Private ruling: In connection to retirement
Date of advice: 19 February 2026
Published: 7 April 2026
Ruling period: DD MM YYYY

Ruling: Q1: Will the capital gains tax events occurring on the disposal by Person A of his ownership interests in the Properties and water access licences be in connection with his retirement under subparagraph 152-105(1)((d)(i) of the Income Tax Assessment Act 1997? | A1: Yes

Relevant facts and circumstances: Person A and his brother, Person B work in primary production businesses. Previous structure of farming enterprise Prior to the transfer of the Properties and water access licences (WALs), Person A and Person B ran primary production activities as follows: • Person A and Person B each held a 50% interest as partners in a partnership (original partnership). • The Partnership ran a primary production business on the Properties. • The Partnership turnover for the year ended DD MM YYYY was below $2 million. • There was no formal partnership agreement. Person A and Person B are both shareholders in Company A, which conducts a separate primary production business, trading in crop and sheep. • Aggregated turnover for the year ended DD MM YYYY was less than $2 million. The primary production business was carried on in connection with the Properties and WALs for the entire ownership period. The current shareholding of Company A is as follows: Table 1: The current shareholding of Company A Shareholder Share Number Price per Share Share Type % of Voting Rights Person A 1 $1 A Class Shares 25% Person B 1 $1 A Class Shares 25% Person C 2 $1 A Class Shares 50% Person D 1 $1 B Class Shares 0% Total 5 $5 Not Applicable Not Applicable Under clause 6 of Company A constitution: • The holders of any 'A' class shares have the sole right to vote at any general meeting of the company. • The holders of any 'B' class shares do not hold any voting rights but have the right to receive only such dividends as the directors shall decide from year to year at any general meeting of the company. The directors of Company A are Person A, Person B and Person C. Current structure of farming enterprise For the last 18 months, Person A and Person B have been contemplating transitioning out of their typical six-day work week to significantly reduced roles (aim of approximately 1 to 2 hours involvement per week). During the year ended DD MM YYYY, Person A and Person B have been transitioning out of their primary production business activities, in order for them to retire. Prior to transfer of the Properties, Person A and Person B restructured their business into a four-way partnership between: • Person A; • Person B; • Company A as trustee for Trust A; and • Company B as trustee for Trust B. This partnership will be referred to as the 'New Partnership'. Person B is the sole director of Company B. Person B and his wife, Person E are equal shareholders in Company B, with 6 ordinary shares each. The Appointors of Trust B are currently Person B and Person E. Person A is the sole director of Company A. Person A is the sole shareholder in Company A, with 60 ordinary shares. The Appointors of Trust A are currently Person A and his spouse Person F. Proposed structure of farming enterprise Person A and Person B intend to trial the New Partnership during the financial year ended DD MM YYYY as a way of familiarising themselves with trust structures as trading entities, without totally shifting operations to Trust A and Trust B. After trialling the New Partnership for a few months, Person A and Person B have committed to restructuring the business by exiting from the New Partnership as individuals after DD MM YYYY, leaving Trust A and Trust B as equal partners (i.e. 50% each). The partnership between Trust A and Trust B will lend itself to Person A and Person B's ability to remove themselves from day to day operations and control of the business, as they will no longer be individual partners who are jointly and severally liable for the business' activities. The New Partnership and future partnership between Trust A and Trust B will each create formal lease agreements with the transferees. As Person A and Person B will be stepping away from the business they will no longer be relying on business income and will cover their retirement and living expenses through passive rental income from these lease arrangements. The original partnership will be wound up over the next few financial years and will no longer operate the farming business. Property Transfers During the YYYY financial year, Person A and Person B made the following transfers of property from their individual names to related trusts: It is noted that the Properties and WALs were continuously held by Person A and Person B for over 15 years. The transfers were made for $Nil consideration. The Properties were moved to the respective trusts in order to: • Pave the way for appropriate succession planning, now that business operations are shifting to the next generation. The control of the transferee trusts will ultimately pass on to Person A and Person B's children once they have been fully established as operators of the farming business. Passing business operations and assets to the next generation is common in the primary production industry. This ensures the property, being a long-term legacy of the family name, is retained in a secure vehicle which can be retained for the benefit of future generations. • Undertaking a key financial step in advance of Person A and Person B's intended retirement plan. • The Properties are transferred in advance of Person A and Person B's passing such that it does not form part of their respective estates and therefore avoids any undesired conflict between the children of each of Person A and Person B. Individual circumstances Person A was born on the DD MM YYYY, making him xx years of age at the time of transfer of the Properties. The overall intention of Person A and his spouse is to handover operations to the next generation. Person A and Person F intend on passing the business operations onto their children and to fully cease work in the next two to three years and have gone on a holiday overseas in MM YYYY. From transfer of the Properties and WALs up until fully ceasing work, Person A intends on reducing his work hours to less than 10 hours per week. Staff members who have or will take over Person A and Person B's business roles and responsibilities are as follows: • For at least the last 20 years, Person G was working with the family on the farm as a farmhand. In the last two years, Person G has been shifted to the role of a livestock manager. Person G has since been relied upon in this capacity by Person A and Person B to help relieve them of their previous responsibilities in livestock management. • Person H has been employed by the family as the bookkeeper for the business. • Over the last 12 months, a new role known as 'operations manager' was created to relieve Person A and Person B of work responsibility. Staff member Person J was employed in MM YYYY to take on this role. • A new CEO and manager will be employed to run the business. It is likely that other family members will be adopting these roles. • Person A, Person B, Person E and Person F are currently in the process of employing a full-time farmhand operator, involved in farming grain and sheep. • Over the next two years, it is intended that the younger generation will begin managing the farm. Person A and Person F's son Person I is intended to be involved in Board meetings and operations in the future. • Person I is currently taking a farm management course at a private institution to gain necessary skills to manage the family business upon his return. • A new role known as 'logistics manager' has also been developed to relieve Person A and Person B of their prior duties. On DD MM YYYY, Person K, the second son of Person B and Person E was employed in this role. • Person A and Person B no longer handle business administration, and have left this to an employee, employed as business administration manager. • Board meetings are chaired by an external third party. • Person A and Person B no longer involved in haymaking, which is a major seasonal requirement of working in the business. Following the proposed restructure, Person A and Person B will have removed themselves from day to day operations, they will no longer be receiving business income. Going forward, they will largely be relying on lease income from their Properties for living expenses.

Relevant legislative provisions: Income Tax Assessment Act 1997 subparagraph 152-110(1)(d)(i)

Reasons for decision: Detailed Reasoning - Question: Will the capital gains tax events occurring on the disposal by Person A of his ownership interests in the Properties and water access licences be in connection with his retirement under subparagraph 152-105(1)((d)(i) of the Income Tax Assessment Act 1997? | Summary: Yes, the disposal by Person A of his ownership interests in the Properties and water access licences will be in connection with his retirement under subparagraph 152-105(1)(d)(i). | Detailed Reasoning - Detailed reasoning: Subparagraph 152-105(1)(d)(i) includes a requirement that the CGT event happens in connection with the individual's retirement. Whether a CGT event happens 'in connection' with an individual's retirement depends on the particular circumstances of each case. A CGT event may be in connection with your retirement even if it occurs at some time before retirement. The Explanatory Memorandum to the New Business Tax System (Capital Gains Tax) Bill 1999 makes the following comments about the requirement to be permanently incapacitated or retiring as one of the conditions for the concession: 1.68 One of the requirements of this concession for an individual small business taxpayer is that they must be either permanently incapacitated at the time of the CGT event, or at least 55 years old and using the capital proceeds for their retirement. The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with a taxpayer's retirement', nor do they give any indication of the degree of retirement required in order to take advantage of this concession. The Advanced guide to capital gains tax concessions for small business 2013-14 indicates that it is not necessary for there to be a permanent and everlasting retirement from the workforce. However, there would need to be at least a significant reduction in the number of hours worked or a significant change in the nature of the activities. The Commissioner considers the proposed CGT events will be in connection with Person A's retirement. Although Person A will not completely stop working immediately, there will be a significant and increasing reduction in the hours he works, as part of his intended transition to complete retirement.