Private ruling: Capital gains tax concessions for small business - Retirement Exemption
Date of advice: 24 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Can you apply the small business retirement exemption in Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain made on the sale of the franchise business? | A1: Yes.

Relevant facts and circumstances: The company operated a business which was sold. The CGT concession stakeholder was older than 55 years at the time of the sale of the business. The CGT concession stakeholder held greater than 20% in the company. An election was made to make the payment to the CGT Concession Stake Holder. The basic conditions in Subdivision 152A have been met. The total amount received from the sale of the business was transferred into a trust account for the company. A trust account was opened for the CGT concession stakeholder and the money was transferred into their trust account from the company trust account. The CGT concession stakeholder passed away. The CGT exempt amount does not exceed the concessional stakeholder's retirement exemption limit of $500,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152A | Income Tax Assessment Act 1997 Section 152-20 | Income Tax Assessment Act 1997 Subsection 152-305(2) | Income Tax Assessment Act 1997 Section 152-325 | Income Tax Assessment Act 1997 Subsection 152-325(1) | Income Tax Assessment Act 1997 Subsection 103-25(3)(b)

Reasons for decision: Summary: You have indicated that the company operated a franchise business that was sold. For the company to apply the CGT Retirement Exemption it has to meet the following requirements: 1. The basic conditions in Subdivision 152A have to be met. You have stated these conditions have been met. 2. The significant individual test (20%) has to be met at the time of sale. You have stated that this has been met for the CGT concession stakeholder. 3. The company conditions in subsection 152-305(2) and section 152-325 of the ITAA 1997 have to be met: a) the company has to make payments of the CGT exempt amount to at least one of its CGT Concession Stakeholders. The payment has been made to the CGT Concession Stakeholder. b) the company has to make the choice in writing, to apply the retirement exemption. This election has been made. 4. The CGT exempt amount must not exceed the concessional stakeholder's retirement exemption limit of $500,000. This amount has not been exceeded. As you have met all the necessary requirements, you can apply the retirement exemption to disregard the amount of the capital gain you have chosen as the CGT exempt amount. The payment that the CGT concession stakeholder receives from the company to satisfy the retirement exemption requirements is not assessable income and is not exempt income.