Private ruling: Whether you are entitled to the CGT SB 15 year exemption
Date of advice: 29 July 2016
Published: September 2016
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the small business 15 year exemption, as outlined under section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) apply in order to disregard the capital gain made on the sale of the asset if the sale happens in connection with your retirement? | A1: Yes.

Relevant facts and circumstances: You operate a business through a partnership. The partnership is a Small Business Entity (SBE). You and the other partner have owned an asset that has been used in carrying on the business for more than 15 years. You and the other partner are seriously thinking about selling the partnership asset and retiring. You are both over 55 years old.

Relevant legislative provisions: Section 152-10 Income Tax Assessment Act 1997 | Section 152-35 Income Tax Assessment Act 1997 | Section 152-105 Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Basic conditions: A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the basic conditions are satisfied. Section 152-10 of the ITAA 1997 outlines the conditions to be met as follows: • a CGT event happens in relation to a CGT asset of yours in an income year • the event would have resulted in a gain • the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and • at least one of the following applies; - you are a small business entity for the income year - you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997 - 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 of the partnership, or - you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you. In this case, when the asset is sold, a CGT event will occur in relation to a CGT asset that is a partnership asset and it is expected that this event will result in a capital gain. The partnership is a SBE. The active asset test will be considered below. Active asset test The active asset test is contained in section 152-35 of the ITAA 1997. Where you have owned the asset for more than 15 years, the active asset test is satisfied if the asset was an active asset of yours for a total of at least 7.5 years of the test period detailed below. The test period: • begins when you acquired the asset, and • ends at the earlier of • the CGT event, and • when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows). A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you. The asset has been used in the business by the partnership since it was purchased more than 15 years ago. Therefore the active asset test will be satisfied. Accordingly, the partnership meets all the basic conditions for the small business concessions. | Detailed Reasoning - Small business 15 year exemption: For an individual to be eligible for the small business 15-year exemption they must satisfy the basic conditions and further conditions as outlined under section 152-105 as follows: • continuously owned the CGT asset for the 15-year period ending just before the CGT event happened, and • when the CGT event happened you were either: • at least 55 years old at that time and the event happened in connection with their retirement, or • permanently incapacitated at that time. The property has been held continuously for more than 15 years. You are both over 55 years of age and you are now considering selling the land and retiring. If this occurs you will both meet the additional requirements and are both entitled to the CGT small business, 15 year exemption.