Private ruling: Small business 15-year exemption - permanent incapacity
Date of advice: 13 September 2018
Published: October 2018
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Do you satisfy the criteria under subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997) in regard to being permanently incapacitated? | A1: Yes.

Relevant facts and circumstances: You are under 55 years of age. You own a company for which you are the director and shareholder. You operate a business through the company. You suffered an injury which has resulted in a number of long term health effects. You have provided a letter from your doctor stating that due to your ill health it is unlikely that you will be able to engage again in gainful employment for which you are reasonably qualified. You would like to sell your business.

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

Reasons for decision: Summary: A small business entity may access the small business concessions where the basic conditions for relief are met. Those basic conditions are in subdivision 152-A of the ITAA 1997. Some of the concessions have additional, specific conditions that must also be satisfied. Under the small business 15-year exemption in subdivision 152-B of the ITAA 1997 a capital gain arising from the sale of a CGT asset they have owned for at least 15 years can be disregarded if certain conditions are satisfied. One of those conditions is that the individual is either 55 or over at the time of the CGT event and the event happens in connection with their retirement; or the individual is permanently incapacitated at the time of the CGT event. The term 'permanent incapacity' is used elsewhere within the retirement and superannuation provisions of the law and its meaning in those provisions may assist in providing some indication of its meaning for the purposes of the small business 15-year exemption. Having regard to the other provisions in which the term is used, a broadly indicative description of permanent incapacity is: ill health (whether physical or mental), where it is reasonable to consider that the person is unlikely, because of the ill-health, to engage again in gainful employment for which the person is reasonably qualified by education, training or experience. The incapacity does not necessarily need to be permanent in the sense of everlasting. You own a company through which you conduct your business. You are considering selling your business as you believe you are permanently incapacitated after the incident which has caused you severe mental, emotional and physical issues. The requirements of the 15-year exemption are such that the permanent incapacity needs to be experienced by the taxpayer who is under 55 years of age at the time the CGT event will take place. You are under the age of 55. You have provided a copy of a letter from your doctor with a supporting statement that you are unlikely to engage again in any gainful employment for which you are reasonably qualified by education, training and/or experience to undertake. For this reason we agree that you meet the criteria in regard to being permanently incapacitated. Therefore provided that you satisfy all the other requirements relating to the small business 15 year exemption (including the basic conditions), you will be entitled to disregard the capital gain on the sale of your business.