Private ruling: CGT - 15 year exemption
Date of advice: 18 July 2024
Published: 26 August 2024
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you entitled to apply the small business 15-year exemption in section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard your share of the capital gain made on the sale of the property? | A1: Yes.

Relevant facts and circumstances: You purchased a property over 15 years ago. You conducted a primary production business on the property through a partnership throughout the ownership period. The partnership's turnover was less than $2 million at all times. The sale of the property will result in a capital gain. You are now fully retired and will be over 55 when the property is sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 section 152-105 Detailed reasoning | 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 from the disposal of a CGT asset if you: | (a) satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 for the small business CGT concessions | (b) continuously owned the CGT asset for the 15-year period ending just before the CGT event happened | (c) if the CGT asset is a share in a company or an interest in a trust - the company or trust 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 | (d) you are: | (i) at least 55 years old at that time and the event happened in connection with your retirement, or | (ii) permanently incapacitated at that time. | Basic conditions | The basic conditions in subsection 152-10(1) of the ITAA 1997 are: | (a) a CGT event happens in relation to a CGT asset of yours in an income year | (b) the event would (apart from this Division) have resulted in a gain | (c) 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 | (iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is 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. | (d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. | Small business entity | An entity is a CGT small business entity for an income year if: | (a) it carries on a business in the current year, and | (b) one or both of the following applies: | (i) it carried on a business in the income year (the previous year) before the current year and its aggregated turnover for the previous year was less than $2 million, and | (ii) its aggregated turnover for the current year is likely to be less than $2 million (subsections | (iii) 152-10(1AA) and 328-110(1)). | Active asset | Under subsection 152-35(1) of the ITAA 1997, 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. | The test period begins when you acquired the asset and ends at the time of the CGT event (subsection 152-35(2) of the ITAA 1997). | Application to the circumstances | A CGT event will occur when you sell your share of the property and you will make a capital gain on the sale. | You carry on a business of XXXX farming in partnership and your aggregated turnover is less than $2 million. | You have owned your share of the property for more than 15 years and the property was used in the business of the partnership for a total of at least 7 ½ years of your ownership period. | You will have continuously owned your share of the property for the 15 year period ending just before the CGT event. | You will be at least 55 years when you dispose of your share of the property and the sale will occur in connection with your retirement. | Therefore, you qualify for the small business 15-year exemption in section 152-105 of the ITAA 1997 in relation to the property and can disregard your share of the capital gain made on its disposal.