Private ruling: Small business 15-year exemption
Date of advice: 31 July 2025
Published: 29 September 2025
Ruling period: Year ending XXXX
Date scheme commenced: XXXX

Ruling: Q1: Will Person A and Person B each satisfy the requirements in section 152-105 to apply the 15-year exemption with respect to their 50% interest in the Land in relation to the transfer of the Land? | A1: Yes

Relevant facts and circumstances: Person A and Person B are married and are both primary producers who are over the age of 55 years. Person A and Person B do not carry on any business in their own names currently operate a farming business as a partnership (Partnership) on both properties. Person A and Person B are equal partners in the Partnership, and each have the right to receive 50% of the net income of the Partnership. Person A and Person B purchased the Land on XXXX as joint tenants. Person A and Person B provided the use of the Land to the Partnership for the Partnership to carry on its business on the land. The Partnership commenced business activities on the Land on XXXX. Person A and Person B are transitioning towards retirement. As part of the transition, Person A and Person B plan on transferring the Land to their child (Person C). When the Land is transferred to Person C, Person C will run their own independent business on the land. Person A and Person B will not have a control function over the business operated by Person C on the Land. Person A and Person B will transfer the Land to Person C in the year ending XXXX financial year. A valuation has been undertaken for the Land. The Land will be transferred to Person C at market value. The transfer of the Land will result in a capital gain being made. Aggregated turnover The aggregated turnover of the Partnership was as follows for the year ended: • 30 June XXXX: $XXXX • 30 June XXXX: $XXXX The expected aggregated turnover of the Partnership is as follows for the year ending: • 30 June XXXX: $XXXX • 30 June XXXX: $XXXX Person A Person A currently works on the farm approximately XX to XX hours per week. Once the Land is transferred to Person C, Person A will reduce the number of hours they work by at least XX hours per week to approximately a total of XX to XX hours per week. Person A will work on their other land which will allow them to implement their staged transition to complete retirement. Person A plans to retire completely by 30 June XXXX. Person B Person B currently works on the farm approximately XX hours per week. Once the Land is transferred to Person C, Person B will reduce the number of hours they work by at least XX hours per week to a total of approximately XX hours per week. Person B will work on their other land which will allow them to implement their staged transition to complete retirement. Person B plans to retire completely by 30 June XXXX

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 section 160M | Income Tax Assessment Act 1997 section 160U | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 328-125 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified. Subdivision 152-B outlines the small business 15-year exemption. Under this subdivision, a CGT small business entity can choose to disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met. Section 152-105 provides that an individual can disregard any gain arising from a CGT event if all of the following conditions are satisfied: a. the basic conditions in subdivision 152-A are satisfied; b. you continuously owned the CGT asset for the 15-year period ending just before the CGT event; c. if the CGT asset is a share in a company or an interest in a trust - the company or trust had a significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which you owned the CGT asset; d. either: i. you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or ii. you are permanently incapacitated at the time of the CGT event. In other words, it will be necessary to show that Person A and Person B (the requirements): • have met the basic conditions in Subdivision 152-A • have continuously owned the CGT asset (i.e. the Property) • just before the CGT event happens to the Land, Person A and Person B are both over 55 and the CGT event happened in connection with their retirement. | Detailed Reasoning - Basic conditions for relief: The basic conditions for relief under the CGT small business concessions are outline in subdivision 152-A. Subsection 152-10(1) provides that a capital gain you make may be reduced or disregarded if the following basic conditions are satisfied: 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: i. you are a CGT small business entity for the income year; ii. you satisfy the maximum net asset value test iii. you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership; iv. 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 any entity connected with you; d. the CGT asset satisfies the active asset test pursuant to section 152-35. | Detailed Reasoning - CGT event giving rise to a capital gain: Section 102-20 provides that a capital gain or loss is made if a CGT event happens to a CGT asset. A CGT asset is defined in section 108-5 to mean: a. any kind of property; or b. a legal or equitable right that is not property. Relevantly, under subsection 104-10(1) CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2), you dispose of a CGT asset when a change of ownership occurs from you to another entity. However, subsection 104-10(2) further stipulates that a change of ownership does not occur if you cease being the legal owner of an asset but continue to be its beneficial owner. Subsection 104-10(4) specifies the effect of CGT event A1 happening is that you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base, or a capital loss if those capital proceeds are less than the asset's reduced cost base. As per subsection 104-10(3), the time of the event is when you enter into the contract for the disposal, or, if there is no contract, when then change occurs. | Detailed Reasoning - Passively held assets - partnerships: Subsection 152-10(1B) sets out the rules to access the small business CGT concessions via the small business entity test for CGT assets owned by partners that are used in the business of the partnership but are not interests in assets of the partnership (i.e. the partners do not own the CGT assets in accordance with their fractional interest in the partnership or in accordance with their respective interests as specified in the partnership agreement): 152-10(1B) The conditions in this subsection are satisfied in relation to the *CGT asset in the income year if: (a) you are a partner in a partnership in the income year; and (b) (b) the partnership is a *CGT small business entity for the income year; and (c) you do not carry on a *business in the income year (other than in partnership); and (d) the CGT asset is not an interest in an asset of the partnership; and (e) the business you carry on as a partner in the partnership referred to in paragraph (a) is the business that you, at a time in the income year, carry on (as referred to in subparagraph 152-40(1)(a)(i) or paragraph 152-40(1)(b) ) in relation to the CGT asset. Note: For businesses that are winding up, see section 152-49 and subsection 328-110(5) The Partnership will need to be a CGT small business entity when that CGT event happens (being the income year when Person A and Person B transfer the Land). | Detailed Reasoning - CGT small business entity: Pursuant to subsection 152-10(1AA), you are a 'CGT small business entity' for an income year if: a. you are a small business entity for the income year; and b. you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million. Section 995-1 defines that a small business entity has the meaning given in subdivision 328-C - subject to the winding up exception under subsection 328-110(5), the entity must: a. carrying on a business; and b. satisfy any 1 of 3 tests based on turnover, being: i. the entity carried on a business in the income year (the previous year) before the current year and the entity's aggregated turnover for the previous year was less than $10 million [1] ; ii. the entity's aggregated turnover for the current year is likely to be less than $10 million provided the turnover when the business was carried on in both the 2 previous years was not $10 million or more [2] ; or iii. the aggregated turnover for the entity for the current year (worked out as at the end of that year) is less than $10 million. [3] Pursuant to subsection 328-110(5) an entity is a small business entity if: a. the entity is winding up a business it formerly carried on; and b. it was a small business entity in the income year that it stopped carrying on the business. Relevantly, Taxation Determination TD 2022/7 Income tax: aggregated turnover - application of the 'connected with' concept to partnerships, foreign hybrids and non-entity joint ventures , explains that Subdivision 328-C of the ITAA 1997 applies to a 'partnership' as though it were an entity separate to its partners in the following manner: 5. A partner is capable of directly controlling a partnership based on the tests in subparagraphs 328-125(2)(a)(i) or (iii) (the 'general control tests') or the specific test for determining whether an entity directly controls a partnership under subparagraph 328-125(2)(a)(ii) (the 'partnership control test'). 6. When determining whether a partnership directly controls another entity under section 328-125, the partnership is the relevant entity, rather than the individual partners in their capacity as partners. 7. Where an entity is directly controlled by a partnership within the meaning of section 328-125, that entity will also need to consider whether it is indirectly controlled by any other entities that control the partnership, including the individual partners in their capacity as partners of the partnership. 8. Likewise, where a partner directly controls a partnership, that partner will also need to consider whether they indirectly control any other entities that are controlled by the partnership. 9. Further, as only an individual or a company can be an affiliate within the meaning of section 328-130, a partnership is not capable of being an affiliate of another entity. | Detailed Reasoning - Active asset test: Under subsection 152-35(1), 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 7.5 years during the test period. Under subsection 152-35(2) the period: a. begins when you acquired the asset; and b. ends at the earlier of: i) the CGT event; and ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business. 152-40(1) provides that a CGT asset is an active asset at a time if, at that time you own the asset and 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. It is the Partnership's use of the Land in carrying on its business that is relevant in these circumstances. | Detailed Reasoning - Connected with: Under subsection 328-125(1) of the ITAA 1997, an entity is connected with another entity if: a. either entity controls the other entity, or b. both entities are controlled by the same third entity in a manner described in the section. | Detailed Reasoning - Control may be direct or indirect: Relevantly, an entity will control another entity where the first entity or its affiliates, or the first entity and its affiliates between them, beneficially own, or have the right to acquire the beneficial ownership of, interests in the other entity that between them give the right to receive at least 40% of any distribution of either, paragraph 328-125(2)(a): a. income b. the net income of the partnership (if the other entity is a partnership); or c. capital. | Detailed Reasoning - Continuously owned the CGT asset: In Taxation Determination TD 94/89 Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? (TD 94/89) the Commissioner explains that, generally for CGT purposes, ownership in relation to the disposal of property is determined with reference to settlement. Paragraph 3 of TD 94/89 states: However, a taxpayer is not required to include any capital gain or loss in the appropriate year until an actual change of ownership occurs. Settlement effects a change of ownership and a disposal (subsection 160M(1)) which then triggers the operation of subsection 160U(3). When settlement occurs, the taxpayer is then required to include any capital gain or loss in the year of income in which the contract was made (subsection 160U(3)). If an assessment has already been made for that year of income, the taxpayer may need to have that assessment amended. However, whether an entity has continuously owned the CGT asset for the 15-year period set out in paragraph 152-105(1)(b), this is determined with reference to when the CGT asset commences to be owned by the entity to just before the CGT event (in the case of CGT event A1, generally, the date of the contract for the sale of the CGT asset). | Detailed Reasoning - In connection with retirement: The provisions relating to the small business 15-year exemption do not provide a definition on the meaning of the phrase 'in connection with their retirement'. Furthermore, the legislation does not give any indication of the degree of retirement for the purposes of the concession. The Explanatory Memorandum to the New Business Tax System (Capital Gains Tax) Bill 1999 provides the following description around the requirement to be retired or permanently incapacitated 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. This wording would suggest that the funds arising from the disposal of the asset must predominantly be intended to fund the retirement of the individual (whether or not supplemented by other monies). The term 'retirement' is not defined in the legislation. Therefore, the word takes its ordinary meaning. The Macquarie Dictionary defines 'retirement' as 'removal or retiring from service, office, or business, especially in reaching the end of one's working life'. In relation to the words 'in connection with', the question of what kind of relationship will be sufficient to establish the connection as contemplated by the legislation will be one of fact and degree. In Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 (Pozzolanic), the court observed that: The words 'connected with' are capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote. As Sheppard and Burchett JJ observed in Australian National Railways Commission v Collector of Customs (SA ) [(1985) 69 ALR 367 at 377-378; 8 FCR 264, at 265] the meaning of the word 'connection' is wide and imprecise, one of its common meanings being 'relation between things one of which is bound up with, or involved in, another': Shorter Oxford English Dictionary . In Claremont Petroleum NL v Cummings (1992) 110 ALR 239 ( Claremont ), the court, in considering whether payments made were in connection with the retirement of certain individuals, made the following observations regarding the phrase 'in connection with': The phrase 'in connection with' is one of wide import, as I had occasion to observe in a different context in Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 at p479-80; 77 ALR 577 at pages 591-2: The words 'in connexion with'...do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163; 63 ALR 237at 238, 244, 247. They may be used to describe a relationship with a contemplated future event: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364, Johnson v Johnson [1952] P 47 at 50-1. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given 'jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act', had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase 'in connection with' covered matters leading up to, or which might lead up to an assessment. He said ...One of the very generally accepted meanings of "connection" is "relation between things one of which is bound up with or involved in another"; or, again "having to do with". The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase "having to do with" perhaps gives as good a suggestion of the meaning as could be had. Having regard to the context of subparagraph 152-105(d)(i) of the ITAA 1997, the Commissioner considers that it would be reasonable to adopt the meaning given to the phrase 'in connection with' in Claremont such 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 to be regarded as a retirement for the purposes of paragraph 152-105(d)(i). A consideration of the particular facts of each case is required in determining whether a CGT event happens in connection with an individual's retirement. Similarly, the words 'in connection with' can apply where the CGT event occurs sometime after retirement. Again, this would depend on the particular facts, and would need to be considered on a case-by-case basis. | Detailed Reasoning - Application in these circumstances: The basic conditions for relief in subdivision 152-A will be satisfied as discussed below. The Land is a CGT asset for the purposes of section 108-5. The transfer of the Land from Person A and Person B to Person C will result in a capital gain for the purpose of CGT event A1. The conditions in paragraphs 152-10(1)(a) and 152-10(1)(b) will be satisfied. The Land is a passively held asset used in a business Person A and Person B carry on as partners for the purposes of subsection 152-10(1B). The condition in subparagraph 152-10(1)(c)(iv) will be satisfied. The Partnership is and will be a small business entity for the purposes of section 152-10(1AA) for the relevant income years. The Partnership will be carrying on a business for the purposes of section 328-110 (based on the information provided in the application) for the income year in which the CGT event happens. The Land will satisfy the active asset test as it will have been used in a business by an entity that is connected with Person A and Person B for the period specified in subsection 152-35(2). The condition in paragraph 152-10(d) will be satisfied. The Partnership is connected with both Person A and Person B. Relevantly, they both control the Partnership as each holds an interest in the Partnership that gives each the right to receive 50% of any distribution of the net income of the Partnership for the purposes of paragraph 328-125(2)(a). The Partnership is carrying on a business for the purposes of section 328-110 (as discussed above). Person A and Person B will have continuously owned the CGT asset (i.e. the Land) for the 15-year period ending just before the CGT event - i.e. from the acquisition of the Land on XXXX to the proposed transfer of the Land to Person C during the XXXX income year. Regarding the connection with retirement, for the purposes of subparagraph 152-105(d)(i), both Person A and Person B will both be over 55 years of age at the time of the CGT event and will have a significant reduction in the number of hours they work after the transfer of the Land, as they both transition in their retirement plan to permanently cease working. Therefore, it is accepted that the transfer of the Land will happen in connection with the retirement of Person A and Person B. As such, the Commissioner is satisfied that in these circumstances the transfer of the Land by Person A and Person B will be in connection with their retirement for the purpose of subparagraph 152-105(d)(i). As all the conditions in section 152-105 will be satisfied, the capital gain from the transfer of the Land to Person C can be disregarded under Subdivision 152-B with respect to Person A and Person B's interests in the Land. [1] Subparagraph 328-110(1)(b)(i) [2] Subparagraph 328-110(1)(b)(ii) and subsection 328-110(3) [3] Subsection 328-110(4)