Private ruling: Capital gains tax – small business concessions – 15 year exemption
Date of advice: 19 December 2018
Published: April 2019
Ruling period: Income year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is Company A eligible for the small business Capital Gains Tax (CGT) 15 year exemption under section 152-110 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the sale of the Business’s goodwill? | A1: Yes. The Goodwill is considered to be an active CGT asset that has been owned continuously by the Company for 15 years. In addition to this the CGT event occurred in connection with the retirement of the significant individual who was over 55 years old at the time. The Company has also had a significant individual for at least 15 years. After reviewing the facts of your situation the Commissioner considers that the requirements of the small business 15-year exemption have been satisfied. Therefore, any capital gain made on the sale of the goodwill can be disregarded.

Relevant facts and circumstances: Company A was registered after 20 September 1985 and had the following shareholders who each owned more than 20% of the ordinary shares in Company A: ● Person A; ● Person B; and ● Person C. After a short period Company A commenced operating a business (the Business). After a period of time Person B sold their share/s equally to Person A and Person C, resulting in them each owning equal shares in Company A. Person C sold their shares to Person A after a number of years and as a result Person A held all of the ordinary shares in Company A with 100% of the voting and dividend rights Company A has an ‘internally’ generated goodwill with a recurring customer base. Company A changed its name. The Business was operated continuously from just after the date Company A was registered until the date Company A’s name was changed to your name, at which point the Business was sold to Company XYZ. It is estimated that the value of the goodwill of the Business was $XXX,XXX, and plant and equipment were $XXX,XXX. The trading name of the Business was transferred to Company XYZ. Company XYZ is not a related party or connected entity. Person A was over 55 years of age when the sale of the Business occurred and they remain the sole director and shareholder of the Company. Prior to the sale of the Business, Person A worked XX-XX hours per week running the Business. Following the sale of the Business, Person A worked X-X hours per week managing the winding down of the Business and Company funds. During the 2018-19 income year the Company carried on the Business and had an estimated aggregated turnover of less than $2 million. The Company satisfies the maximum net asset test. A capital gain was made on the sale of the Business.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3