Private ruling: Whether eligible for the small business 50% reduction and the small business retirement exemption
Published: July 2011


Relevant facts and circumstances: You are an employee of a medical company since 1987. You own a commercial property that is rented as a medical surgery by the medical company. You are the sole shareholder of the medical company. The medical company started to rent out your property in 1996. The turnover for medical company has been estimated at around $600,000 for the last two financial years. You own a number of investment properties. You are under 55 years of age as of 2011. Issue 1 Question 1 Summary Are you eligible to apply small business 50% reduction in section 152-205 of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain made by selling your commercial property? Detailed reasoning The small business 50% reduction can be applied if the basic conditions are satisfied. The basic conditions for relief under section 152-10 of the (ITAA 1997) are: 152-10(1) A capital gain (except for a capital gain from CGT event K7) you make may be reduced or disregarded under this division if the following basic conditions are satisfied for the gain: (a) A CGT event happens in relation to a CGT asset of yours in an income year; (b) The event would (apart from this Division) have resulted in the gain; (c) at least one of the following applies: (i) you are a small business entity for the income year; (ii) you satisfy the maximum net asset value test (section 152-15) (iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset for the partnership; (iv) the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year; (d) the CGT asset satisfies the active asset test (section 152-35). When selling your commercial property to your self managed superannuation fund a CGT event will occur on this asset resulting in a gain, this satisfies paragraph 152-10(1)(a) of the (ITAA 1997). This event would have certainly resulted in a gain and therefore fully satisfies paragraph 152-10(1)(a)(ii) of the (ITAA 1997). Paragraph 328-110(1)(b)(i)(ii) of the (ITAA 1997) states your are a small business entity if you carry on a business and your aggregated turnover for the previous and current year is less then $2 million. Further to this paragraph, subsection 328-115(2) clarifies the aggregated turnover is the annual turnover for the income year of any entity (a relevant entity) that is connected with you at any time during the income year. You have indicated that your connected entity (medical company) annual turnover has been less then $600,000 for the previous and current year. The salary paid to you is not included because of subsection 328-115(3) of the (ITAA 1997). You have therefore satisfied paragraph 152-10(1)(c) of the (ITAA 1997). You have owned the CGT asset for more then 15 years and has been used for business for the entire life, you therefore satisfy section 152-35 of the (ITAA 1997). Is it consequently concluded that the individual will satisfy the basic conditions for relief under section 152-10 of the (ITAA 1997) and the small business 50% active asset reduction can be applied. Issue 2 Question 1 Summary Are you able to apply the small business retirement exemption under section 152-305 of the (ITAA 1997)? Detailed reasoning Section 152-305 of the (ITAA 1997) deals with choosing the retirement exemption for capital gains. Under subsection 152-305(1) of the (ITAA 1997) if you are an individual, you can choose to disregard all or part of a capital gain if: (a) the basic conditions in Subdivision 152-A are satisfied for the gain; and (b) if you are under 55 just before you make the choice- you contribute an amount equal to the asset's CGT exempt amount to a complying superannuation fund or an RSA and (c) the contribution is made: (i) if the relevant CGT event is a CGT event J2, J5, J6- when you made the choice; or (ii) otherwise- at the later of when you made the choice and when you received the proceeds. As stated in Question 1 , you have satisfied the basic conditions under Subdivision 152-A for the gain. It is stated that you are under 55 years of age at year ended 30 June 2011. Under paragraph 152-30(1)(b) if you are under 55 just before you made the choice you must contribute an amount equal to the assets' CGT amount to a complying superannuation fund or RSA. You have indicated that you assume to contribute the gain to your superfund at the later of when you made the choice and when you receive the proceeds before year ended 30 June 2011. Therefore the capital gain made is eligible for the small business retirement exemption and must be rolled into a complying superannuation fun or RSA. Assumptions You will make the capital gain before year ended 30 June 2012. You will contribute the gain to your superfund at the later of when you made the choice and when you receive the proceeds.



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