Private ruling: Small business 15-year exemption
Date of advice: 2 August 2022
Published: November 2022
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | The scheme commenced on | 1 July 20XX

Ruling: Q1: Will the Payments from the Company to Individual C be exempt under section 152-125 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: The Property and its owners The Company was incorporated before 20 September 1985. Prior to 20 September 1985, the Company acquired a commercial property (the Pre-CGT Interest). Prior to 20 September 1985, a Related Entity acquired commercial properties which were adjacent to the Company's commercial property. After 20 September 1985, the certificates of title relating to these properties were consolidated into the one certificate of title (the 'Property'). The amalgamation of the properties was a council requirement associated with the development of the properties rather than a voluntary process. The consolidation of the title of the properties that happened after 20 September 1985: • was a 'not in common ownership' consolidation of the properties such that co-ownership of the properties did not result from the consolidation; • did not result in a tenancy in common or joint tenancy; and • did not result in CGT event A1 of the ITAA 1997 happening in respect of the Pre-CGT Interest or the interest in the properties owned by the Related Entity. The Company and the Related Entity do not carry on any business. Since the acquisition of their individual interests in the properties and since the amalgamation after 20 September 1985, they have simply passively held the interest in the Property. The Business The Business Entity was incorporated before 20 September 1985 and has operated a business since incorporation. Individual C is a director of the Business Entity and has managed the day to day running of the business. The Property has been used in the business of the Business Entity since its acquisition. Shareholdings in the Companies The Company From its incorporation before 20 September 1985, Individual A and Individual B, who were spouses, held XX% of the ordinary shares in the Company each. On Individual B's passing, their XX% interest passed to Individual A who subsequently held XX% of the ordinary shares in the Company. On Individual A's passing, their XX% interest in the Company passed to their child, Individual C, pursuant to a Deed of Family Arrangement. The Company also has redeemable preference shares on issue that provide limited rights to dividends and capital but no voting rights. The Related Entity From its incorporation before 20 September 1985, Individual A and Individual B held XX% of the ordinary shares in the Related Entity each. On Individual B's passing, their XX% interest passed to Individual A who subsequently held XX% of the ordinary shares in the Related Entity. On Individual A's passing, their XX% interest in the Related Entity passed to Individual C pursuant to a Deed of Family Arrangement. The Business Entity From its incorporation before 20 September 1985, Individual A and Individual B held XX% of the ordinary shares in the Business Entity each. After 20 September 1985, Individual C was issued with XX ordinary share, such that the shareholding of the Business Entity was owned equally by Individual A, Individual B and Individual C at XX%. On Individual B's passing, their XX% interest in the Business Entity passed to Individual A who subsequently held XX% of the ordinary shares, with Individual C holding XX% of the shares. On Individual A's passing, their XX% interest in the Business Entity passed to Individual C, pursuant to a Deed of Family Arrangement. The Business Entity also has redeemable preference shares on issue that provide limited rights to dividends and capital but no voting rights. Sale of the Property During the income year ended 30 June 20XX, a contract was entered into for the sale of the Property (the Sales Contract). The Company made a capital gain from the sale of the Pre-CGT Interest in the Property. However, this capital gain was disregarded for the purposes of CGT event A1 of the ITAA 1997. Aggregate Turnover of the Business Entity For the financial years ended 30 June 20XX and 30 June 20XX, the aggregate turnover for the Business Entity (and its affiliates and connected entities) was less than $X million. Retirement of Individual C Individual C is aged over XX. The Business Entity's business was being run down immediately prior to the sale of the Property, as Individual C was in the process of retiring. As the Property had to be vacant prior to settlement, the majority of the Business Entity's business equipment and machinery was disposed of prior to the sale of the Property. A few items are in storage and Individual C is in the process of trying to sell them. Aside from arranging the disposal of these items, Individual C retired after the sale of the Property. Assumption The Company will make one or more payments to Individual C within the 2 years of the disposal of the Property relating to an 'exempt amount' (as defined in paragraph 152-125(1)(a) of the ITAA 1997), or exempt amounts, that represent a capital gain in connection with the disposal of the Pre-CGT Interest (the Payments).

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-B

Reasons for decision: Summary: The Payments from the Company to Individual C will be exempt under section 152-125 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: In accordance with section 152-125 of the ITAA 1997, if a capital gain made by a company is disregarded under the small business 15 year exemption (subparagraph 152-125(1)(a)(i)), or would have been except that the capital gain was disregarded anyway because the relevant CGT asset was acquired before 20 September 1985 (subparagraph 152-125(1)(a)(iii)), any distribution made by the company of that exempt amount to a CGT concession stakeholder is: • not included in the assessable income of the CGT concession stakeholder; • not deductible to the company or trust; and • not considered a dividend or frankable distribution. Certain additional conditions in section 152-125 of the ITAA 1997 must also be satisfied, these being that: • the company must make a payment within 2 years after the CGT event that resulted in the capital gain; • the payment must be made to an individual who was a CGT concession stakeholder of the company just before the CGT event; and • the total payments made to each CGT concession stakeholder must not exceed an amount determined by multiplying the CGT concession stakeholder's control percentage by the exempt amount. In the current circumstances, it is, therefore, initially necessary to determine whether the Company would have been able to disregard the capital gain from the disposal of the Pre-CGT Interest in the Property under the small business 15 year exemption had it not been disregarded anyway because the relevant CGT asset was acquired before 20 September 1985. | Detailed Reasoning - 15 year exemption - conditions for companies and trusts: The 15-year exemption in Subdivision 152-B of the ITAA 1997 allows an entity to disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met. Subsection 152-110(1) of the ITAA 1997 provides that a company can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: (a) the basic conditions in Subdivision 152-A are satisfied for the gain; (b) the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event; (c) 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; (d) an individual who was a significant individual of the company or trust just before the CGT event either: (i) was 55 or over at that time and the event happened in connection with the individual's retirement; or (ii) was permanently incapacitated at that time. | Detailed Reasoning - Condition (a) of subsection 152-110(1) of the ITAA 1997 - the basic conditions in Subdivision 152-A are satisfied for the gain: The basic conditions for relief under the small business CGT concessions are outlined in subsection 152-10(1) of the ITAA 1997. These conditions are: (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 CGT small business entity for the income year; (ii) you satisfy the maximum net asset value (MNAV) test (see section 152-15); (iii) you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership; (iv) the conditions mentioned in subsection 152-10(1A) or 152-10(1B) are satisfied in relation to the CGT asset in the income year; (d) the CGT asset satisfies the active asset test (see section 152-35). Consideration of each of these requirements in the current circumstances is discussed below. | Detailed Reasoning - Basic condition (a) of subsection 152-10(1) of the ITAA 1997 - A CGT event happens in relation to a CGT asset of yours in an income year: During the income year ended 30 June 20XX, the Company disposed of the Pre-CGT Interest via the Sales Contract with an unrelated, third party. The Pre-CGT Interest in the Property is a CGT asset (as defined in subsection 108-5(1) of the ITAA 1997) and CGT event A1 (in section 104-10) happened upon entering into the Sales Contract. Consequently, the requirements of paragraph 152-10(1)(a) of the ITAA 1997 are satisfied. | Detailed Reasoning - Basic condition (b) of subsection 152-10(1) of the ITAA 1997 - The event would have resulted in the gain: Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base. It is understood that the Company made a capital gain from the disposal of the Pre-CGT Interest under section 104-10 of the ITAA 1997 (although this capital gain was disregarded under paragraph 104-10(5)(a)). Consequently, the requirements of paragraph 152-10(1)(b) of the ITAA 1997 are satisfied. | Detailed Reasoning - (i) you are a CGT small business entity for the income year: Subsection 152-10(1AA) of the ITAA 1997 provides that you are CGT small business entity for an income year if: (a) you are a small business entity for the income year; and (b) you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million. Subsection 328-110(1) of the ITAA 1997 provides that you are a small business entity for an income year if: (a) you carry on a business in the current year; and (b) one or both of the following applies: (i) you carried on a business in the income year (the previous year) before the current year and your aggregated turnover for the previous year was less than $10 million; (ii) your aggregated turnover for the current year is likely to be less than $10 million. Subsection 328-110(4) of the ITAA 1997 further provides that you are a small business entity for an income year (the current year) if: (a) you carry on a business in the current year; and (b) your aggregated turnover for the current year, worked out as at the end of that year, is less than $2 million. The Company did not carry on business in its own right during the current year (the income year ended 30 June 202XX and, therefore, did not satisfy the definition of a small business entity (as described by subsections 328-110(1) and 328-110(4) of the ITAA 1997). Consequently, the CGT small business entity test in subparagraph 152-10(1)(c)(i) of the ITAA 1997 will not be satisfied. | Detailed Reasoning - (ii) you satisfy the MNAV test: Section 152-15 of the ITAA 1997 provides that you satisfy the MNAV test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000: (a) The net value of the CGT assets of yours; (b) The net value of the CGT assets of any entities connected with you; (c) The net value of the CGT assets of any affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)). When determining whether the $6,000,000 MNAV test is satisfied, a taxpayer must include the net value of the CGT assets of any entities connected with them. Subsection 328-125(1) of the ITAA 1997 provides that an entity is connected with another entity if: (a) either entity controls the other entity in a way described in this section; or (b) both entities are controlled in a way described in this section by the same third entity. The direct 'control' tests, which are contained in section 328-125 of the ITAA 1997, differ according to whether the entity is a discretionary trust or not. The Company, the Related Entity and the Business Entity are not discretionary trusts and, therefore, the 'direct' control test in subsection 328-125(2) of the ITAA 1997 will apply. This test states: An entity (the first entity) controls another entity if the first entity, it's affiliates or the first entity together with its affiliates: (a) except if the other entity is a discretionary trust beneficially own, or have the right to acquire the beneficial ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of: (i) any distribution of income by the other entity; or (ii) if the other entity is a partnership the net income of the partnership; or (iii) any distribution of capital by the other entity; or (b) if the other entity is a company - beneficially own, or have the right to acquire the beneficial ownership of, equity interest in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage) that is at least 40% of the voting power in the company. During the income year ended 30 June 20XX, Individual C controlled the Company, the Related Entity and the Business Entity as they owned XX% of the ordinary shares in these companies. Accordingly, the Company, the Related Entity and the Business Entity are connected entities because they were each controlled by the same third entity (per paragraph 328-125(1)(b) of the ITAA 1997). Based on the value of the CGT assets in their 20XX financial statements and the fact that the Property was sold for more than $XX it is considered that the Company will not satisfy the MNAV test in section 152-15 of the ITAA 1997 and in turn subparagraph 152-10(1)(c)(ii). (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 of the partnership This requirement is not applicable to the current circumstances as the Company is not a partner in a partnership and the relevant asset is not an interest in a partnership asset. | Detailed Reasoning - (iv) the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year: Subsection 152-10(1A) of the ITAA 1997 states: The conditions in this subsection are satisfied in relation to the CGT asset in the income year if: (a) your affiliate, or an entity that is connected with you, is a CGT small business entity for the income year; and (b) you do not carry on a business in the income year (other than in partnership); and (c) if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and (d) in any case - the CGT small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b)) in relation to the CGT asset. Paragraph 152-10(1A)(a) of the ITAA 1997- your affiliate, or an entity that is connected with you, is a CGT small business entity for the income year Is the Business Entity connected with the Company? As detailed above, the Company is connected with the Business Entity because both entities are controlled by the same third entity, Individual C (per paragraph 328-125(1)(b) of the ITAA 1997). Is the Business Entity a CGT small business entity? As noted above, subsection 152-10(1AA) of the ITAA 1997 provides that you are CGT small business entity for an income year if: (a) you are a small business entity for the income year; and (b) you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million. 'Small business entity' is defined in subsection 328-110(1) of the ITAA 1997. An entity is a small business entity if it: (a) carried on a business in the current year; and (b) one or both of the following applies: (i) it carried on a business in the income year (the previous) year before the current year and its aggregated turnover for the previous year was less than $2 million, (ii) its aggregated turnover for the current year is likely to be less than $2 million. Paragraph 328-110(1)(a) of the ITAA 1997 The Business Entity carried on a business in the 20XX income year (the current income year) and, therefore, satisfies paragraph 328-110(1)(a) of the ITAA 1997. Subparagraph 328-110(1)(b)(i) of the ITAA 1997 The Business Entity carried on a business in the income year (the previous) year before the current year (i.e., the income year ended 30 June 20XX) and its aggregated turnover for the previous year was less than $X million. It, therefore, satisfies the requirements of subparagraph 328-110(1)(b)(i) of the ITAA 1997. As the conditions in subsection 328-110(1) of the ITAA 1997 are met, the Business Entity is a CGT small business entity. As a result, the requirements of paragraph 152-10(1A)(a) of the ITAA 1997 are satisfied because the Business Entity, who is a CGT small business entity, is connected with the Company. Paragraph 152-10(1A)(b) of the ITAA 1997- you do not carry on a business in the income year (other than in partnership) The Company did not carry on business in its own right during the current year (the income year ended 30 June 20XX) and, therefore, satisfies the requirements of paragraph 152-10(1A)(b) of the ITAA 1997. Paragraph 152-10(1A)(c) of the ITAA 1997- if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership The Company did not carry on business in partnership and, therefore, this requirement is not applicable. Paragraph 152-10(1A)(d) of the ITAA 1997-in any case - the CGT small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b)) in relation to the CGT asset The Business Entity is the CGT small business entity that carried on the business from the Property and, therefore, the requirements of paragraph 152-10(1A)(d) of the ITAA 1997 are satisfied. Conclusion regarding subsection 152-10(1A) and paragraph 152-10(1)(c) of the ITAA 1997 Because the requirements of subsection 152-10(1A) of the ITAA 1997 are met, the Company will in turn satisfy the requirements of subparagraph 152-10(1)(c)(iv) and paragraph 152-10(1)(c). For completeness, it is noted that subsection 152-10(1B) of the ITAA 1997 is not applicable to the current circumstances as the Company is not a partner in a partnership. | Detailed Reasoning - Basic condition (d) of subsection 152-10(1) of the ITAA 1997 - the CGT asset satisfies the active asset test: Pursuant to subsection 152-35(1) of the ITAA 1997, a CGT asset satisfies the active asset test if: (a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period specified in subsection (2); or (b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the period specified in subsection (2). Subsection 152-35(2) of the ITAA 1997 provides that the test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases. The Company acquired the Pre-CGT Interest in the Property before 20 September 1985. The CGT event stemming from the Sales Contract happened during the income year ended 30 June 20XX. Based on these dates, the Company owned the Pre-CGT Interest in the Property for more than 15 years and, therefore, to pass the active asset test, the Property will need to be an active asset for a total of at least 7½ years. Subsection 152-40(1) of the ITAA 1997 provides that a tangible or intangible CGT asset is an active asset if you own the asset and it is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, or an entity connected with you. To satisfy the active asset test in the current circumstances, it is necessary to establish that the Business Entity, which was using the Property in its business, was connected with the Company for a total of at least 7½ years during the ownership test period. It is evident from the information provided that during the period that the Property was owned, the shareholdings in the Business Entity and the Company underwent various changes and, therefore, it is necessary to examine the following periods to ensure that the relevant connection exists between the Company and the Business Entity: | Detailed Reasoning - 20XX to 20XX: As previously highlighted, subsection 328-125(1) of the ITAA 1997 provides that an entity is connected with another entity if: (a) either entity controls the other entity in a way described in this section; or (b) both entities are controlled in a way described in this section by the same third entity. The direct 'control' tests, which are contained in section 328-125 of the ITAA 1997, differ according to whether the entity is a discretionary trust or not. The Company and the Business Entity are not discretionary trusts and, therefore, the 'direct' control test in subsection 328-125(2) of the ITAA 1997 will apply. This test states: An entity (the first entity) controls another entity if the first entity, it's affiliates or the first entity together with its affiliates: (a) except if the other entity is a discretionary trust beneficially own, or have the right to acquire the beneficial ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of: (i) any distribution of income by the other entity; or (ii) if the other entity is a partnership the net income of the partnership; or (iii) any distribution of capital by the other entity; or (b) if the other entity is a company - beneficially own, or have the right to acquire the beneficial ownership of, *equity interest in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage) that is at least 40% of the voting power in the company. From 20XX to 20XX, Individual C controlled the Company and the Business Entity because they owned XX% of the ordinary shares (which provide rights to dividends, capital and to vote) in these companies. Accordingly, the Company and the Business Entity were connected entities during this period because they were each controlled by the same third entity, Individual C (per paragraph 328-125(1)(b) of the ITAA 1997). | Detailed Reasoning - 20XX to 20XX: During this period, Individual A owned XX% of the shares in the Business Entity and XX% of the shares in the Company and, therefore, controlled these entities. Accordingly, the Company and the Business Entity were connected entities during this period because they were each controlled by the same third entity, Individual A (per paragraph 328-125(1)(b) of the ITAA 1997). | Detailed Reasoning - 19XX to 20XX: From 19XX to 20XX Individual A and Individual B each owned XX% of the ordinary shares in the Company and, therefore, both were considered to control these companies during this period. However, during this period, the ordinary shares in the Business Entity were owned XX% each by Individual A, their spouse, Individual B and their child Individual C. Accordingly, on face value, no individual beneficially owned equity interests in the Business Entity that carried between them the right to at least XX% of the income, capital or voting power in the company to be able to control this entity. This said, it is however noted that the control test in subsection 328-125(2) of the ITAA 1997 combines the rights of an entity and its affiliates when determining whether the requisite control percentage is owned. With this in mind, it is highlighted that subsection 995-1(1) of the ITAA 1997 defines 'affiliate' as having the meaning given by section 328-130. Subsection 328-130(1) of the ITAA 1997 states that an individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company. Subsection 328-130(2) of the ITAA 1997 further explains that: However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share. There is also a note to section 328-130 of the ITAA 1997 which relevantly flags that for small business relief purposes, a spouse or a child under 18 years may also be an affiliate under section 152-47. Subsection 152-47(1) of the ITAA 1997 applies if: (a) one entity (the asset owner) owns a CGT asset (whether the asset is tangible or intangible); and (b) either: (i) the asset is used, or held ready for use, in the course of carrying on a business in an income year by another entity (the business entity), or (ii) the asset is inherently connected with a business that is carried on in an income year by another entity (the business entity), and (c) the business entity is not (apart from this section) an affiliate of, or connected with, the asset owner. Subsection 152-47(2) of the ITAA 1997 states for the purposes of this Subdivision, in determining whether the business entity is an affiliate of, or is connected with, the asset owner, take the following to be affiliates of an individual: In the current circumstances, the requirements in subsection 152-47(1) of the ITAA 1997 are satisfied for the period in question because: (a) The Company owns a CGT asset (the Pre-CGT Interest in the Property); (b) the Property is used, or held ready for use, in the course of carrying on a business in an income year by another entity, the Business Entity); and (c) the Business Entity is not (apart from this section) an affiliate of, or connected with, the asset owner. Accordingly, as stated in subsection 152-47(2) of the ITAA 1997, for the purposes of this Subdivision, in determining whether the Business Entity is an affiliate of, or is connected with, the asset owner (the Company), take the following to be affiliates of an individual: • a spouse of the individual: • a child of the individual, being a child who is under 18 years. Applying this rule, it is then noted that by treating Individual A and Individual B as affiliates (since they are spouses), each will be taken to control the Business Entity during the relevant period because they collectively own XX% of the shares in this entity. As a result, for the period from 19XX to 20XX, the Company and the Business Entity are considered to be connected entities because they were each controlled by the same third entity, either Individual A or Individual B (per paragraph 328-125(1)(b) of the ITAA 1997). Conclusion- paragraph 152-10(1)(d) of the ITAA 1997 Based on the above analysis, it is considered that the relevant CGT asset satisfies the active asset test and paragraph 152-10(1)(d) of the ITAA 1997 because the Company owned the Pre-CGT Interest in the Property for more than 15 years and the CGT asset was an active asset of theirs (because it was used in the business of a connected entity, the Business Entity) for at least 7½ years during the period of ownership. | Detailed Reasoning - Conclusion on Subdivision 152-A of the ITAA 1997: As detailed above, the Company meets the basic conditions in Subdivision 152-A of the ITAA 1997 in respect of the gain on the Pre-CGT Interest in the Property and, therefore, satisfy the requirements in paragraph 152-110(1)(a). Condition (b) of subsection 152-110(1) of the ITAA 1997 - the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event In the current circumstances, CGT event A1 happened during the income year ended 30 June 20XX when the Company entered into the Sales Contract to dispose of the Pre-CGT Interest in the Property. Prior to disposing of the Pre-CGT Interest and the CGT event, the Company had continuously owned the Pre-CGT Interest in the Property for more than 15 years and, therefore, the requirements in paragraph 152-105(b) (condition (b)) are satisfied. Condition (c) of subsection 152-110(1) of the ITAA 1997 - 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 term 'significant individual' is defined in section 152-55 of the ITAA 1997. 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%. Under section 152-65 of the ITAA 1997, an entity's small business participation percentage in another entity is the sum of the first entity's direct and indirect small business participation percentages in the other entity. The table in subsection 152-70(1) of the ITAA 1997 provides that an entity's direct small business participation percentage in a company at the relevant time is the percentage of the voting power, entitlement to dividends and capital an entity has because of the shares it holds in the company. If these amounts are different, the smallest amount is used. It is noted that subsection 152-70(2) of the ITAA 1997 specifically highlights that for item 1 of the table (i.e., a company) ignore redeemable shares. From 19XX to 20XX the Company had a significant individual as both Individual A or Individual B had a small business participation percentage of XX% in the Company as they each owned XX% of the ordinary shares in this company. Individual A was also a significant individual from 20XX to 20XX as they owned XX% of the shares in the Company and, therefore, had a small business participation percentage of XX%. Individual C was a significant individual from 20XX to 20XX as they owned XX% of the shares in the Company and, therefore, had a small business participation percentage of XX%. As a consequence, the Company will satisfy condition (c) (in paragraph 152-105(c) of the ITAA 1997) because it had a significant individual for a total of at least 15 years during which the entity owned the Property. Condition (d) of subsection 152-110(1) of the ITAA 1997 - an individual who was a significant individual of the company or trust just before the CGT event either: | Detailed Reasoning - (ii) was permanently incapacitated at the time of the CGT event.: As noted above, Individual C was a significant individual just before the CGT event and was over 55 at the time of the CGT event. The Guide to Capital Gains Tax 2021 in the section relating to 'Small business 15-year exemption' provides the following guidance on when a CGT event happens in connection with retirement: Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it isn't necessary for there to be a permanent and everlasting retirement from the workforce. As previously noted, Individual C is the director of the Business Entity and has managed the day to day running of the business. The Property has been used in the business of the Business Entity since its acquisition. The Applicant has advised that the business was being run down immediately prior to the sale of the Property, as Individual C was in the process of retiring. As the Property had to be vacant prior to settlement, the majority of business' equipment and machinery was disposed of prior to the sale of the Property. Individual C retired after the sale of the Property. The requirements in paragraph 152-105(d) of the ITAA 1997 (condition (d)) are, therefore, satisfied. | Detailed Reasoning - Conclusion on Subdivision 152-B of the ITAA 1997: Based on the above analysis, the Company satisfies the conditions in Subdivision 152-B of the ITAA 1997 and, therefore, would have been able to disregard the capital gain from the disposal of the Pre-CGT Interest in the Property under the small business 15 year exemption had it not been disregarded anyway because the relevant CGT asset was acquired before 20 September 1985. It, therefore, satisfies the requirements in subparagraph 152-125(1)(a)(iii) of the ITAA 1997. | Detailed Reasoning - The additional conditions in section 152-125 of the ITAA 1997: As noted above, section 152-125 of the ITAA 1997 also contains certain additional conditions that must be satisfied for a payment to be exempt under this provision. These additional conditions are that: • the company must make a payment within 2 years after the CGT event that resulted in the capital gain; • the payment must be made to an individual who was a CGT concession stakeholder of the company just before the CGT event; and • the total payments made to each CGT concession stakeholder must not exceed an amount determined by multiplying the CGT concession stakeholder's control percentage by the exempt amount. In respect of the additional conditions, it its noted that: • The first condition above will be satisfied as the Assumptions included for the purposes of this ruling include that Payments will be made to Individual C within 2 years after CGT event A1 happened, being the disposal of the Pre-CGT interest in the Property. • As Individual C was a CGT concession stakeholder of the Company just before the CGT event, the second condition will be satisfied. • Individual C's stakeholder control percentage is XX%, and, therefore, the payment of the exempt amount to them will satisfy the last condition above. Accordingly, thePayments of the capital gain made from the disposal of the Pre-CGT Interest in the Property by the Company to Individual C will be exempt under section 152-125 of the ITAA 1997.