Private ruling: Capital gains tax (CGT) - small business concessions - CGT small business 15 year exemption - in connection with retirement
Date of advice: 10 March 2017
Published: August 2017
Ruling period: Income year ending 30 June 20YY.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Are you eligible for the small business 15-year exemption in relation to the disposal of your ownership interest in the property in the 20XX-YY income year under Subdivision 152-B of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: After 20 September 1985, you and your former spouse (Person A) purchased the property (the Property) for $XXX,XXX as joint tenants. The Property consists of a split level single storey building and outbuildings with a large backyard. Settlement occurred a number of months after the purchase contract was entered into. You and Person A were partners in a partnership (the Partnership) and rental income from the Property was included in the Partnership's assessments, which was distributed to you and Person A. You operated your sole trader business (the Business) from the Property after it was purchased and had employed numerous staff members, with some of them being provided with motor vehicles which were parked in the rear of the Property. A number of years after you purchased the Property you set up another business (the Company) of which you were the sole shareholder and director. You engaged the services of a person in relation to the Company's business operations who had their own office at the Property and was also provided with a motor vehicle. A number of years later, you were approached by an unrelated party (Person B) and had entered into an arrangement for lease part of the Property. Person B paid the costs to erect walls to divide the building space into numerous offices, with Person B having a small area of the building space. Person B did not use any of the backyard area and the arrangement lasted for a number of years. . After a number of years you wound up the operations of the Company and it was deregistered a number of years later. In the same year that the Company was deregistered part of the rear Property yard was rented for a number of months. Around 15 years after the Property was purchased you put your Business on the market. A number of months after the Business was put on the market you and Person A separated. You sold your Business after it had been on the market for a number of months and you ceased operating a business from the Property. You continued assisting the purchaser of the Business for a number of months after the Business was sold. You had either used the whole of the Property or over 50% of the building and over 50% of the total land area of the Property in relation to your business operations during the period of your ownership in the Property prior to the business operations ceasing. As part of the sale contract the purchaser leased a portion of the Property. The Business was on sold to another purchaser who rented the space in the Property from the original purchaser. During the year after the Business was sold your family law case was concluded. Over twelve months later court orders were issued which included instructions for the Property to be sold. Your annual turnover for the Business in the 20ZZ-XX income year was $XX,XXX. The Property was sold for $X,XXX,XXX a number of months after the court orders were issued. The net value of the assets of you and your affiliates and connected entities is less than $6million at the time the Property was sold. You have calculated that you have made a capital gain on the sale of your ownership interest in the Property, calculated using the CGT discount method. You will apply the 50% CGT discount to the capital gain. You were over 55 years of age when the Property was 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 Subdivision 152-C

Reasons for decision: Summary: Summary You have met the necessary requirements for the capital gains tax (CGT) small business 15- year exemption to apply to the capital gain made on the sale of your ownership interest in the Property. Detailed reasoning | Detailed Reasoning - CGT small business 15-year exemption: To qualify for the CGT small business 15-year exemption (15-year exemption) you must satisfy several conditions that are common to all the concessions, known as basic conditions, and satisfy the further requirement relevant for the CGT small business 15-year exemption to apply as follows: 1. to satisfy the basic conditions the following must occur: (a) a CGT event happens in relation to a CGT asset of yours in an income year, (b) the event would have resulted in a gain, (c) at least one of the following applies; ● you are a small business entity for the income year, ● you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997, ● you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or ● you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you; and (d) the CGT asset satisfies the active asset test and 2. the asset must have been continuously owned for the 15-year period just before the CGT event happened, and if applicable, the CGT event occurs “in connection with” the individual's retirement. Application to your situation After reviewing the facts of your situation we have determined that you can apply the CGT small business 15-year exemption to disregard the capital gain made on the sale of your ownership interest in the Property because: ● you held your ownership interest in the Property for more than 15 years; ● you operated the Business from the Property for more than 7.5 years during your ownership period of the Property; ● you had used either the whole of the Property in relation to your legal services, or more than 50% of the building and more than 50% of the total land area of the Property during other periods of your ownership; ● you were over 55 years of age when the Property was sold; ● the net value of the assets of you and your affiliates and connected entities is less than $6million at the time the Property was sold; ● your turnover from your Business in the 20ZZ-XX income year was less than $2,000,000; and ● you ceased operating your Business from the Property when you sold it and had continued assisting the purchaser for a number of months after you had sold the Business.