Private ruling: CGT - small business concessions - 15-year exemption
Date of advice: 29 April 2026
Published: 6 July 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Can you apply the 15-year exemption under section 152-110 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made on the sale of the business? | A1: Yes.

Relevant facts and circumstances: Person A and Person B, who are spouses, are the directors and shareholders of Company C (you). You registered as a company on DD MM 20XX. Person A and Person B have both worked in the business full-time for over xx years. You sold the business DD MM 20XX, including related business assets and intellectual property. At that time, Person A was X years old and Person B was X years old. A major contributing factor to the sale of the business assets was Person B's declining health. Person B has been diagnosed with several health conditions for approximately X years. Prior to the sale, Person B's condition deteriorated to the point where they were unable to work. Person B has since been granted a disability support pension. You have provided a letter from a general practitioner confirming that Person B has a medical condition that has affected their work capacity and their role in the family business. The net value of assets owned by you, your affiliates and entities connected with you is less than $6 million when combined.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-15 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-40(1) | Income Tax Assessment Act 1997 section 152-50 | Income Tax Assessment Act 1997 section 152-55 | Income Tax Assessment Act 1997 subsection 152-70(1) | Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 paragraph 152-110(1)(a) | Income Tax Assessment Act 1997 paragraph 152-110(1)(b) | Income Tax Assessment Act 1997 paragraph 152 110(1)(c) | Income Tax Assessment Act 1997 subparagraph 152-110(1)(d)(ii)

Reasons for decision: Summary: You meet the basic conditions for the small business capital gains tax (CGT) concessions. You have owned the business for over 15 years, and Person B has been a significant individual during this time. The business was sold due to Person B's permanent incapacity. Accordingly, you can apply the 15-year exemption under section 152-110 of the ITAA 1997 to disregard the capital gain made on the sale of the business. | Detailed Reasoning - Basic conditions: To access the small business concessions, you must meet the basic conditions for relief under section 152-10 of the ITAA 1997. You may reduce or disregard a capital gain you make under Division 152 of the ITAA 1997 if a CGT event happens in related to a CGT asset of yours in an income year and the event would have resulted in a gain. You must be a small business entity for the income year or satisfy the maximum net asset value test. The asset must also meet the active asset test. | Detailed Reasoning - Maximum net asset value test: The maximum net asset value test is contained under section 152-15 of the ITAA 1997. The test is satisfied if, just before the CGT event, the sum of the following amounts does not exceed $6 million: • the net value of the CGT assets you own • the net value of the CGT assets of any entities connected with you, and • the net value of the CGT assets of any affiliates of yours or entities connected with your affiliates. | Detailed Reasoning - Active asset test: The active asset test is contained in section 152-35 of the ITAA 1997. The test is satisfied where an asset is owned for more than 15 years, and the asset was an active asset for a total of at least 7.5 years in the test period. The test period begins when the asset was acquired and ends at the CGT event. | Detailed Reasoning - 15-year exemption: Subdivision 152-B of the ITAA 1997 provides a small business 15-year exemption as part of the CGT small business relief provisions. If you qualify for the small business 15-year exemption, the capital gain is entirely disregarded. To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the 'basic conditions'. The 15-year exemption also has further requirements that you must satisfy for the concessions to apply. One of those conditions is that 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. The other condition is that the individual who was a significant individual of the company just before the CGT event either was 55 or older at that time and the event happens in connection with their retirement; or the individual was permanently incapacitated at the time. | Detailed Reasoning - Significant individual: Section 152-50 of the ITAA 1997 contains the significant individual test. An entity satisfies the significant individual test if the entity had at least one significant individual just before the CGT event. Section 152-55 of the ITAA 1997 explains the meaning of significant individual. 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%. Item 1 of the table in subsection 152-70(1) of the ITAA 1997 provides an entity's direct small business participation percentage in a company is the smallest of the percentage of voting power, the percentage of any dividend the company may pay or the percentage of any distribution of capital the company may make that the entity has because of holding the legal and equitable interests in shares in the company. | Detailed Reasoning - Permanently incapacitated: Subparagraph 152-110(1)(d)(ii) of the ITAA 1997 states that an individual who was the significant individual of the company just before the CGT event must have been permanently incapacitated at that time. The term 'permanently incapacitated' is not defined for the purpose of the CGT provisions. However, the Superannuation Industry (Supervision) Regulations 1994 define permanent incapacity in relation to a fund member who has ceased to be gainfully employed due to ill health, whether physical or mental, as being where the trustee is reasonably satisfied that the member is unlikely to ever again engage in gainful employment for which the member is reasonably qualified. | Detailed Reasoning - Application to your circumstances: To qualify for the 15-year exemption, you must first satisfy the basic conditions. In your case, a CGT event happened to a CGT asset of yours when you sold your business, which resulted in a capital gain. You have confirmed that the net value of the CGT assets owned by you, your affiliates, and entities connected with you is less than $6 million when combined. You therefore satisfy the MNAV test. You also meet the active asset test, as you have owned the asset for more than 15 years and the asset was an active asset for more than 7.5 years during the period of ownership. You therefore meet the basic conditions under paragraph 152-110(1)(a) of the ITAA 1997 and satisfy the 15-year ownership requirement under paragraph 152-110(1)(b) of the ITAA 1997. Person A and Person B have both held 50% of the ordinary shares in the company since DD MM 20XX. You sold the business on DD MM 20XX. Accordingly, you have owned the business for at least 15 years, and Person B was a significant individual during that time. Therefore, you meet the requirement in paragraph 152-110(1)(c) of the ITAA 1997. At the time of the CGT event, Person B's health had deteriorated because of several medical conditions which meant that they were no longer able to work in the business. The Commissioner considers that Person B, being a significant individual of the company, is permanently incapacitated for the purposes of subparagraph 152-110(1)(d)(ii) of the ITAA 1997. The 15-year exemption under section 152-110 of the ITAA 1997 can therefore be applied to disregard the capital gain made on the sale of the business.