Private ruling: Whether you are entitled to the small business 15-year exemption
Published: March 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to the Small Business 15-year exemption under section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 Section 152-40 | Income Tax Assessment Act 1997 Section 152-105

Reasons for decision: Summary: You have met all of the conditions under Subdivision 152-B of the ITAA 1997 to be entitled to the small business 15-year exemption. You can therefore disregard a capital gain arising from the sale of your business. | Detailed Reasoning - Detailed reasoning: A small business entity can disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met. Section 152-105 of the ITAA 1997 discusses the 15-year exemption for individuals. If you are an individual, you can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: (a) the basic conditions set out Subdivision 152-A are satisfied for the gain; (b) you continuously owned the CGT asset for the 15-year period ending just before the CGT event; (c) if a 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; (d) either: (i) you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or (ii) you are permanently incapacitated at the time of the CGT event. Whether an individual is permanently incapacitated at the time of the CGT event depends on the particular circumstances of each case. Based on the meaning of the term "permanent incapacity" in retirement and superannuation law, an indicative description 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." The basic conditions for relief under Subdivision 152-A, as set out under section 152-10 of the ITAA 1997, are as follows: (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 the 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 interest in an asset of the partnership; (iv) the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year. (d) the CGT asset satisfies the active asset test Section 152-40 outlines the meaning of the term "active asset". Subsection 152-40(1) of the ITAA states a CGT asset is an active asset at a time if, at that time: (iii) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you; or (iv) If the asset is an intangible - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you. | Detailed Reasoning - Basic conditions: In your case you intend to sell your business in the near future, therefore a CGT event will occur. You expect to make a capital gain from the sale. The aggregated turnover from the business has always been under $2,000,000 and it will stay under that amount in the future. You own the CGT asset (the business) and it is used in the course of carrying on a business (which makes it an active asset). You therefore meet all the basic conditions under Subdivision 152-A of the ITAA 1997. | Detailed Reasoning - 15 year exemption conditions: You have continuously owned your business for over 15 years. You have suffered health problems for a number of years to a point where you are unable to function in your daily life. It is now getting to the point where you cannot put up with the pain any longer and intend to sell your business. You have tried reducing your hours at work to no avail. You don't sleep well because of the pain. You have visited your GP and a specialist to seek relief from the pain. You have also tried other pain reducing solutions. You take pain-relieving tablets on a daily basis. It is considered that you suffer physical ill health and that you are unlikely because of your ill health to engage again in gainful employment for which you are reasonably qualified by education, training or experience. It is therefore considered that you are permanently incapacitated. As you have met all relevant conditions under section 152-105 of the ITAA 1997 you can disregard a capital gain arising from the sale of your business.

Relevant facts: You have owned and operated your business as a sole trader for over 15 years. | The aggregated turnover for your business has always been below $2,000,000 and will never go over that amount. | You are currently under 55 years old and had hoped to keep working until you were 55 years old. | You have been experiencing health problems for a time and it is now getting to the point where you are unable to work in your business because of the pain. | You have also tried many health solutions. | You are currently living on pain relieving tablets just to get through the work day. | You don't sleep well because of your health. | You are seeking to sell your business because of your ill-health.