Private ruling: Small Business CGT Concessions
Date of advice: 25 September 2025
Published: 17 November 2025
Ruling period: Year ended 30 June 202X
Date scheme commenced: 1 July 202X

Ruling: Q1: Does Individual X satisfy the basic conditions to apply the small business capital gains tax (CGT) concessions in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the disposal of the Land? | A1: Yes

Relevant facts and circumstances: The X Family includes Individual X together with their sibling and their parents. The X Family are farmers and have been running a business in primary production. In 19XX, Individual X, together with their sibling (the X siblings) bought land on one title, close to the Home Property (the Land). The X siblings purchased the Land, with the purpose of extending the family business. The X Parents together with the X siblings initially ran the family business in a partnership (the X Family Partnership) and the X siblings contributed the Land to the new partnership of the four family members. All profits were distributed equally between the X Family Partners. Due to the close family relationship, the partnership was not formally documented. The X Parents were still involved in the family business during this period as partners in the Family Partnership. The X siblings contributed to the management of the business and the decision-making process of the business. The X Family Partners did not hold any specific roles or responsibilities in the business. In 19XX, the X Family incorporated the Company. The X Family business was then solely operated in the Company. Individual X was a director of the Company and held XX% of the ordinary shares in the Company. Individual X was involved in day-to-day duties of the Company business, in the same way that had been operated under the X Family Partnership. Individual X was involved in all decision-making regarding the operation of the Company. Individual X dealt with all the business banking, administration and other business operations that involved paperwork. Individual X has provided additional facts and detailed information about their involvement in the decision making and business affairs of the Company. The Company's annual turnover was lower than $2 million in the relevant income years. The sale of the Land settled in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 subsection 152-10(1) | Income Tax Assessment Act 1997 paragraph 152-10(1)(a) | Income Tax Assessment Act 1997 paragraph 152-10(1)(b) | Income Tax Assessment Act 1997 paragraph 152-10(1)(c) | Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(iv) | Income Tax Assessment Act 1997 paragraph 152-10(1)(d) | Income Tax Assessment Act 1997 subsection 152-10(1AA) | Income Tax Assessment Act 1997 subsection 152-10(1A) | Income Tax Assessment Act 1997 paragraph 152-10(1A)(a) | Income Tax Assessment Act 1997 section 152-15 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-35(1) | Income Tax Assessment Act 1997 subsection 152-35(2) | I ncome Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 subsection 152-40(1) | Income Tax Assessment Act 1997 subsection 152-40(4) | Income Tax Assessment Act 1997 paragraph 152-40(4)(e) | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 subsection 328-125(1) | Income Tax Assessment Act 1997 subsection 328-125(2) | Income Tax Assessment Act 1997 section 328-130 | Income Tax Assessment Act 1997 subsection 328-130(1) | Income Tax Assessment Act 1997 subsection 328-130(2)

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise stated. Individual X satisfies the basic conditions to apply the small business CGT concessions in Subdivision 152-A in relation to the disposal of the Land. | Detailed Reasoning - Basic conditions in Subdivision 152-A: To qualify for the CGT small business concessions, you must satisfy several conditions that are common to all the concessions. Subsection 152-10(1) sets out the basic conditions: (1) A capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain: (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 CGT 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 CGT 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. To be eligible to apply the small business CGT concession you must satisfy all 4 of the basic conditions above. | Detailed Reasoning - Basic condition (a) - A CGT event happens in relation to a CGT asset of yours in an income year: In 20XX, a contract for the sale of the Land was entered into. This is considered a disposal of a CGT asset pursuant to subsection 104-10(1) and CGT event A1 has occurred. Consequently, the requirement in paragraph 152-10(1)(a) is satisfied. | Detailed Reasoning - Basic condition (b) - The event would have resulted in the gain: Subsection 104-10(4) provides that you make a capital gain from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base. In this case, the capital proceeds received from the sale of the Land will be more than its cost base. Therefore, Individual X will make a capital gain upon the disposal of the Land under section 104-10. Consequently, the requirement in paragraph 152-10(1)(b) is satisfied. | Detailed Reasoning - (i) you are a CGT small business entity for the income year: Subsection 152-10(1AA) provides that you are a small business entity for an income year if: (a) you are a *small business entity for the income year; and (b) you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million. Individual X did not carry on a business in their own right in the income year ended 30 June 20XX and therefore was not a CGT small business entity for the income year. | Detailed Reasoning - (ii) you satisfy the maximum net asset value test: Section 152-15 outlines the requirements to satisfy the maximum net asset value test. It provides that you satisfy the maximum net asset value test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000: (a) The *net value of the CGT assets of yours; (b) The net value of the CGT assets of any entities *connected with you; (c) The net value of the CGT assets of any *affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)). In the current circumstances, Individual X did not satisfy the maximum net asset value test given that the net value of your CGT assets. (iii) you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership Individual X was not a partner in a partnership that was a CGT small business entity (SBE) for the income year and the CGT asset is not an interest in an asset of the partnership. | Detailed Reasoning - (iv) the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year: The conditions in subsection 152-10(1A) are satisfied if (a) your *affiliate, or an entity that is *connected with you, is a *CGT small business entity for the income year; and (b) you do not carry on a *business in the income year (other than in partnership); and (c) if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and (d) in any case - the CGT small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b)) in relation to the CGT asset. To satisfy the condition in paragraph 152-10(1A)(a), it needs to be determined if an affiliate, or an entity that was connected with you, was a CGT SBE. Individual X owned a XX% ownership interest in the Company and therefore, they did not have, own or control a percentage that was at least 40% of the voting power in the Company. The meaning of 'affiliate' is set out in section 328-130 as follows: (1) An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the *business of the individual or company. (2) However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share. In accordance with subsection 328-130(2), an individual or company is not automatically an affiliate merely because of the formal position they hold or the formal business relationship they share with the other entity. For example, subsection 328-130(2) states that a company and its directors are not affiliates by reason only of the nature of the business relationship they share. Therefore, the mere fact that Individual X is a director and shareholder of the Company does not, in itself, lead to the conclusion that the Company was an affiliate of Individual X if it acted, or could reasonably have been expected to act, in the relevant way due to the nature of that business relationship. However, based on the relevant facts and circumstances, it is considered that Individual X's actions and involvement in the Company suggest that the actions are beyond this mere business relationship of being a director of the Company. As a result, the Company was not prevented from being an affiliate of Individual X under subsection 328-130(2). Based on the relevant facts and circumstances, it is considered that the Company acted, or could reasonably have been expected to act, in accordance with Individual X's directions or wishes, or in concert with Individual X, in relation to the Company's business affairs. Therefore, Individual X satisfies the requirement in subsection 152-10(1A) as the Company is their affiliate. Consequently, the requirement in paragraph 152-10(1)(c) is satisfied. | Detailed Reasoning - Fourth basic condition - paragraph 152-10(1)(d): Paragraph 152-10(1)(d) requires that the CGT asset satisfies the active asset test. Pursuant to subsection 152-35(1), 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 period specified in subsection (2); 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 period specified in subsection (2). Subsection 152-35(2) provides that 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. In the current circumstances, Individual X acquired their interest in Land in 19XX, CGT event A1 happened when the contract for the sale of the Land was entered into in 20XX. Accordingly, Individual X owned the interest in the Land for more than 15 years and as such to meet the active asset test, the Land must be an active asset for a total of at least 7 ½ years. Subsection 152-40(1) provides that a tangible 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, or an entity connected with you. Individual X acquired their interest in the Land with the main purpose of using it in the X Family business. The Land was used in the X Family business for a time which exceeded 7 ½ years. Exclusion - CGT assets used mainly to derive "passive income" Subsection 152-40(4) specifically excludes some assets from the meaning of an active asset. Of relevance to this case, under paragraph 152-40(4)(e) an asset used mainly to derive rent cannot be an active asset. However, there are two exceptions to the exclusion of assets whose main use is to derive "passive income" These are: (a) it is an intangible asset and it has been substantially developed, altered or improved so that its market value has been substantially enhanced (section 152-40(4)(e)(i)); or (b) its main use for deriving rent was only temporary (section 152-40(4)(e)(ii). With regard to the second exception in section 152-40(4)(e)(ii), it enables a CGT asset to be treated as an active asset even if it was temporarily used predominantly to derive rent. From the period of 19XX to 19XX, a residential area of the property of XX acres that consists of a house and surrounding land was used to derive rent. However, the areas of the Land used by the X Family business during this time was far greater than the residential area that was used to derive rent. Further, the income derived from the X Family business during this time far exceeded the rental income that was derived from the area used to derive rent. In this case, the exception to the Land being an active asset under paragraph 152-40(4)(e), does not apply for the period, as its main use was not for deriving rent during that time. Accordingly, the requirements of paragraph 152-10(1)(d) are satisfied. | Detailed Reasoning - Conclusion: In conclusion, Individual X satisfies the basic conditions for small business relief in section 152-10, in respect of the disposal of their interest in the Land.