Private ruling: Capital gains tax - small business relief
Date of advice: 16 January 2026
Published: 9 March 2026
Ruling period: Year Ending 30 June 20XX | Year Ending 30 June 20XX
Date scheme commenced: July 20XX

Ruling: Q1: Are the proceeds from the sale of the X parcels of land assessable as statutory income, on capital account, as a mere realisation of a capital asset and subject to the capital gains tax (CGT) provisions in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and Part 3-3 of the ITAA 1997? | A1: Yes. | Q2: Do the interests in the Property you acquired in 19XX and 20XX satisfy the active asset test under section 152-35 of the ITAA 1997? | A2: Yes. | Q3: Can you apply the small business 15-year exemption under section 152-105 of the ITAA 1997 to the capital gains you will make on selling off the Property parcels? | A3: No. | Q4: Can you apply the small business retirement exemption under section 152-305 of the ITAA 1997 to the capital gains you will make on selling off the Property parcels? | A4: Yes.

Relevant facts and circumstances: You are over X years old. You acquired the Property jointly with your former spouse in 19XX for $X. You and your former spouse also owned other farming land. The Property was used in a partnership farming operation carried on by you and your former spouse from the time of acquisition until 20XX. The partnership derived income from its own farming operations as well as from share farming. The partnership's own farming operations included buying and selling livestock and undertaking the cropping of X. You separated from your former spouse in 20XX. Your former spouse's X% interest in the Property was transferred to you by way of a court order under the Family Law Act 1975 made in June 20XX. The Property was transferred after the date the court order was issued. Under the court order you also received an interest in another property and were required to pay an amount to your former spouse. From the time of separation to 20XX your former spouse did not allow the Property to be used for share farming. During that period, there was little farming activity on the Property except for a crop in 20XX which was ruined due to a weather event. You obtained a sole trader Australian Business Number in 20XX however the only income you have derived from the Property since that time is agistment income. You do not earn any income as an employee. Due to this, you have not earnt superannuation. You are also dealing with health issues which have impacted your ability to return to working as an employee. You have made the choice under subsection 152-45(2) of the ITAA 1997 so that the active asset test in section 152-35 of the ITAA 1997 applies as if: • you acquired your former spouse's X% interest in the Property when your former spouse acquired it, and • your former spouse's X% interest in the Property was an active asset of yours at all times when that interest was an active asset of your former spouse. An unrelated third party became interested in buying a portion of the Property. Therefore, you proposed to subdivide the Property. You will sell X acres of the Property to the unrelated third party. The remaining X acres will continue to be used for agistment income until it is sold later within the ruling period. High-voltage power lines traverse the centre of the land being sold to the unrelated third party, reducing its sale value. You also understand there to be high costs associated with a subdivision and as such, you deemed it unfeasible to subdivide only X parcels to sell to the unrelated third party. Therefore, after completing the subdivision, you will sell more X-acre parcels to the third party. In this case, you expect to incur $X in costs associated with the subdivision. The X-acre parcels being sold to the third party have been zoned. In preparation to the subdivision process, you relied on the services of a firm with experience in subdivision and council requirements. You relied on this firm for the advice, planning and co-ordination of the process, as well as the council approval process. Throughout the subdivision process you have relied on services from numerous entities. Throughout the subdivision process, you have also personally undertaken activities. These include design and planning involvement, organising infrastructure removal, ongoing communication with consultants and overseeing the fencing contracting. There will be no development or construction on the X-acre parcels before you sell them to the unrelated third party. Once the subdivision process is complete, there will be a significant reduction in your workload. The required maintenance for the Property will reduce, as the Property will reduce in size. The completion of fencing repairs will also contribute to the reduction of the required maintenance. Your obligations will be reduced to minor bookkeeping duties. Prior to the subdivision process, the market value of the whole property was $X. You were hoping to sell the X-acre parcels to the unrelated third party for $X each. Despite this, due to the power lines traversing this land, the unrelated third party only offered $X for each parcel in MMM 20XX. There has been no sale finalised yet. The sale of the X-acre parcels to the unrelated third party will fund the repayment of a loan undertaken for the subdivision. It will also provide funds for you to refrain from returning to work as an employee. You have no intention of subdividing the Property any further. The remainder of the Property will be sold as one parcel. The council is currently undertaking a review of property zoning in the area to ensure the needs of the city regarding future housing demands. The remaining land is currently being re-zoned. The council currently does not have a definite answer as to how this land will be re-zoned. The sale of the Property will provide funds for you to engage in retirement living. You satisfy the maximum net asset value test. You have previously used the small business retirement exemption for $X of a capital gain from the sale of another property. You will sell off the Property within the 20XX-XX and 20XX-XX financial years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3 | Income Tax Assessment Act 1997 Subdivision 126-A | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-15 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 subsection 152-45(2) | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 Subdivision 152-D | Income Tax Assessment Act 1997 subsection 152-305(1)

Reasons for decision: Summary: The subdivision of the Property into the remaining X-acre parcel and the X-acre parcels to be sold to the unrelated third party is not part of a profit-making scheme. The proceeds from the sale of the entire property will be a mere realisation of a capital asset. They will be subject to potential CGT concessions. | Detailed Reasoning - Income: Subsection 6-5(2) of the ITAA 1997 provides the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Section 6-10 of the ITAA 1997 states your assessable income also includes some amounts that are not ordinary income, which is assessable as statutory income. There are 3 ways the proceeds from a property development can be treated for taxation purposes: • assessable ordinary income under section 6-5 of the ITAA 1997 as income from carrying on a business of property development, • assessable ordinary income under section 6-5 of the ITAA 1997 as income from an isolated transaction with a view to profit, or • assessable statutory income, on capital account, under Part 3-1 of the ITAA 1997 and Part 3-3 of the ITAA 1997 as a mere realisation of a capital asset. | Detailed Reasoning - Isolated transactions: Taxation Ruling 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) provides the Commissioner's view on whether a taxpayer's profits from an isolated transaction are regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997. Paragraph 6 of TR 92/3 states profit from an isolated transaction is generally income when both of the following elements are present: • the intention or purpose of the taxpayer in entering the transaction was to make a profit or gain, and • the transaction was entered into and the profit was made in the course of carrying on a business or in carrying out a business operation or commercial transaction. Paragraph 7 of TR 92/3 goes on to state the relevant intention or purpose of the taxpayer (of making a profit or gain) is not the subjective intention or purpose of the taxpayer. Rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. Paragraph 13 of TR 92/3 states some of the matters which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction, which are: a) the nature of the entity undertaking the operation or transaction, b) the nature and scale of other activities undertaken by the taxpayer, c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained, d) the nature, scale and complexity of the operation or transaction, e) the way the operation or transaction was entered into or carried out, f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction, g) if the transaction involves the acquisition and disposal of property, the nature of that property, and h) the timing of the transaction or the various steps in the transaction. Where the transaction demonstrates significant scale, complexity, or commercial character - for example, involving substantial sums, multiple parties, or operations beyond a simple disposal - it will generally not be regarded as a mere realisation of a capital asset. | Detailed Reasoning - Carrying on a business: Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioners view on whether a taxpayer is carrying on a business. Although TR 97/11 deals with the issues in determining whether a taxpayer is carrying on a business of primary production, the same principles can be applied to the question of whether a taxpayer is carrying on any type of business, including property construction and subdivision. Paragraph 13 of TR 97/11 states the following indicators are relevant in determining whether a taxpayer is carrying on a business: • whether the activity has a significant commercial purpose or character, • whether there is repetition and regularity of the activity, • whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business, • whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit, • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby, a form of recreation or a sporting activity. Whether a business is being carried on depends on the impression gained from looking at all the indicators against the case facts and whether these indicators provide the operations with a commercial flavour. | Detailed Reasoning - Application to your circumstances: You acquired the Property with your former spouse in 19XX. You and your former spouse used the Property in a partnership farming operation from the time of acquisition until 20XX. The partnership used the Property to derive its own business income, as well as share farming income. Your former spouse transferred their X% interest in the Property to you in 20XX. You have used the Property to derive agistment income since the transfer. You are planning to sell the Property. The Property is X acres. An unrelated third party approached you as they were interested in X acres. You decided to subdivide the Property so the remaining X acres will continue to be sold to another party, while the X acres for which the unrelated third party obtained an interest could be sold to the unrelated third party. As it was deemed unfeasible to subdivide the Property and leave the X acres being sold to the unrelated third party as one parcel, you decided to sell the X acres to the unrelated third party as X-acre parcels. The subdivision activity does not have a commercial purpose or character. The facts do not indicate making a profit was the primary intention of the subdivision. There is no repetition or regularity to the activity as the subdivision has only occurred once. The activity is on a small scale in comparison to that of the ordinary trade. The activity is not planned and organised in a businesslike manner and the associated affairs were your responsibility. The activity is carried on via an ad hoc basis. The was only X significant service providers involved in the subdivision. There will be a small number of sales consequently to the activity, as the only sales will be the sale of the remaining X acres to another party and the sale of the X acres to the unrelated third party. The activity was undertaken so a small portion of the property could be sold to the unrelated third party, indicating a casual way marketing has taken place. The expenses you incurred in relation to the activity are mostly consultancy, studies and council fees, as well as costs to enable site works and finance carrying costs. The activity resembles that of a keen amateur. Though a profit is expected to be made upon selling off the Property, this will be after several years since the initial purchase by you and your former spouse. This will not be in a shorter period as typically occurs in the property subdivision industry. From an objective consideration of the facts and circumstances, we consider the activities you have undertaken do not have the indicators of carrying on a business of property development or isolated transaction with a view to profit. Your activities are more personal in nature and lack the commerciality, intention and structure typically required to be regarded as carrying on a business of property development or isolated transaction with a view to profit. It is considered the proceeds from the disposal of the entire property will not be from a business or isolated transaction. They are viewed as a mere realisation of a capital asset and will be assessable under Part 3-1 and Part 3-3 the ITAA 1997. They will therefore be subject to potential CGT concessions. | Summary: You have owned the interest in the Property you acquired in 19XX for more than X years and this interest was used in a business carried on by you for a total of at least X years of your ownership period. You acquired your remaining interest in the Property in 20XX. Since then, you were renting out the Property for agistment and were not using the Property while carrying out your own business. This interest would typically not be an active asset; however, as you have made the choice under subsection 152-45(2) of the ITAA 1997, the active asset test in section 152-35 of the ITAA 1997 applies as if: a) you acquired this interest when your former spouse acquired it, and b) your former spouse's interest was always an active asset of yours when that interest was an active asset of your former spouse. | Detailed Reasoning - Active asset test: 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 test period, 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 test period (subsection 152-35 of the ITAA 1997). The test period begins when you acquired the asset, and ends at the earlier of the CGT event, and if the relevant business ceased to be carried on in the 12 months before that time - the cessation of the business (subsection 152-35(2) of the ITAA 1997). | Detailed Reasoning - Continuing time periods for involuntary disposals - marriage or relationship breakdowns: If you were the transferee of a CGT asset for which there has been a roll-over under Subdivision 126-A of the ITAA 1997, then you may choose that the active asset test in section 152-35 of the ITAA 1997 applies as if: a) you had acquired the asset when the transferor acquired the asset, b) the asset had been an active asset of yours at all times when the asset was an active asset of the transferor, and c) the asset had not been an active asset of yours at all times when the asset was not an active asset of the transferor (subsection 152-45(2) of the ITAA 1997). If you don't make a choice, the time of acquisition is simply the time of transfer (Note 3 in subsection 152-45(2) of the ITAA 1997). The choice must be made: a) by the day you lodge your income tax return for the income year in which the relevant CGT event happened, or b) within a further time allowed by the Commissioner. | Detailed Reasoning - Subdivision 16-A roll-over - marriage or relationship breakdown same-asset roll-over: There is a roll-over if a CGT event (the trigger event) happens involving an individual (the transferor) and their spouse (the transferee), or a former spouse (also the transferee) because of, among other things, a court order under the Family Law Act 1975 or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses. | Detailed Reasoning - Agistment income: Taxation Ruling IT 225 Primary production - agistment income provides the Commissioner's view of the law in relation to whether agistment income is earned through a business of primary production. The general proposition may be stated that where income arises from the use of the assets of a business of primary production and the particular use is a recognised incident of carrying on that sort of business, the income may be regarded as forming part of the proceeds of the business. That is, income earned from activities that are incidental to the running or a primary production business is considered to be a part of the business. However, this general proposition does not extend to a situation where property or a substantial part of a property is used solely for agistment. The agistment income would be considered separate from the business income earned. In AAT Case 10,331 ; 95 ATC 404; (1995) 31 ATR 1146 Senior Member Fayle said: Agisting another's livestock does not ordinarily constitute the carrying on of a business. Agistment fees ordinarily are in the nature of rent. However, where a land owner is charged with the management, maintenance and care of the animals agisted then it is possible that the person is carrying on a business, the reward for which is the agistment fee. This is more likely if the level of the agistment fee depended on the effective management, maintenance and care of the animals. For example, if a land owner agreed with the owner of a herd of cattle to ensure their good health, proper veterinary care and husbandry of the progeny, marketing of their bodily produce and maintenance of the herd, then that land owner may be carrying on a business of primary production. | Detailed Reasoning - Share farming: Taxation Determination TD 95/62 Income tax: will the owner (or lessor) of land who allows the land to be used in a sharefarming arrangement be considered to be engaged in a business of primary production as defined by the Income Tax Assessment Act 1936 ('the Act')? discusses whether the owner of land who allows the land to be used in a share farming arrangement would be considered to be engaged in a business of primary production and states: 3. In certain circumstances, a share farming arrangement may amount to the carrying on of a business in partnership. Factors which are considered by the Commissioner to be relevant to the existence or otherwise of a partnership generally are set out in Taxation Ruling TR 94/8. If a partnership is in existence then each partner will of course be considered to be carrying on that business. 4. Many arrangements do not amount to the carrying on of a business in partnership. In such cases, the fact that the land is used for cultivation in a business of primary production does not necessarily mean that the owner of the land is also carrying on that business. 5. To be carrying on a business, the taxpayer must be involved in the activities that make up the business. This would be evidenced by an element of control over, and/or an ongoing participation in, the business. The involvement should be direct or immediate, rather than passive. The payment of expenses relating to the ownership of the land would not, without more, be sufficient. | Detailed Reasoning - Application to your circumstances: In your case, you have two interests in the Property which you acquired in 19XX and 20XX. You owned the interest you acquired in 19XX for more than X years. This interest was used in a business carried on by you for approximately X years during this time. Therefore, this interest was used in a business carried on by you for a total of at least X years of your ownership period. Therefore, the active asset test is satisfied with respect to the interest you acquired in 19XX. According to the information provided, you used the interest you acquired in 2014 to derive agistment income. From the date you acquired this interest, you were solely using the Property for agistment purposes. It is considered the agistment arrangements would not amount to carrying on of a business. The activity resembles passive income generation rather than an active business. The agistment indicates the activity is passive and lacks a commercial character. The income resembles rent more than business revenue. As it has been concluded the interest you acquired in 20XX has not been used while carrying on a business, the active asset test would not be satisfied with respect to this interest unless you make the choice under subsection 152-45(2) of the ITAA 1997. As you have made the choice with respect to the X% interest which you acquired from your former spouse under the Family Law Court order: • you are considered to have acquired both interests in the Property in 19XX, and • both interests will satisfy the active asset test. | Detailed Reasoning - Question 3: Can you apply the small business 15-year exemption under section 152-105 of the ITAA 1997 to the capital gains you will make on selling off the Property? | Detailed Reasoning - Answer: No. | Summary: It is the Commissioner's view the disposal of the Property will not happen in connection with your retirement. The period between your retirement and the disposal is considered prolonged. Therefore, you cannot disregard the capital gains made on the disposal of the interests in the Property under section 152-105 of the ITAA 1997. | Detailed Reasoning - Small business relief: To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all concessions. These are called the 'basic conditions'. The basic conditions are contained in Subdivision 152-A of the ITAA 1997. | Detailed Reasoning - Basic conditions: A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the following basic conditions are satisfied: a) a CGT event happens in relation to a CGT asset of yours in an income year, b) the event results in a gain, c) the CGT asset satisfied the active asset test in section 152-35 of the ITAA 1997, and d) 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 in section 152-15 of the ITAA 1997, 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, or iv. 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 (section 152-10 of the ITAA 1997). | Detailed Reasoning - 15-year exemption: Section 152-105 of the ITAA 1997 provides a small business 15-year exemption for individuals. Under this section, you can disregard the capital gain made on the disposal of a CGT asset if you: a) satisfy the basic conditions for the small business CGT concessions in Subdivision 152-A of the ITAA 1997, b) continuously owned the CGT asset for the 15-year period ending just before the CGT event, and c) are at least 55 years old at the time of the CGT event and the event happens in connection with your retirement, or are permanently incapacitated at that time. | Detailed Reasoning - In connection with retirement: Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. A CGT event may be in connection with your retirement even if it occurs at some time before retirement. The Explanatory Memorandum (EM) to the New Business Tax System (Capital Gains Tax) Bill 1999 makes the following comments about the requirement to be permanently incapacitated or retiring as one of the conditions for the concession: 1.68 One of the requirements of this concession for an individual small business taxpayer is that they must be either permanently incapacitated at the time of the CGT event, or at least 55 years old and using the capital proceeds for their retirement. The provisions relating to the small business 15-year exemption do not refine what is meant by the phrase 'in connection with your retirement', nor does it give any indicate of the degree of retirement required in order to take advantage of this concession. It could be argued that the phrase 'in connection with retirement' means that the capital gain arising from the disposal of active assets is to be used to provide funds for a person's retirement rather than to precipitate retirement at the time of the CGT event. The words in the EM support this interpretation. The words 'in connection with' can also apply where the CGT event occurs sometime after retirement. This type of case would depend on its own particular facts, and would need to be considered on a case-by-case basis. The Advanced guide to capital gains tax concessions for small business (the Advanced guide) provides the following example: A small business operator 'retires' and their children take over the running of the business. Within six months, they sell some business assets and make a capital gain. Several reasons may have prompted the sale of the assets. If there is no relevant connection with the small business operator's business, the requirement would not be satisfied. However, if it can be shown that the reason for the disposal of the assets is connected to retirement and the later sale is integral to the small business operator's retirement plan, the sale may be accepted as happening in connection with retirement. | Detailed Reasoning - Application to your circumstances: In your case, you will satisfy the active asset tests for both interests in the Property. You will also satisfy the other basic conditions for small business relief as: • CGT events will happen when you sell off the property, • the events will result in gains, and • you will satisfy the maximum net asset value test. As noted above, the conditions for the small business 15-year exemption are: a) you satisfy the basic conditions for the small business CGT concessions in Subdivision 152-A of the ITAA 1997, b) you continuously owned the CGT asset for the 15-year period ending just before the CGT event, and c) you are at least X years old at the time of the CGT event and the event happens in connection with your retirement, or are permanently incapacitated at that time. You satisfy conditions (a) and (b) above, however you do not satisfy condition (c). Since you acquired sole ownership of the Property in 20XX you have only used the Property to derive agistment income. Agistment income is considered to be income from owning land as in the nature of rent rather than income from carrying on a business. As you do not carry on any other farming operations or other activities you are not considered to be carrying on business. Although the Advanced guide provides that retirement can occur sometime before the CGT event, there still needs to be a connection between your retirement and the sale of the Property. You ceased working/carrying on business a significant period of time before the disposal of the Property. We do not consider there is a connection with your retirement and the disposal of the Property. | Detailed Reasoning - Question 4: Can you apply the small business retirement exemption under section 152-305 of the ITAA 1997 to the capital gains you will make on selling off the Property? | Detailed Reasoning - Answer: Yes. | Summary: You may choose to apply the small business retirement exemption under section 152-305 of the ITAA 1997 after the small business 50% active asset reduction to the remaining 50% (or if the general 50% CGT discount has also been applied, the remaining 25%) of the capital gains after any capital losses have been applied. This is provided you do not exceed your CGT retirement exemption lifetime limit. | Detailed Reasoning - Small business retirement exemption: The rules covering the small business retirement exemption are contained in Subdivision 152-D of the ITAA 1997. Relevantly, as you are over X and an individual, you can choose to disregard all or part of a capital gain if: • you satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 (subsection 152-305(1) of the ITAA 1997), and • you keep a written record of the amount you choose to disregard (subsection 152-315(4) of the ITAA 1997. If you are over 55 years old when you make the choice to access the retirement exemption there is no requirement to contribute any amount into a complying superannuation fund or retirement savings account. The amount of the capital gains you choose to disregard must not exceed your CGT retirement exemption limit. An individual's lifetime CGT retirement exemption limit is $500,000, reduced by any previous CGT exempt amounts the individual has previously disregarded under the retirement exemption (subsection 152-320(1) of the ITAA 1997). | Detailed Reasoning - Application to your circumstances: As outlined above, you satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 for the capital gains made of the interests in the Property. You may choose to disregard the capital gains under the small business retirement exemption provided you keep a written record of the amount choose to disregard. The amount of the capital gains that you can choose to disregard under the retirement exemption must not exceed your CGT retirement exemption limit of $500,000, reduced by the $X CGT exempt amount you have previously disregarded under the retirement exemption.