Private ruling: Capital gains tax - Small Business Concessions - 15 year exemption
Date of advice: 20 December 2018
Published: April 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Does Person A satisfy the basic conditions for relief under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Based on the information provided it is considered that you meet the basic conditions for relief including the conditions mentioned in subsection 152-10 (1A) of the ITAA 1997. The properties satisfy the active asset test on the basis that they (which have been owned either solely or jointly by you for more than 15 years) have been farmed by the Trust, a connected entity, for at least 7 ½ years. We note also that you and your spouse equally controlled the Trust as you and your spouse had 100% control of the day to day running of the Trust. The Commissioner considers that the Trust was winding up the business in the 201X-1X income year and although the properties were not used in the business of the Trust in the income year they were disposed of section 152-49 of the ITAA 1997 applies to treat the assets as been used in the business at the time they were disposed of. | Q2: Can Person A claim the 15 year exemption under section 152-105 of the ITAA 1997 for any capital gain arising from the sale of properties one and two? | A2: Yes. You have owned property one solely and the property two jointly with your spouse for more than 15 years and you are over 55 years of age. In addition, the Commissioner considers that the sale of the properties is connection with your retirement; therefore you are eligible to apply the 15 year exemption.

Relevant facts and circumstances: A trust established by a Deed in the 1990s. The Trust is a discretionary trust. Trustees of the Trust are: ● Person A ● Person B. The beneficiaries of the Trust include Persons A and B and their family members. Person A and B are both over 55 years of age. Person A and B are married. Persons A and B jointly control the Trust and make all decisions in respect of the daily affairs and running of the Trust. Person A purchased property one and is the sole owner of property one. Person A has owned property one for more than 15 years. Persons A and B purchased property two. Persons A and B are joint owners of property two. Persons A and B have owned property two for more than 15 years. Both properties were purchased after 20 September 1985. The Trust has used property one and two to carrying on a business of primary production. Persons A and B were actively involved in all farming activities carried on by the Trust. Persons A and B and an unrelated third party entered into an agreement to sell property one and two. The agreement was signed on XX XXXXXXXX XXXX. Property one was sold for $X million. Property two was sold for $X million of which Person A was entitled to 50% of the sale proceeds. A capital gain was made on the sale of property one and two. During an income year the Trust commenced winding up the primary production business. The sale of properties was settled before the Trust was wound up. Persons A and B moved away from properties 1 and 2. Persons A will retire and intends moving to the city with Person B after the sale of properties 1 and 2. Persons A had no intention or plan to recommence a business or enter into an employment arrangement. Person A does not carry on a business as a sole trader. Persons A and B are not partners in a partnership. Person A and the Trust are not connected or affiliates with any other entities which carry on a business. The annual business turnover for the Trust in the year of winding up was less than $2 million. Person A intends to use the sale proceeds to fund their retirement. The Trust’s distributable its income to Persons A and B during a number of income years

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 Subsection 152-10(1A) | Income Tax Assessment Act 1997 Paragraph 152-10(1)(b) | Income Tax Assessment Act 1997 Paragraph 152-10(1)(d) | Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Paragraph 152-35(1)(b) | Income Tax Assessment Act 1997 Subparagraph 152-40(1)(a)(ii) | Income Tax Assessment Act 1997 Section 152-49 | Income Tax Assessment Act 1997 Subparagraph 152-40(1)(a)(iii) | Income Tax Assessment Act 1997 Section 152-105 | Income Tax Assessment Act 1997 Paragraph 152-105(1)(b) | Income Tax Assessment Act 1997 Paragraph 152-105(1)(d) | Income Tax Assessment Act 1997 Subsection 328-115(1) | Income Tax Assessment Act 1997 Subsection 328-115(5)