Private ruling: 15-year exemption
Published: November 2011
Ruling period: 1 July 2009 to 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Will the small business 15-year exemption in Subdivision 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to allow you to disregard the capital gains from the of the partnership business? | A1: No

Relevant facts and circumstances: You are a 50% partner in a partnership that is a small business entity. You are under 55 years old. You are not incapacitated. The partnership business has been sold as a result of your partner's permanent incapacity. You have stated that you could not continue the business yourself on your own. You wish to know if you can access the CGT small business 15-year exemption concession.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) subdivision 152-A | Income Tax Assessment Act 1997 (ITAA 1997) subdivision 152-B | Income Tax Assessment Act 1997 (ITAA 1997) subdivision 152-C | Income Tax Assessment Act 1997 (ITAA 1997) subdivision 152-D | Income Tax Assessment Act 1997 (ITAA 1997) subdivision 152-E | Income Tax Assessment Act 1997 (ITAA 1997) section 152-105 | Income Tax Assessment Act 1997 (ITAA 1997) paragraph 152-105(d)(ii)

Reasons for decision: Summary: As you are under 55 and the CGT event is not as a result of your permanent incapacity, you are not able to access the 15-year exemption under section 152-105 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: A partner in a partnership that is a small business entity may access the small business concessions where the basic conditions for relief are met. Those basic conditions are in Subdivision 152-A of the ITAA 1997. Some of the concessions have additional, specific conditions that must also be satisfied. The 4 available small business concessions are: (a) the 15-year exemption (in Subdivision 152-B); (b) the 50% reduction (in Subdivision 152-C); (c) the retirement concession (in Subdivision 152-D); (d) the roll-over (in Subdivision 152-E). Under the small business 15-year exemption in section 152-105 of the ITAA 1997, an individual can disregard a capital gain arising from a CGT asset they have owned for at least 15 years if certain conditions are satisfied. One of those conditions is that the individual is either 55 or over at the time of the CGT event and the event happens in connection with their retirement; or the individual is permanently incapacitated at the time of the CGT event. The term 'permanent incapacity' is used elsewhere within the retirement and superannuation provisions of the law and its meaning in those provisions may assist in providing some indication of its meaning for the purposes of the small business 15-year exemption. Having regard to the other provisions in which the term is used, a broadly indicative description of permanent incapacity is: ill health (whether physical or mental), where it is reasonable to consider that the person is unlikely, because of the ill-health, to engage again in gainful employment for which the person is reasonably qualified by education, training or experience. The incapacity does not necessarily need to be permanent in the sense of everlasting. | Detailed Reasoning - Application to your circumstances: In your case, you are a partner in a partnership that is a small business entity. The sale of the business is a result of your partner's 'permanent incapacity'. You are under 55 years of age and are not permanently incapacitated. We acknowledge that the business was sold only because you could not continue the business alone. Whilst your partner was permanently incapacitated, the requirements of the 15-year exemption are such that the permanent incapacity needs to be experienced by each taxpayer under 55 years of age wishing to apply the 15-year exemption. As you have not attained the age of 55 and do not satisfy the permanently incapacitated requirements of subparagraph 152-105(d)(ii) of the ITAA 1997, you are not eligible for the 15-year exemption. | Detailed Reasoning - Further issues for you to consider: Your eligibility to the other concessions as outlined below has not been considered. Active asset reduction - Subdivision 152-C There are no further conditions that need to be satisfied to be entitled to this reduction. Retirement Exemption - Subdivision 152-D May apply where an individual under 55 years of age rolls over capital proceeds from the CGT event under the ETP provisions. Small Business Roll-over - Subdivision 152-E Defers the making of a capital gain if replacement assets are acquired and certain conditions are satisfied.

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