Private ruling: Capital gains tax - small business concessions
Date of advice: 10 March 2016
Published: May 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Can the trust apply for the small business 15 year exemption on disposal of the property? | A1: Yes. | Q2: Can the trust apply for the small business 50% active asset reduction on disposal of the property? | A2: No. | Q3: Can the trust apply for the small business retirement exemption on disposal of the property? Answer No.

Relevant facts and circumstances: You and your spouse are both beneficiaries of the trust and are both older than 55 years old. You are both significant individuals of the trust. The trust purchased a property several years ago. A business was established on the property several years ago. The business activity was later discontinued due to poor financial returns and outlook. A house was built on the property for holiday accommodation rental. For several years the house has been registered for holiday accommodation rental. The local visitor centre has been responsible for all bookings, payments and key collection relating to the property. You have been responsible for marketing, financials and general maintenance for the property. Various cleaners have been employed to provide cleaning services to the house. You have owned the property for greater than 15 years. The property has been an active asset for greater than 7.5 years. The disposal of the property will be in connection with your retirement.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 152-A, | Income Tax Assessment Act 1997 subdivision 152-B, | Income Tax Assessment Act 1997 subdivision 152-C, | Income Tax Assessment Act 1997 subdivision 152-E, | Income Tax Assessment Act 1997 section 152-10, | Income Tax Assessment Act 1997 section 152-35, | Income Tax Assessment Act 1997 section 152-110, | Income Tax Assessment Act 1997 section 152-330 and | Income Tax Assessment Act 1997 section 152-215.

Reasons for decision: Summary: Under section 152-110 of the ITAA 1997, in order to qualify for the 15 year small business exemption, you must have met the basic conditions outlined above, as well as have: • continuously owned the CGT asset for at least 15 years, • had a significant individual for a total of at least 15 years of the whole period of ownership (even if it was not the same significant individual during the whole period), and • had an individual who was a significant individual just before the CGT event who was • at least 55 years old at that time and the event happened in connection with their retirement, or • was permanently incapacitated at that time Therefore under section 152-110 of the ITAA 1997 the property qualifies for the 15 year small business exemption because it satisfies the criteria mentioned above. The small business 15-year exemption takes priority over all the other small business concessions and the CGT discount. If the small business 15-year exemption applies, you entirely disregard the capital gain so there is no need to apply any further concessions. Under section 152-215 of the ITAA 1997, the small business 15-year exemption has priority over the small business 50% active asset reduction. As you have satisfied the conditions for the 15-year exemption, you would be unable to apply the small business 50% active asset reduction. Under section 152-330 of the ITAA 1997, the small business 15-year exemption has priority over the small business retirement exemption. As you have satisfied the conditions for the small business 15-year exemption, you would be unable to apply the small business retirement exemption.

Under section of 152-10 of the Income Tax Assessment Act 1997 ( ITAA 1997), in order to qualify for small business capital gains tax concession, you must satisfy basic conditions, which are; | • that you are a small business entity, and | • the asset in question must be an active asset. | As you are carrying on a business and your aggregate turnover is less than $2 million, your trust classifies as a small business entity. | 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 least 7.5 years during the test period. | • begins when you acquired the asset, and | • when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows). | Therefore under section 152-35 of the ITAA 1997 the property satisfies the active asset test because it was owned for more than 15 years and was actively used in your business for more than 7.5 years. | Each concession also has further requirements that you must satisfy for that concession to apply.