Private ruling: 15 Year CGT Exemption
Date of advice: 10 October 2016
Published: December 2016
Ruling period: Income year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to reduce the capital gain that arose from the sale of a business by a sole trader? | A1: Yes

Relevant facts and circumstances: You are a sole trader who has conducted a business for over XX years. You sold your business to an unrelated party. At the time of the sale, you were over 55 years of age. A requirement of the business sale is that you become an employee in the business sold for a transitional period with significant reduction in working hours. In order to obtain the best sale price for your business, you agreed to this requirement. At the end of the transitional period, your working hours will be nil. You could not have retired without the sale of your business. The funds from the sale of the business would be used to fund your retirement.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 section 118-565

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified. In order to apply the 15 year exemption under subsection 152-B, amongst other requirements, subparagraph 152-105(d)(i) requires that the CGT event that gave rise to the capital gain is in connection with your retirement. The scope of the ruling will be limited to this aspect. | Detailed Reasoning - In connection with your 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 the very least a significant reduction in the number of hours worked or a significant change in the nature of their present activities to be regarded as retirement. In your case, it was a requirement of the business sale that you become an employee of the business sold for a transitional period with a significant reduction in the number of hours worked. In order to obtain the best sale price for your business, you agreed to this requirement. The funds from the sale of the business will be used to fund your retirement. After the transitional period, you will retire fully from the work force and your working hours will be nil. We consider that the CGT event that gave rise to the capital gain, that is, the sale of the business as a sole trader, was connected with your retirement for the purposes of subparagraph 152-105(d)(i). Accordingly, you will be able to apply the 15 year exemption if all other conditions are met, such as those contained within section 152-10.