Private ruling: CGT - small business concessions
Date of advice: 13 October 2025
Published: 1 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to apply the small business 15-year exemption in section 152-110 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain you made on the disposal of the Property? | A1: No.

Relevant facts and circumstances: You are a company. You acquired the Property more than 25 years ago. Individual A and Individual B were shareholders and held X% of the shares. You own X% of the shares in Company C. Company C operated a business from the Property for a period exceeding X years. Individual A and Individual B were actively involved in the operation of the business. Individual A and Individual B ceased work and retired when the business was sold X years ago. Individual A and individual B had a detailed retirement plan which considered the assets they held and their role in funding their retirement. The plan included using their superannuation, other savings and the rental return on their properties to initially fund their retirement, and to sell property to pay off debt and to provide additional liquidity as required. The sale of all properties on retirement was not recommended by their financial planner at the time as it was not in line with their retirement strategy. Individual A and Individual B held several properties at retirement. Individual A and Individual B have since sold some of these properties and used more than half their superannuation over the past X years in line with their long-term strategy. After consulting with their financial planner and reviewing their net asset position it was determined that it was the ideal time to sell the Property in order to provide the liquidity individual A and Individual B need to continue funding their retirement, in line with their long-term strategy. You sold the Property after owning it for more than X years. Individual A and Individual B were both over the age of 55 at that time. You made a capital gain on the disposal of the Property. The total net value of capital gains tax (CGT) assets owned by you, entities connected with you, your affiliates and entities connected with your affiliates, does not exceed $6 million.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 subparagraph 152-110(1)(d)(i)

Reasons for decision: Detailed Reasoning - Small business 15-year exemption for companies: Section 152-110 of the ITAA 1997 provides a small business 15-year exemption for companies and trusts. A company can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: • the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied for the gain • you continuously owned the CGT asset for the 15-year period ending just before the CGT event • you 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 you owned the CGT asset, and • an individual who was a significant individual in you just before the CGT event either: ­ was 55 or over at that time and the event happened in connection with the individual's retirement, or ­ was permanently incapacitated at that time. | Detailed Reasoning - Basic conditions: The basic conditions in Subdivision 152-A of the ITAA 1997 must be satisfied for an entity to be able to reduce or disregard its capital gains using the small business concessions. The basic conditions are: • a CGT event happens in relation to a CGT asset of yours in an income year • the event would have resulted in a gain • at least one of the following applies: ­ you are a CGT small business entity for the income year ­ you satisfy the maximum net asset value test ­ 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, or ­ you do not carry on a business, but your CGT asset is passively held and is used in a business carried on by a small business entity that is your affiliate, or an entity connected with you, and • the CGT asset satisfies the active asset test. | Detailed Reasoning - Application to your circumstances: In your case, the basic conditions contained in Subdivision 152-A of the ITAA 1997 are satisfied because: • CGT event A1 happened when you disposed of the Property • the CGT event resulted in a gain • you satisfied the maximum net asset value test • the Property satisfied the active asset test as it was used by a connected entity of yours for a total of at least X years. • In addition, • you continuously owned the Property for the X-year period ending just before the CGT event • you had a significant individual for a total of at least X years as Individual A and Individual B each owned X% of the shares during the period you owned the Property, and • Individual A and Individual B were significant individuals just before you disposed of the Property and were over 55 years of age at that time. The final condition that must be satisfied to qualify for the small business 15-year exemption is that the disposal of the Property must have been in connection with the retirement of a significant individual of yours. The Explanatory Memorandum to the New Business Tax System (Capital Gains Tax) Bill 1999 (EM) provides that the Bill was introduced to streamline and simplify the then current small business CGT concessions and to provide further concessions in relation to retirement from carrying on business by disregarding certain capital gains made by small business entities from the disposal of active assets. The EM makes the following comments about the requirement to be retiring as one of the conditions for the small business 15-year exemption: 1.5 ...the disposal is related to a person retiring... 1.58 A capital gain made by a small business entity from a CGT asset it has owned for at least 15 years will be disregarded if the small business entity...is a company or trust, and had a controlling individual for the entire time it owned the CGT asset, and that controlling individual is either 55 years old or more and retires, and | Detailed Reasoning - Requirement to be permanently incapacitated or retiring: 1.68 ...an individual small business taxpayer...must be...at least 55 years old and using the capital proceeds for their retirement. It is considered that simply using the capital proceeds from the disposal of an active asset is not, on its own, enough for the disposal of the asset to be in connection with an individual's retirement. There are enough other references in the EM to 'retiring' (including the heading above paragraph 1.68) to indicate the intent of the requirement is in relation to the act of an individual retiring. A CGT event may be in connection with an individual's retirement even if it occurs at some time before or after retirement. These cases depend on their own particular facts and need to be considered on a case-by-case basis. In respect to a CGT event happening after retirement the ATO website has the following example: A small business operator 'retires' and his 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. In the example the small business operator has retired 6 months before the CGT event. However, in your case, while it is acknowledged that the disposal of the Property may have been integral to your significant individuals' retirement plans, the significant individuals retired when you disposed of the business, some 10 years before the disposal of the Property. While an individual's retirement can happen some time before or after the relevant CGT event, it is the Commissioner's view that the retirement must have some proximity to the CGT event. The closer the CGT event is to the retirement, the more likely the CGT event is in connection with the individual's retirement. In your case, due to the substantial period between the retirement of your significant individuals and the disposal of the Property, the requisite connection between the two events does not exist. While the retirement of the individuals may have happened in connection with the disposal of the business, they are not considered to have happened in connection with the disposal of the Property. As such, you cannot disregard the capital gain you made on the disposal of the Property under the small business 15-year exemption in section 152-110 of the ITAA 1997.