Private ruling: CGT - small business concessions
Published: November 2013

Ruling: Q1: Are you eligible for the 50% Capital Gain Discount on the disposal of the property? | A1: Yes. | Q2: Are you eligible for the small business active asset reduction on the disposal of the property? | A2: Yes. | Q3: Are you eligible for the small business retirement exemption on the disposal of the property? | A3: Yes. This ruling applies for the following periods: Year ended 30 June 2014 The scheme commenced on 1 July 2013

Relevant facts and circumstances: You own a property that is X% in your name, X% in your relative's name and X% in your Super Funds name. The company uses the property to run their business out of. You and your relative (You) own 50% each of the shareholdings in the company. The property has been owned for more than one year but less than 15 years. The property has been use by the business for the whole period of ownership. You satisfy the Maximum Net Asset Value test. You wish to transfer the remaining percentage of the property to your superfund. You will be over the age of 55 when you make the choice to apply the small business concessions. Relevant legislative provisions Income Tax Assessment Act 1997 Division 152. Income Tax Assessment Act 1997 Section 152-10. Income Tax Assessment Act 1997 Section 152-35. Income Tax Assessment Act 1997 Paragraph 152-320.


Reasons for decision: Detailed Reasoning - Discount Method: Generally, the discount method can be used to calculate the capital gain on disposal of a CGT asset if you are an individual, a CGT event happens to a CGT asset that you own after 21 September 1999, and you acquired the asset at least 12 months before the CGT event. In determining whether you acquired the CGT asset at least 12 months before the CGT event, you exclude both the day of acquisition and the day of the CGT event. The discount percentage is the percentage by which you reduce your capital gain. You can reduce the capital gain only after you have applied all available capital losses. The discount percentage is 50% for individuals. In your case, you have satisfied the requirements for the Discount Method and are therefore eligible to apply the 50% discount to your capital gain. | Detailed Reasoning - Basic Conditions: A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the following basic conditions are satisfied: § a CGT event happens in relation to a CGT asset of yours in an income year § the event would have resulted in a gain § the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and § 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. The active asset test is contained in section 152-35 of the ITAA 1997. Where you have owned the asset for less than 15 years, the active asset test is satisfied if the asset was an active asset of yours for at least half of the test period detailed below. The test period: · begins when you acquired the asset, and · ends at the earlier of o the CGT event, and o when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows). A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you. In your case, the property has been used by a connected entity of yours, in the carrying on of their business, for the whole period of ownership. Therefore, you meet the active asset test in relation to the property. It is accepted that you have met the basic conditions, due to the following: · a CGT event will occur when you transfer the property to your superfund · the event will result in a gain based on the valuation that was conducted · you satisfy the Maximum Net Asset Value Test · the asset meets the active asset test. The further requirements for each individual concession are discussed below. | Detailed Reasoning - Small Business active asset reduction: To apply the small business 50% active asset reduction, you only need to satisfy the basic conditions. There are no further requirements. | Detailed Reasoning - Small Business Retirement Exemption: Section 152-305 of the ITAA 1997 contains the general provision that allows exemption of the capital gain. If you are an individual, you can disregard all or part of a capital gain if: (a) you satisfy the basic conditions in section 152-10 of the ITAA 1997 for the gain; and (b) if you were under 55 years of age just before you received an amount of capital proceeds from the CGT event, you roll over an amount equal to the exempt amount under the ETP provisions. (If you were 55 or older, there is no requirement to roll over any amount.) In your case, it has already been established that you satisfy the basic conditions contained in section 152-10 of the ITAA 1997. You will be over the age of 55 when you make the choice to apply this concession and therefore condition (b) is not relevant. You are eligible to disregard a capital gain under this provision as long as you have not accessed the entire $500,000 limit contained in section 152-320 of the ITAA 1997. The amount of the capital gain that you choose to disregard (that is, the CGT exempt amount) must not exceed your CGT retirement exemption limit. This limit is currently $500,000 reduced by previous CGT exempt amounts you have disregarded under the retirement exemption. If you are 55 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 of age when you received the capital proceeds.