Private ruling: Small business CGT concession
Date of advice: 25 May 2026
Published: 3 August 2026
Ruling period: Income year ending 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will the Commissioner exercise the discretion under subparagraph 152-35(2)(b)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow a period longer than 12 months between the cessation of the Business and the relevant capital gains tax (CGT) event? | A1: Yes. | Q2: Does the Trustee satisfy the basic conditions for relief under section 152-10 in Subdivision 152-A of the ITAA 1997 in relation to the disposal of the Property? | A2: Yes. | Q3: Can the Trustee choose to apply the small business retirement exemption in Subdivision 152-D of the ITAA 1997 to the capital gain arising from the sale of the Property? | A3: Yes.

Relevant facts and circumstances: The Trustee of the Trust purchased a Property more than 15 years ago. The Property was used by individual A to carry on a Business. The Business occupied the Property exclusively and continuously from acquisition until the Business was sold over a period of more than 7½ years. A was the sole owner and operator of the Business. A and A's spouse have always been the primary beneficiaries of the Trust, the directors and shareholders of the Trustee company. A retired soon after the sale of the Business. A and A's spouse are over X years old. Shortly before the Business ceased, A started to discuss the sale of the Property with a Real Estate Agent. A was advised that the demand for empty office space had been subdued for over a decade due to new office spaces being added to the local area. However, a fully leased property could attract buyers who were looking for a passive income. It was suggested to A that they should attempt to lease the property and then sell it as an investment. The Real Estate Agent was accordingly appointed for the lease and the sale of the Property. The Property was advertised and listed for lease and for sale at the same time. However, the Property failed to attract a tenant or buyer immediately. When it was leased the lease was on a short term basis. There were occasional inspections by prospective buyers but they did not eventuate in a sale. The issue was due to the lease term not being sufficiently long enough to attract investors. The property was put to auction and there was no bidder. Subsequent to this auction there was an aborted sale. The Property remained vacant for some time before a lease was entered into for a longer term plus 2 options to renew. The sale marketing campaign this time had the advantage of a long-term lease potential. The Real Estate Agent secured a buyer and the Property was sold. The Trustee made a capital gain on the sale. It was not the Trustee's preference to lease the Property on short-term. However, it was not an option to leave the Property untenanted as the annual outgoings for levies, council rates, utilities and insurance plus any general expenses and maintenance costs were a significant expense for A. A and A's spouse each received 50% of total distributions from the Trustee in the 4 income years before the income year in which the sale took place. In the income year in which the sale took place the Trustee will make distributions of at least 20% each to each of A and A's spouse so as to satisfy the significant individual test under section 152-50 of the ITAA 1997. Both A's CGT retirement exemption limit and that of A's spouse are well below the $500,000 limit for the purpose of section 1523-320 of the ITAA 1997. The sum of the net value of the CGT assets of the Trust, of A and A's spouse does not exceed $6,000,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 subsection 152-10(1) | Income Tax Assessment Act 1997 subsection 152-10(1AA) | Income Tax Assessment Act 1997 subsection 152-10(1A) | Income Tax Assessment Act 1997 section 152-15 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 section 152-50 | Income Tax Assessment Act 1997 subsection 328-125(1) | Income Tax Assessment Act 1997 subsection 328-125(3) | Income Tax Assessment Act 1997 subsection 328-125(4)

Reasons for decision: Summary: The Commissioner has exercised the discretion under subparagraph 152-35(2)(b)(ii) to allow a period longer than 12 months and the Trustee satisfies the basic conditions under section 152-10. | Detailed Reasoning - Detailed reasoning: Division 152 provides CGT relief to some small business taxpayers. In determining whether an entity can reduce or disregard a capital gain, the basic conditions under Subdivision 152-A are required to be satisfied first. Subsection 152-10(1) states that a capital gain may be reduced or disregarded if the following basic conditions are satisfied: (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 (MNAV) test (see section 152-15); (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 152-10(1A) or 152-10(1B) are satisfied in relation to the CGT asset in the income year; (d) the CGT asset satisfies the active asset test (see section 152-35). Each of the above conditions is considered below. (a) A CGT event happens in relation to a CGT asset in an income year CGT event A1 under section 104-10 happened when the Trustee entered into a contract for the sale of the Property. Paragraph 152-10(1)(a) is satisfied. (b) The event would (apart from this Division) have resulted in the gain Paragraph 152-10(1)(b) is satisfied as the Trustee would make a capital gain on the sale of the Property. (c) Additional conditions under paragraph 152(10)(1)(c) Paragraph 152-10(1)(c) requires that at least one of the conditions listed is met, one of which is the maximum net asset value (MNAV) test. Section 152-15 states that you satisfy the MNAV 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)). Connected entity It is necessary to consider if there are entities connected with the Trust. Under subsection 328-125(1) an entity is connected to another entity if: (a) either entity controls the other entity in a way described in section 328-125; or (b) both entities are controlled in a way described in section 328-125 by the same third entity. Under subsection 328-125(4), an entity is taken to control a discretionary trust for an income year if, for any of the 4 preceding income years: (a) any income or capital of the trust was paid to or applied for the benefit of the entity and/or its affiliates; and (b) the amount paid or applied was at least 40% of the total amount of income or capital distributed by the trustee for that income year. The control percentage of each of A and A's spouse in the 4 income years before the income year in which the CGT event occurred was more than 40% as they each received 50% of the total distribution from the Trustee in those years. A and A's spouse, therefore, are entities connected with the Trust. The net value of all CGT assets of the Trust and of A an A's spouse just before the sale of the Property was below $6,000,000 Conclusion: Just before the CGT event, the net value of all CGT assets calculated in accordance with section 152-15 did not exceed $6,000,000. As the conditions in section 152-15 are met, the Trustee has satisfied paragraph 152(10)(1)(c). (d) The CGT asset satisfies the active asset test Section 152-35 states that: (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 from the acquisition of the asset or the earlier of the CGT event or the cessation of the business, 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 this period. (2) The period: (a) begins when you acquired the asset; (b) and ends at the earlier of (i) the CGT event; and (ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business. As the Trustee owned the Property for more than 15 years at the time of the disposal paragraph 152-35(1)(b) is relevant. It is necessary to consider whether the Property was an active asset for a total of at least 7½ years during 'the period' defined in subsection 152-35(2). The period As the Property was not sold within 12 months of the cessation of the Business the Trustee has asked the Commissioner to allow a longer period than 12 months. In considering whether to exercise his discretion, the Commissioner needs to be satisfied that there were circumstances beyond the Trustee's control that prevented the CGT event from occurring within 12 months after the Business ceased. The following factors are taken into consideration: • whether there is evidence of an acceptable explanation for the period of extension and whether it would be fair and equitable in the circumstances to provide such an extension; • whether there is any prejudice to the Commissioner if the additional time is allowed; • whether there is any unsettling of people, other than the Commissioner, or of established practices; • fairness to people in like positions and the wider public interest; • whether there has been any mischief involved; and • the consequences of the decision. From the information provided to the Commissioner, it is considered fair and reasonable exercise the discretion in subparagraph 152-35(2)(b)(ii) to allow the business cessation period to extend back more than 12 months. For the purpose of subsection 152-35(2) the period began at the acquisition of the Property and ended at the cessation of the Business and was more than 7½ years. Active asset Active asset' is defined under section 152-40: | Detailed Reasoning - 152-40(1): A CGT asset is an active asset at a time if, at that time: (a) 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..... In this case, the Property were owned by the Trustee, during which it was used by a connected entity A for the Business for more than 7 ½ years. As the Property was an active asset for more than 7 ½ year, paragraph 152-10(1)(d) is therefore, satisfied. Conclusion: The Trustee has satisfied all the basic conditions in subsection 152-10(1). | Detailed Reasoning - Question 3: Summary : The Trustee can choose to apply the small business retirement exemption in Subdivision 152-D to disregard all or part of the capital gain arising from the sale of the Property. | Detailed Reasoning - Detailed reasoning: Subdivision 152-D allows an entity to choose that a capital gain from a CGT event happening to an asset of a small business be exempt if the capital proceeds from the event are used in connection with retirement. There is a lifetime limit of $500,000 in respect of any one individual. Subsection 152-305(2) states that a company or trust can choose to disregard all or part of a capital gain if: • the basic conditions in Subdiv 152-A are satisfied for the gain; • the entity satisfies the significant individual test under section 152-50; and • the company or trust conditions in section 152-325 are satisfied. The basic conditions have been addressed above. The significant individual test in section 152-50 requires an entity to have at least one significant individual just before the CGT event. Under section 152-55 an individual is a significant individual in a company or a trust at a time if, at that time, the individual has a small business participation percentage in the company or trust of at least 20%. The direct small business participation percentage is defined in section 152-70 to mean the percentage of distribution of income or capital the trustee of a trust makes during the relevant income year in which that time occurs. Under section 152-60 a CGT concession stakeholder is also the significant individual in the company or trust, or the spouse of a significant individual who has s small business participation percentage greater than zero. Subsection 152-325(1) requires a company or trust to make a payment to at least one of its CGT concession stakeholder if: (a) the company or trust makes a choice under this Subdivision to disregard a capital gain from CGT event J2, J5 or J6; or (b) the company or trust receives an amount of capital proceeds from a CGT event for which it makes a choice under this Subdivision. In this case: • the Trustee meets the basic conditions in section 152-10 of subdivision 152-A; • the Trustee will satisfy the significant individual test in section 152-50 by making distributions in the 2026 income year to satisfy the significant individual test in section 152-60; and • the Trust received an amount of capital proceeds from the sale of the Business for which it will make a choice under Subdivision 152-D. The Trustee, therefore, can choose to disregard all or part of the capital gain arising from the sale of the Property as it has met the conditions in subsection 152-305(2).

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .