Private ruling: Income tax - capital gains tax - small business concessions
Date of advice: 15 April 2020
Published: June 2020
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Does the company satisfy the basic conditions for the small business concessions under Division 152 of the Income Tax Assessment Act 1997 (ITAA) for the disposal of the asset? | A1: Yes. The company satisfied the basic conditions under section 152-10 of the ITAA 1997, as it was a small business entity at the time of CGT event on XX. The company had an aggregated turnover less than $2 million and the asset is considered an active asset. You can find further information on our website by searching QC52266. | Q2: Can the company disregard the remaining capital gain (after applying 50% active asset reduction) on the disposal of the asset by choosing to apply the small business retirement exemption? | A2: Yes. In this case, the company satisfied the basic conditions and the significant individual test. The company also made a choice to apply the retirement exemption and kept a record of it. As the CGT concession stakeholder was under the age of 55 years old the company made a payment to a complying superannuation fund. The conditions for the retirement exemption have been satisfied. You can find further information on our website by searching QC 52290.

Relevant facts and circumstances: The company was registered in 20XX. X and Y were each appointed the directors and shareholders of the company and each received a distribution of 50 ordinary shares. In 20XX, X resigned and transferred their shares to Y who became the sole director and 100% shareholder of the company. In 20XX the company and a lending institution entered into an agreement. The company provided services and exclusively sold products for the lending institution. In return the company was entitled to receive commissions. In 20XX the agreement was terminated and the asset was disposed of. Within the termination agreement between the company and the lending institution, the company was not permitted to recommence their business operations. The company does not intend to start any other business activity. The final payment was made in 20XX and the company incurred a capital gain. The company's aggregated turnover including the affiliates connected with the company was less than $2 million. The company has used the active asset reduction and made the choice in writing to apply the small business retirement exemption to disregard the remaining 50% of the capital gain. The choice was made not to exceed Y's lifetime limit of $500,000. Y is under 55 years of age. In 20XX the company paid an amount to a complying superannuation fund on behalf of Y.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-200 | Income Tax Assessment Act 1997 section 152-300 | Income Tax Assessment Act 1997 section 152-305 | Income Tax Assessment Act 1997 section 152-310 | Income Tax Assessment Act 1997 section 152-315 | Income Tax Assessment Act 1997 section 152-320 | Income Tax Assessment Act 1997 section 152-325