Private ruling: Small business concessions
Date of advice: 12 August 2016
Published: September 2016
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Do you qualify for the CGT small business retirement exemption up to a lifetime limit of $500,000? | A1: Yes.

Relevant facts and circumstances: You are a partnership. Your turnover is less than $2 million a year. All partners are over 55 years of age. You have owned a factory for over 15 years and have used it in the business for at least 7.5 years. You are now looking to sell the factory.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 paragraph 152-40(4)(e)

Reasons for decision: Summary: The basic conditions for the small business capital gains tax concessions in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) (as relevant to this case) are: • the small business entity test and • the active asset test. Small business entity You will be a small business entity if you are an individual, partnership, company or trust that is carrying on a business and has an aggregated turnover of less than $2 million. In your case, the information provided is that business has a turnover of less than $2 million. Active asset test The active asset test is contained in section 152-35 of the ITAA 1997. The active asset test is satisfied if: • 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 detailed below, or • 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 7.5 years during the test period. The test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases. A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you. Paragraph 152-40(4)(e) of the ITAA 1997 states, however, that an asset whose main use in the course of carrying on the business is to derive rent cannot be an active asset unless the main use for deriving rent was only temporary. In this case, you have owned the property for more than 15 years and it has been used in the course of carrying on a business more than 7.5 years. Therefore, the property will satisfy the active asset test. Retirement exemption If you are an individual, you can choose to disregard all or part of a capital gain if: • you satisfy the basic conditions • you keep a written record of the amount you chose to disregard (the CGT exempt amount), and • if you are under 55 years old just before you choose to use the retirement exemption, you make a personal contribution equal to the exempt amount to a complying superannuation fund or retirement savings account (RSA). If you are 55 years old or older when you make the choice to access the retirement exemption, there is no requirement to pay any amount to a complying superannuation fund or RSA For an individual choosing the retirement exemption, there is no requirement to terminate any activity or cease their business. The amount of the capital gain that you choose to disregard (that is, the CGT exempt amount) 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 disregarded under the retirement exemption. This includes amounts disregarded under former (repealed) retirement exemption provisions. In this case, as discussed above, you satisfy the basic conditions. Provided you keep a written record of the amount you chose to disregard, you are entitled to the small business retirement exemption. As you are over 55 years of age, you are not required to contribute any amount to a complying superannuation fund or RSA.