Private ruling: Small business 15-year exemption
Date of advice: 29 April 2019
Published: June 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the company eligible for the small business 15-year exemption in relation to the sale of the goodwill of its business under Subdivision 152-B of the Income Tax Assessment 1997 (ITAA 1997)? | A1: Yes Based on the information provided we accept the company will be entitled to disregard any capital gain made on the sale of the goodwill of its business under the 15-year exemption for the following reasons: ● The company was a small business entity for the income year in which the CGT event occurred. ● The goodwill of the business was an active asset owned by the company for the 15-year period before the CGT event. ● The company had a significant individual for a total of at least 15 years during the period of ownership of the goodwill. ● The Commissioner accepts that the sale was in connection with the significant individual’s retirement. | Q2: If the company makes a payment relating to the exempt amount to Person A within two years of the CGT event and the payment does not exceed an amount determined by multiplying Person A’s control percentage by the exempt amount, will the payment be excluded from Person A’s assessable income? | A2: Yes. As Person A was a CGT concession stakeholder of the company just before the CGT event, the payment will be exempted under section 152-125 of the ITAA 1997.

Relevant facts and circumstances: The company was incorporated more than 25 years ago and has conducted a retail sale and services business since incorporation. Person A owns XX% of the shares in the company. Person A provides their professional services through the company. Person A’s duties included: ● Providing their professional services to clients. ● Working on part of the manufacturing of the retail products. ● Administrative duties such as account keeping using MYOB, ordering and replacing stock and administration of payments for services provided. Person A worked regularly in excess of XX-XX hours a week for the company and rarely took four weeks annual leave in any one year. In 20XX (when they were over 55 years old) Person A commenced contemplating their retirement and exiting the business. At that time they commenced seeking to find a buyer for the business. The following year the company entered into failed negotiations to sell the business. In 20XX another buyer expressed interest in acquiring the business and on XX/XX/20XX a contact of sale was signed to acquire the business. Under the terms the of the sale agreement Person A is required to work for the buyer for a period providing their professional services as a salaried employee. The proceeds from the sale of the business are subject to an earn-out arrangement over the same period Person A is to provide their services as an employee. Person A will not undertake any administrative or secretarial work as the buyer maintains the business inventory, deals with payments and provides the completed retail products for sale. Person A’s working hours have reduced by 40% and Person A is seeking to engage another worker to reduce their working hours further. At the end of the employment period Person A will retire. The company was a small business entity in the income year of the CGT event. Person A has been a significant individual of the company for more than 15 years. The company will make a capital gain from the sale of the goodwill of the business. Person A’s participation percentage in the company is XX%.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 paragraph 152-110(1)(d) | Income Tax Assessment Act 1997 section 152-125