity ) controls another entity if the first entity, its *affiliates, or the first entity together with its affiliates: (a) except if the other entity is a discretionary trust - own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage ... that is at least 40% of: (i) any distribution of income by the other entity; or (ii) if the other entity is a partnership - the net income of the partnership; or (iii) any distribution of capital by the other entity; or (b) if the other entity is a company - own, or have the right to acquire the ownership of, *equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage ... that is at least 40% of the voting power in the company. Subsections 328-125(3) and (4) describe the two ways you can determine direct control for an entity that is a discretionary trust, as follows: | Detailed Reasoning - 328-125(3): An entity (the first entity ) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its *affiliates, or the first entity together with its affiliates. | Detailed Reasoning - 328-125(4): An entity (the first entity ) controls a discretionary trust for an income year if, for any of the 4 income years before that year: (a) the trustee of the trust paid to, or applied for the benefit of: (i) the first entity; or (ii) any of the first entity's *affiliates; or (iii) the first entity and any of its affiliates; any of the income or capital of the trust; and (b) the percentage (the control percentage ) of the income or capital paid or applied is at least 40 % of the total amount of income or capital paid or applied by the trustee for that year. Subsection 328-125(7) describes indirect control of an entity, as follows: This section applies to an entity (the first entity ) that directly controls another entity (the second entity ) as if the first entity also controlled any other entity that is directly, or indirectly by any other application or applications of this section, controlled by the second entity. For example, Entity A indirectly controls Entity C if: • Entity A controls Entity B, and • Entity B controls Entity C. An individual or a company is your "affiliate" if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the individual or company business affairs (subsection 328-130(1)). Only an individual or company can be an affiliate, and the individual or company must be carrying on a business. Further, the example in section 328-130 establishes that directors of the same company would not be affiliates of each other merely because they act, or could reasonably be expected to act, in accordance with the other directors' directions or wishes, or in concert, in relation to the affairs of the company. Who controlled Trust N for the 20XX-XX income year? As each of Individual A and Individual B held X% of the vested interests in Trust N, with those interests carrying rights to at least 40% of any income or capital distribution, Individual A and Individual B each directly controlled Trust N pursuant to subsection 328-125(2) and Trust Y did not control Trust N. Did Trust N, Individual A and/or Individual B control Trust Y for the 20XX-XX income year? As you were controlled by Individual A and Individual B and you were not controlled by Trust Y for the 20XX-XX income year, Trust Y will be connected with you for the year if: • you were controlled Trust Y, or • Individual A or Individual B controlled both you and Trust Y (ie. the same third entity). As Trust Y is a discretionary trust, subsection 328-125(3) and (4) are relevant. Applying subsection 328-125(3), Trust Y has a corporate trustee (the "Y Trustee") and, since incorporation, the directors of the Y Trustee have been Individual C and Individual D. During the 20XX-XX income year, the Y Trustee did not act in accordance with the directions or wishes of the you, Individual A or Individual B. Applying subsection 328-125(4), the relevant years are the four years before the 20XX-XX income year. However, given the date Trust Y was established, this only includes the 20XX-XX and 20XX-XX income years. In the relevant years, Y Trustee did not distribute any income of the trust to you, Individual A or Individual B. Further, as none of the beneficiaries that received distributions of Trust Y's income carried on business, none of those beneficiaries were affiliates of you, Individual A or Individual B. As such, Trust Y was not directly controlled by you, Individual A or Individual B at any time during the 20XX-XX income year under either subsection 328-125(3) or (4). Considering the application of subsection 328-125(7), Company U received X% of the income of Trust Y in the 20XX-XX income year, so it directly controlled Trust Y during that year pursuant to subsection 328-125(4). During that year, Company U was controlled by the Y Trustee as trustee for Trust Y pursuant to subsection 328-125(2). Neither the Y Trustee nor Trust Y were directly controlled by you, Individual A or Individual B at any time during the 20XX-XX income year under either subsection 328-125(2), (3) or (4). Therefore, neither Company U nor Trust Y were indirectly controlled by you, Individual A or Individual B. Conclusion During the 20XX-XX income year, applying section 328-125, it is considered that: • You were controlled by Individual A and Individual B • Neither Individual A nor Individual B controlled Trust Y • Trust Y did not control you, and • You did not control Trust Y. | Detailed Reasoning - Detailed reasoning: A capital gain you make may be reduced or disregarded under the CGT small business concessions in Division 152 (about CGT small business relief) if the following basic conditions are satisfied for the gain: (a) a CGT event happens in relation to a *CGT asset of yours in an income year; (b) the event would (apart from this Division) have resulted in the gain; (c) 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 (see subsection 152-15); (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; (d) the CGT asset satisfies the active asset test (see subsection 152-35). | Detailed Reasoning - Paragraph 152-10(1)(a) - will a CGT event happen in relation to a CGT asset of yours?: CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1)). You "dispose of" a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law (subsection 104-10(2)). The time of the event is: (a) when you enter into the contract for the disposal; or (b) if there is no contract - when the change of ownership occurs (subsection 104-10(3)). You will cease to own the Land when you transfer it to Individual C and Individual D. This will constitute a disposal for the purpose of section 104-10. CGT event A1 will happen when the contracts for the transfer are signed. This will satisfy the condition in paragraph 152-10(1)(a). | Detailed Reasoning - Paragraph 152-10(1)(b) - will the CGT event result in a gain (apart from Division 152)?: You make a capital gain from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base (subsection 104-10(4)). In relation to capital proceeds, the market value substitution rule in section 116-30 provides that: • if you don't receive any capital proceeds from the disposal, you are taken to have received the market value (at the time of the disposal) of the CGT asset (subsection 116-30(1)); and • if you received capital proceeds that are more or less than the market value of the CGT asset, and you and the purchaser are not dealing with each other at arm's length, the capital proceeds are replaced with the market value of the CGT asset (subsection 116-30(2)). For the purpose of this ruling, it is accepted that (apart from applying Division 152) the CGT event will result in a capital gain and that the condition in paragraph 152-10(1)(b) will be satisfied. | Detailed Reasoning - Paragraph 152-10(c) - one of the subparagraphs is satisfied for the gain: Subparagraph 152-10(c)(i) is relevant in your circumstances as you have determined that you will not satisfy the maximum net asset value test for the 20XX-XX income year; and you will not be carrying on business as a partner in a partnership or passively holding the Land in the year. This subparagraph requires that you are a CGT small business entity for the 20XX-XX income year. Will you be a CGT small business entity for the 20XX-XX income year? As discussed in question 1, you will be a CGT small business entity under the modified previous year test, if you carry on the Business in the 20XX-XX income year; you also carried on a business in the 20XX-XX income year; and your aggregated turnover for the 20XX-XX income year was less than $2 million. As you carried on the Business in both the relevant years, what remains to be considered is your aggregated turnover for the 20XX-XX income year. Section 328-115 provides that your "aggregated turnover" for an income year is the sum of: (a) your annual turnover for the income year; and (b) the annual turnover for the income year of any entity that is connected with you at any time during the income year; and (c) the annual turnover for the income year of any entity that is your affiliate at any time during the income year; excluding any amounts covered by subsection 328-115(3). An entity's "annual turnover" for an income year is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business (section 328-120). In relation to the 20XX-XX income year: • your annual turnover was $X; • you had no affiliates during the year as there were no other individuals or companies that carried on business that were influenced by the N Trustee, or that acted in concert with you; and • there were no entities that carried on business that were connected with you during the year. As such, your aggregated turnover for the 20XX-XX income year was $X. Pursuant to the modified previous year test, you will be a CGT small business entity for the 20XX-XX income year and the condition in paragraph 152-10(1)(c) will be satisfied as subparagraph (i) will apply. | Detailed Reasoning - Paragraph 152-10(d) - will the Land satisfy the active asset test?: A CGT asset satisfies the active asset test in subsection 152-35(1), if: (a) you owned the asset for 15 years or less and the asset was an *active asset of yours for a total of at least half of the period specified in subsection (2); or (b) you owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the period specified in subsection (2). Relevantly, subsection 152-35(2) provides that the period begins when you acquired the asset; and ends at the time of the CGT event. A CGT asset is an active asset at a time if, at that time, you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you (subsection 152-40(1)(a)). As each of your parcels of Land was acquired before YYYY and have been used in your Business since that time: • each parcel of the Land satisfies the active asset test pursuant to paragraph 152-35(1)(b), and • the condition in paragraph 152-10(1)(d) will be satisfied for the capital gain you will make from transferring the Land. Conclusion - Basic conditions The basic conditions in subsection 152-10(1) will be satisfied for the gain you will make from transferring the Land in the 20XX-XX income year. | Detailed Reasoning - Detailed reasoning: Subsection 152-110(1) states an entity that is a company or a trust can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: (a) the basic conditions in Subdivision 152-A are satisfied for the gain; (b) the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event; (c) the entity had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which the entity owned the CGT asset; (d) an individual who was a significant individual of the company or trust just before the CGT event either: (i) was 55 or over at that time and the event happened in connection with the individual's retirement; or (ii) was permanently incapacitated at that time. | Detailed Reasoning - Paragraph 152-110(1)(a) - the basic conditions: As discussed in question 2, above, the basic conditions in Subdivision 152-A will be satisfied for the capital gain you will make from transferring the Land in the 20XX-XX income year so paragraph 152-110(1)(a) will be satisfied. | Detailed Reasoning - Paragraph 152-110(1)(b) - continuous ownership of the Land for 15-years: Each of the parcels of Land was acquired by you before YYYY. As such, they have been continuously owned by you for the 15-year period ending just before the CGT event and paragraph 152-110(1)(b) is satisfied. | Detailed Reasoning - Paragraph 152-110(1)(c) - significant individual for 15-years when Trust N owned the Land: The condition in this paragraph requires that you had a significant individual for a total of at least 15 years during the period when it owned the Land. The meaning of the term "significant individual" is set out in section 152-55, as follows: An individual is a significant individual in a company or a trust at a time if, at that time, the individual has a *small business participation percentage in the company or trust of at least 20%. Pursuant to section 152-65, an entity's "small business participation percentage" in another entity (the "other entity") at a time is the sum of its: (a) direct small business participation percentage in the other entity at that time, and (b) indirect small business participation percentage in the other entity at that time. An entity holds a "direct small business participation percentage" in another entity at a particular time (the relevant time) equal to the percentage worked out using the table in subsection 152-70(1). Subsections 152-70(4), (5) and (6) provide special rules for discretionary trusts where the trustee has not distributed income in a relevant year or the CGT event year: As discussed above, each of the parcels of Land to be transferred was acquired by you before YYYY. Since the 19XX-XX income year, Individual A was beneficially entitled to distributions of trust income of at least 20% for at least 15 years. As such, pursuant to sections 152-55, 152-65 and 152-70, Individual A was a significant individual of Trust N in each of those years. As you had a significant individual for a total of at least 15 years during which you owned the Land, paragraph 152-110(1)(c) is satisfied. | Detailed Reasoning - Paragraph 152-110(1)(d) - conditions regarding the significant individual: Individual A will be a significant individual of Trust N just before the CGT event as he will be entitled to X% of the income and capital distributions of the trust at that time. Individual A will be over 55 at that time. As such, if the transfer of the Land is in connection with Individual A's retirement the condition in paragraph 152-110(1)(d) will be satisfied. Our website, ato.gov.au, provides the following guidance about whether an event happens in connection with an individual's retirement (see 'Small business 15-year exemption', use quick search code QC44192). The website explains: Whether a CGT event happens in connection with an individual's retirement depends on the circumstances of each case. There would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce. A CGT event may be 'in connection with retirement' even if it occurs at some time before or after an individual's retirement. On the facts, it is considered that transferring your Land will be in connection with Individual A's retirement and that the condition in paragraph 152-110(1)(d) will be satisfied. Conclusion - entitlement to the small business 15-year exemption As the conditions in subsection 152-110(1) will be satisfied in relation to your transfer of the Land in the 20XX-XX income year, you will be eligible to disregard the capital gain that will arise from the transfer.

Reasons for decision: All legislative references in the following reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise specified. | Any reference to "you" in the following reasons for decision is a reference to Trust N and/or the trustee for Trust N (the "N Trustee").