Private ruling: CGT - small business concessions
Date of advice: 29 September 2022
Published: December 2022
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will Person AB (you) and XYZ Pty Ltd (the Company) satisfy the basic conditions under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply the small business capital gains tax (CGT) concessions? | A1: Yes. CGT events happened to CGT assets owned by you and the company resulting in gains. You and the Company do not carry on a business, however your CGT assets were used in businesses carried on by small business entities that are connected with you/the Company. Where you have held the asset for less than 15 years, you have used it as an active asset for at least half of the total period owned. Where the Company has held the asset for more than 15 years, it has been used as an active asset for at least 7.5 of those years. Accordingly, both the Carpark and the Property satisfy the basic conditions under section 152-10 of the ITAA 1997 to apply the small business CGT concessions. | Q2: Will the Company satisfy the conditions under section 152-115 of the ITAA 1997 to apply the small business 15-year exemption? | A2: Yes. You can disregard a capital gain arising from a CGT event when the basic conditions are satisfied and the entity continuously owned the CGT asset for the 15 year period ending just before the CGT event. Section 152-115 of the ITAA 1997 further requires a significant individual who was over the age of 55 and the event happens in connection with the individuals retirement. You acquired Property 1 more than 15 years ago. You are the significant individual and are over the age of 55 years of age. The CGT event will occur in connection with your retirement. Accordingly, the Company will be entitled to apply the 15 year exemption to disregard the capital gain entirely. | Q3: Will you satisfy the conditions under section 152-305 of the ITAA 1997 to apply the small business retirement exemption? | A3: Yes. You can disregard all or part of a capital gain when the basic conditions are satisfied up to the lifetime limit of $500,000 in respect of any one individual. This limit is reduced by any previous amounts disregarded under the small business retirement exemption. When you are over the age of 55 years old there is no requirement to contribute an amount to your superannuation fund or retirement savings account. The retirement exemption can be used after the application of the 50% general CGT discount. You have satisfied the basic conditions as per question 1 and therefore, are entitled to apply the small business retirement exemption up to the lifetime limit. | Q4: Will you satisfy the conditions under section 152-410 of the ITAA 1997 to apply the small business active asset roll-over? | A4: Yes. You can choose to obtain a roll-over under section 152-410 of the ITAA 1997 when the basic conditions are satisfied for the gain and you have not yet acquired a replacement asset or incurred fourth element expenditure. If you choose the roll-over, you can choose to disregard all or part of each capital gain to which this Subdivision applies. If you choose to disregard only some of the capital gain, you make a capital gain equal to the remaining amount. You have satisfied the basic conditions as per question 1 and therefore, are entitled to apply the small business active asset roll-over. | Q5: Will the forfeited deposits and extension fees paid under the original contract of sale be included as additional capital proceeds for you and the Company received in relation to the new sale contract of the property? | A5: Yes. The deposit and instalment payments were forfeited by the purchaser on cancellation of the original contract and within less than 2 years, a new sales contract was entered into. The purchaser had requested previous Deeds of Variations due to the impact of COVID-19 causing delays in obtaining approval. A new contract was entered into in MMYYYY to reflect the updated sale price and date of completion. As provided in TR 1999/19, it is considered the forfeited deposits were paid as part of a continuum of events in relation to disposal of the two properties. The forfeited deposits and instalment payment amounts form part of the capital proceeds of the total sale amount of the asset. Therefore, allowing the combined amounts for the respective asset/s to be subject to the CGT small business concessions.

Relevant facts and circumstances: Person AB (you) is the sole shareholder and director of XYZ Pty Ltd (the Company) and LMNO Pty Ltd (the Business). You have no other connected or affiliated entities. The aggregated turnover of you and connected entities for the 20XX income year was less than $X million. In 199A, you acquired 100% ownership of the Business. You are over the age of 55. The Business operated a wholesale business. In April 200B, the Company acquired property 1 (Property 1) for under $500,000. From April 200B, the Company leased the Property 1 to the Business. In April 200C, you acquired property 2 (Property 2) for under $XXX. From April 200C, you leased Property 2 to the Business. Property 2 was acquired to support the Business. In June 201D, you and the Company entered into contract (the Sale Contract) to dispose of Property 1 and Property 2, settlement was scheduled for December 201D. Property 1 sold for over $R million with a deposit of approximately $XXX paid to the Company. Property 2 sold for over $T million with a deposit of under $XXX paid to you. There were a number of contract variations and cancellations over a couple of years with the purchaser paying you and the Company a number of deposits in relation to acquiring the properties. These deposits were often forfeited to you and the Company when there was a contract variation or renewal. Once the properties are handed over at settlement, you intend to retire as your business activities have decreased.

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 152-40 | Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 section 152-305 | Income Tax Assessment Act 1997 section 152-410 | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 328-125