Private ruling: CGT - small business concessions
Date of advice: 20 December 2022
Published: 20 February 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can the in-specie transfer of the farmland from Company Pty Ltd to the related Family Trust, which triggers the CGT event eligible for the 15-year exemption, and subsequent vesting of the land from the Family Trust to the related significant individual, be treated as a payment of the CGT exempt amount to the CGT concession stakeholder under section 152-125 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: Company Pty Ltd owns land. 100% of the shares in Company Pty Ltd are currently held by the related Family Trust. Related individual X is under 55 years old and is permanently incapacitated. They are indirectly a significant individual of Company Pty Ltd, and directly a significant individual of the Family Trust for the 20XX financial year. The company will transfer the land will be transferred in-specie to the Family Trust which will trigger a CGT event. The land will then be vested from the Family Trust to individual X.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-125 Under section 152-125 of the ITAA 1997 if a capital gain made by a company or trust is disregarded under the small business 15-year exemption any distributions made by the company or trust of the exempt amount to the CGT concessions stakeholders are: | • not included in the assessable income of the CGT concession stakeholders, and | • not deductible to the company or trust | if certain conditions are satisfied. | The provision requires the company or trust to make a payment to an individual (whether directly or indirectly through one or more interposed entities) within 2 years of the relevant CGT event. The payment must be made to an individual who was a CGT concession stakeholder of the company just before the CGT event. Further, as per subsection 152-125(2) of the ITAA 1997, the payment must not exceed an amount determined by multiplying the CGT concession stakeholder's participation percentage by the exempt amount. | Application to your circumstances | In this case Company Pty Ltd is transferring land to the Family Trust which results in a CGT event eligible for the 15-year exemption. The Family Trust then intends to transfer the land to individual X. We do not consider that the transfer from the trust to individual X will satisfy the requirements of 152-125 of the ITAA 1997 and be considered a payment of the exempt amount. | The relevant provision requires the company to disregard a capital gain (the exempt amount) under the 15-year exemption. It then allows the company to make a payment of this exempt amount to the relevant CGT concession stakeholders. We consider that the payment of the exempt amount must be separate to the transfer of the property. | In addition to the above, even if we did consider the property could be considered a payment it would not meet the requirements of subsection 152-125(2) of the ITAA 1997 as the value of the property would be more than the exempt amount.