Private ruling: Small business retirement exemption
Date of advice: 15 September 2025
Published: 17 November 2025
Ruling period: Year Ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do you meet the conditions to apply the small business retirement exemption under subsection 152-305(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made on the disposal of your interest in the property? | A1: Yes.

Relevant facts and circumstances: Your parent owned a property. You were added to the family partnership. You received at least 20% of the partnership distributions. Your parent passed away over 15 years ago. You and your sibling jointly inherited the property and were appointed executors of the estate. Legal proceedings prevented the property from being transferred for a number of years. You and your sibling were responsible for all partnership affairs and overseeing the day-to-day operations of the family partnership continued trading through this time. You and your sibling entered into an agreement to lease your half of the property for them for use in their business. You and your sibling consulted and worked together in relation to their business. Your net assets including associated affiliates and connected entities are under $6m. You have entered into a contract for the sale of the property. You are currently over 55 years of age. You have not previously use any of your retirement exemption cap. You will keep a written record of the amount of the gain you choose to disregard.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 103-25 | Income Tax Assessment Act 1997 Subdivision 152-D | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-15 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-40(1) | Income Tax Assessment Act 1997 subsection 152-305(1) | Income Tax Assessment Act 1997 section 328-130

Reasons for decision: Summary: You are eligible to use the small business CGT retirement exemption under Subdivision 152-D of the ITAA 1997, as you have met all of the small business basic conditions for relief and have not used any of the superannuation lifetime limit contributions of $500,000 previously. Additionally, as you will be over 55 at the time you make the choice to use the retirement exemption, you are not required to make a contribution to a complying superannuation fund that is equal to the exempt CGT amount. | Detailed Reasoning - Detailed reasoning: Section 152-10 of the ITAA 1997 contains the basic conditions you must satisfy to be eligible for the small business CGT concessions. These conditions are: (a) a CGT event happens in relation to a CGT asset in an income year (b) the event would have resulted in the gain (c) at least one of the following applies: (i) you are a small business entity for the income year (ii) you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997 (iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership, or (iv) the conditions in subsection 152-10(1A) or (1B) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year, and (d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. | Detailed Reasoning - Maximum net asset value test: Section 152-15 of the ITAA 1997 you satisfy the maximum net asset value test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000: (a) The net value of the CGT asset of yours; (b) The net value of the CGT assets of any entities connected with you; (c) The net value of the CGT assets of any affiliates of your or entities connected with your affiliates (not counting any assets already counted under paragraph b). | Detailed Reasoning - Active asset: A CGT asset will satisfy the active asset test if: (a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the test period, or (b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the test period. The test period begins when you acquired the asset and ends at the earlier of the CGT event and, if the relevant business ceased to be carried on in the 12 months before that time, the cessation of the business. Subsection 152-40(1) of the ITAA 1997 details that a CGT asset is an active asset at a time if it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you. An affiliate is any individual or company who 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 of the individual or company. | Detailed Reasoning - Small business retirement exemption: Subdivision 152-D of the ITAA 1997 allows an individual to choose to disregard all or part of a capital gain if: • you satisfy the basic conditions • you keep a written record of the amount you choose to disregard (the CGT exempt amount), and • if you are under 55 years just before you make the choice, you make a personal contribution equal to the CGT exempt amount to a complying superannuation fund or retirement savings account (RSA). You must make the contribution: • when you made the choice to use the retirement exemption, or when you received the proceeds (whichever is later), or • when you made the choice to use the retirement exemption if the relevant event is CGT event J2, J5 or J6. The CGT exempt amount must not exceed $500,000 reduced by any previous CGT exempt amounts you have disregarded under the retirement exemption. Section 103-25 of the ITAA 1997 states you must make your choice by the day you lodge your income tax return for the income year in which the relevant CGT event happened. If you are 55 years old or older, when you make the choice to access the retirement exemption, there is no requirement to pay any amount to a complying superannuation fund or RSA, even though you may have been under 55 years old when you received the capital proceeds. | Detailed Reasoning - Application to your circumstances: In this case, you satisfy the basic conditions contained in section 152-10 of the ITAA 1997 because: • a CGT event happened when you disposed of your interest in the property • the event resulted in a gain • your net assets, including affiliates and connected entities were under $6m, and • you owned your interest in property for more than 15 years and it was an active asset for a total of at least 7.5 years In addition, • you have not previously used any of your retirement exemption cap • you will be at least 55 years old when you make the choice to use the retirement exemption, and • you will keep a written record of the amount of the gain you choose to disregard. Therefore, you are entitled to choose to apply the small business CGT retirement exemption to the capital gain made on the disposal of your interest in the property.