Private ruling: Small business CGT concessions - 15-year exemption
Date of advice: 30 July 2025
Published: 29 September 2025
Ruling period: Year ended 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Is the Trust eligible to apply the small business 15-year exemption under section 152-110 of the ITAA 1997 to disregard the capital gain from the disposal of the Property? | A1: Yes.

Relevant facts and circumstances: The Trust is a discretionary trust. Company A is the corporate trustee of the Trust. Company A was incorporated with 2 shares. Individual A and B each held 1 share. Individual A is the sole director of Company A. The appointor of the Trust is Individual A. The principal beneficiaries of the Trust are Individual A and B. The net value of the Trusts CGT assets (including entities connected with the trust, any affiliates and entities connected with the trust's affiliates) is less than $6 million. Individual A and B are over 55 years of age. Company A as trustee for the Trust acquired a Property more than 15 years ago. Company B used the Property in it's business for more than 7.5 years. Company B has a formal lease with the Trust to use the property. Individual A and B were involved in strategic operations, planning and quoting of Company B. They also assisted in the financial decisions of the business. Individuals A and B received a wage from the Trust in the year ended 30 June 2024. Individual A and B have ceased carrying on the business in preparation for their retirement. Individual A and B intend to contribute the maximum amount from the sale to their superannuation. The Trust signed the contract of sale for the Property in the 2024 financial year. The Trust made distributions of income to Individual A and B of more than 50% in some financial years. The Trust also made a distribution of 100% to Company A in one financial year. The Trust did not make distributions of income in loss years because the trust made a tax loss and did not have net income in those years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152-A | Income Tax Assessment Act 1997 section 152-110 | 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 328-130 | Income Tax Assessment Act 1997 section 152-55 | Income Tax Assessment Act 1997 section 152-65 | Income Tax Assessment Act 1997 section 152-70 | Income Tax Assessment Act 1997 section 152-75

Reasons for decision: Summary: Yes, the Trust satisfies the basic conditions under Division 152-A of the ITAA 1997. The Property was continuously owned by the Trust for over 15 years. In the 2024 income year the distributions went 50% each to Individuals A and B so both are considered to have a 50% small business participation percentage in the Trust. The Trust is considered to have a significant individual for 15 years and one of those significant individuals, was over 55 years old when the Property sold. After the sale, Individual A became unemployed and transitioned into full retirement. Therefore, the Trust is entitled to the small business 15-year exemption. | Detailed Reasoning - Detailed reasoning: 15-year exemption for trusts A trust may disregard a capital gain from a CGT event if the following conditions are met: • the gain satisfies the basic conditions set out in Subdivision 152-A; • the trust owned the CGT asset continuously for the 15 years leading up to the CGT event; • during the period of ownership, the trust had at least one significant individual for a cumulative total of at least 15 years (this period need not be continuous, and the individual may change over the period); and • just before the CGT event, a significant individual of the trust was either aged 55 or over and the event occurred in connection with their retirement, or the individual was permanently incapacitated at the time of the event. Basic conditions The basic conditions in subdivision 152-A of the ITAA 1997 must be satisfied for an entity to be able to reduce its capital gains using the small business concessions. To meet the basic conditions for relief the following must be satisfied: • A CGT event happens in relation to a CGT asset of yours in an income year. • The event would have resulted in a gain. • At least one of the following applies: - You are a CGT 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 CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership. - You do not carry on a business, but your CGT asset is passively held and is used in a business carried on by a small business entity that is your affiliate, or an entity connected with you. • The CGT asset satisfies the active asset test. Maximum net asset value test The maximum net asset value test is met if, immediately before the CGT event, the combined net value of your CGT assets-plus those of entities connected to you, your affiliates, and entities connected to your affiliates-does not exceed $6 million (section 152-15 of the ITAA 1997). Active Asset The CGT asset must satisfy the active asset in order to satisfy the basic conditions (section 152-35 of the ITAA 1997). The active asset test will be met if: • you have owned the CGT 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 when you acquired it to the time of the CGT event or the cessation of the business; or • you have owned the CGT asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years during the period specified in section 152-35(2). A CGT asset is an active asset at a time if, at that time the asset is used, or held ready for use, in the course of carrying on a business that is carried on whether by your or your affiliate or another entity that is connected with you (subsection 152-40(1) of the ITAA 1997). Affiliate A company is an affiliate of yours if the 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. An affiliate relationship requires conduct of the parties in relation to the business affairs of the other entity (subsection 328-130(1) of the ITAA 1997). Paragraph 2.36 of the Explanatory Memorandum to the Tax Laws Amendment (Small Business) Bill 2007 provides relevant factors that support a finding that a company acts, or could reasonable be expected to act, in accordance with your directions or wishes, or in concert with you include: • the existence of a close family relationship between the parties • the lack of any formal agreement or formal relationship between the parties dictating how the parties are to act in relation to each other • the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations, • the actions of the parties. Significant individual An individual is a significant individual of the trust if at that time, the individual has a small business participation percentage in the trust of at least 20% (section 152-55 of the ITAA 1997). The small business participation percentage is the sum of the entity's direct and indirect percentage (section 152-65 of the ITAA 1997). The direct small business participation percentage is provided by section 152-70 of the ITAA 1997. It provides the direct small business participation percentage for a non-fixed trust (where entities do not have entitlements to all the income and capital of the trust) to be: 1. If the trustee makes distributions of income during the relevant income year, the participation percentage is based on the proportion of income the entity was beneficially entitled to. 2. If the trustee makes a distribution of capital, the percentage is based on the proportion of capital the entity was beneficially entitled to. 3. If both income and capital distributions are made, the smaller percentage applies. The 'relevant year' is the year in which the relevant time (for which the direct percentage is being determined) falls in. If the trustee has made neither an income nor capital distribution in the relevant year, the direct percentage an entity had can still be determined (under section 152-70 of the ITAA 1997) as follows: 1. Using the percentages of beneficial entitlement to distributions made in the year of the CGT event. 2. If no distributions were made in the CGT event year because the trust had no net income and had a tax loss, using the percentages of beneficial entitlement to distributions made in any year before the CGT event year (the most recent year must be used). An entity's indirect small business participation percentage in a trust is calculated by multiplying together the entity's direct participation percentage in an interposed entity, and the interposed entity's total participation percentage (both direct and indirect) in the trust (section 152-75 of the ITAA 1997). Connection with retirement This phrase 'in connection with your retirement' has no statutory definition. The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with your retirement', nor does it give any indication of the degree of retirement for the purposes of the 15-year exemption. The Macquarie Dictionary defines 'retirement' to mean 'removal or retiring from service, office, or business, especially in reaching the end of one's working life'. Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. We consider that there would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce. A CGT event may happen in connection with your retirement irrespective of whether it happens before or after your retirement; however, your retirement must have some proximity to the CGT event. That is, you must retire at or near the time of the CGT event. Application to your circumstances In the Trust's case, a CGT event happened when the Trust sold the Property and resulted in a capital gain therefore satisfying paragraphs 152-10(1)(a) and (b) of the ITAA 1997. Additionally, immediately prior to the CGT event the net value of the Trust's CGT assets did not exceed $6 million, therefore satisfying the maximum net asset value test under section 152-15 of the ITAA 1997. In this case, the Commissioner accepts that the Company acts, or is reasonably expected to act, in accordance with the Trust's wishes. Therefore, the Company is an affiliate of the Trust. The active asset test under section 152-35 of the ITAA 1997 is also satisfied as the Trust owned the Property for more than 15 years and the Property was used in a business carried on by an affiliate entity for a total of at least 7.5 years of the ownership period. The basic conditions for relief in Subdivision 152-A have been satisfied in relation to the disposal of the property. Consequently, the first requirement for the 15-year exemption in paragraph 152-110(1)(a) is satisfied. The Trust continuously owned the Property for more than 15 years satisfying the requirement in paragraph 152-110(1)(b) of the ITAA 1997. Based on the distributions made by the Trust it has satisfied paragraph 152-110(1)(c) of the ITAA 1997 as it had a significant individual for a total of at least 15-years during the ownership period of the Property. Individual A, as a significant individual of the Trust was over 55 years of age just before the sale and their duties in the company have ceased as a result of the sale. Consequently, as the Trust satisfies all the relevant requirements of section 152-110 of the ITAA 1997, the Trust is entitled to apply the small business 15-year exemption to disregard any capital gain made upon the disposal of the Property.