Published: August 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Would the disposal of the property meet the requirements of the 15-year exemption notwithstanding the pre-CGT acquisition of the asset? | A1: Yes

Relevant facts and circumstances: You owned a property which you purchased prior to 20 September 1985. The property was used solely for the purpose of primary production for more than 7.5 years. From 199X the property was leased to a third party. During this lease period you worked on the property undertaking maintenance. When the lease ended, you worked significant hours on the property to return it to its former condition as farming and grazing property. You operated the farming and grazing property again before selling. The property was sold. Your intention was to fully retire after sale of the property. This occurred in November 2016 when you resigned from your other employment. You are over 55 years of age. You satisfy the maximum net asset value test.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Section 152-110

Reasons for decision: Summary: In order to exclude superannuation contributions from your non-concessional contributions cap (as a part of your lifetime super CGT cap), the capital proceeds from the disposal of the asset would need to have qualified for the small business 15-year exemption, but did not because the asset was a pre-CGT asset. Small business CGT concessions A capital gain that you make may be reduced or disregarded using the small business CGT concessions under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) if the following basic conditions are satisfied: A CGT event happens in relation to a CGT asset of yours in an income year; The event would have resulted in the gain; At least one of the following applies: You are a small business entity for the income year; You satisfy the maximum net asset value test; 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; For a passively held assets, the conditions in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year; The CGT asset satisfies the active asset test. Active asset test The active asset test requires the CGT asset to be an active asset for at least: 7.5 years, if owned for more than 15 years, or Half of the ownership period if owned for 15 years or less. 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, you affiliates, your spouse or child or an entity connected with you (Section 152-35 of the ITAA 1997). 15 year exemption Section 152-110 of the ITAA 1997 provides a small business 15-year exemption for individuals. Under this section, an individual can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: You satisfy the basic conditions You continuously owned the CGT asset for the 15 year period ending just before the CGT event, If the 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, and Either: You are 55 or over at the time of the CGT event and the event happens in connection with your retirement, or You are permanently incapacitated at the time of the CGT event. Application to your circumstances You satisfy the basic conditions. You have stated that you met the maximum net asset value test, further; you satisfy the active asset test as you have owned the asset for more than 15 years, and it has been an active asset for more than 7.5 years. You continuously owned the asset for more than the 15 year period ending just before the CGT event. Further, you were over 55 years of age at the time of the CGT event and the event occurred in connection with your retirement. Therefore, the disposal of the property meets the requirements of the 15-year exemption.

Ruling: Subject: CGT - small business concessions