Private ruling: Small business 15-year exemption - subdivided factory
Date of advice: 13 January 2016
Published: March 2016
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you apply the small business 15-year exemption to disregard the capital gains you make on the disposal of the subdivided property? | A1: Yes.

Relevant facts and circumstances: You are a discretionary trust. The trustee company is controlled by Individual A. Individual A is the sole named beneficiary of you and has received all distributions made by you in the last 15 years. You own a property and have owned it for more than 15 years. A business has been carried on at the property by an entity connected with you throughout your ownership period. Individual A is the sole shareholder and director of the connected entity. You will be disposing of the property and to maximise the gain from the sale you will subdivide it into three properties with each having their own separate title. Individual A will be a significant individual of you in the years that the properties are sold. Individual A is at least 55 years of age and does not have any plans to materially engage in business or employment after the properties are sold. You satisfy the maximum net asset value test and will do so at the time the properties are sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 section 152-110

Reasons for decision: Summary: The rules covering the small business 15-year exemption are contained in Subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997). If you qualify for the small business 15-year exemption you can entirely disregard the capital gain you make from the disposal of a capital gains tax (CGT) asset and do not need to apply any other concessions. In addition, you do not have to apply capital losses against your capital gain before applying the exemption. Under section 152-110 of the ITAA 1997 a trust can disregard the capital gain made on the disposal of a CGT asset if the trust: (a) satisfies the basic conditions for the small business CGT concessions in Subdivision 152-A of the ITAA 1997 for the gain (b) continuously owned the CGT asset for the 15-year period ending just before the CGT event (c) had a significant individual for a total of at least 15 years (even if it was not the same significant individual during the whole period) during which the trust owned the CGT asset, and (d) an individual who was a significant individual of the trust just before the CGT event either: (i) was 55 or over at that time and the event happens in connection with the individual's retirement, or (ii) was permanently incapacitated at that time. In your case, the basic conditions contained in Subdivision 152-A of the ITAA 1997 will be satisfied because: • CGT events will occur when you dispose of the properties • the events will result in gains • you will satisfy the maximum net asset value test at the time of the events, and • you have owned the properties for more than 15 years and they have been used in a business carried on by an entity connected with you for a total of at least 7½ years of your ownership period. In addition, • you will have continuously owned the properties for the 15-year period ending just before the CGT events • you have had a significant individual (Individual A) for a total of at least 15 years during which you have owned the properties, and • Individual A, who will be a significant individual of you just before you dispose of the properties, will be over 55 at that time and the disposal of the properties will happen in connection with their retirement. You qualify for the small business 15-year exemption in section 152-110 of the ITAA 1997 in relation to the three properties. You can disregard the capital gains you make on their disposal.