Private ruling: Small Business Concessions
Date of advice: 27 April 2026
Published: 13 July 2026
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the taxpayer satisfy the basic conditions in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) relating to the transfer of their interests in the properties known as property 1 and property 2? | A1: Yes. | Q2: If the answer to Question 1 is yes, is the Taxpayer eligible for the 15-year exemption under section 152-105 of the ITAA 1997 for the capital gain arising from the transfer of their interest in the property known as property 2? | A2: Yes.

Relevant facts and circumstances: Person A (the Taxpayer) and person B have operated a farming business for many years. Person B is the spouse of person A. The Taxpayer and person b purchased property 1 and property 2 in 19XX. Property 1 was purchased as a leasehold interest for under $600,000 but converted to freehold interest in 20XX. Property 2 was purchased as a freehold interest for under $200,000. Since acquisition both properties have been used in the farming activities between the Taxpayer and person b. The Taxpayer and person b established the Trust in 19XX. The initial trustee was the Taxpayer, person B and person B's parent. In 20XX, the trustee was changed to a corporate trustee, Company A. From establishment, the Trust conducted all farming activities of the various properties that the Taxpayer and person B owned. The taxpayer and person B were directors of Company A, and they each hold two ordinary shares. The Taxpayer was removed as director in 20XX, and person B has remained the sole director. The properties subject to the private ruling are summarised in the below table. Property 1 Property 2 Owner Taxpayer & person B Taxpayer & person B Date Purchased 20XX 19XX Size (Hectares) Under 400 Under 100 There are no formal lease agreements between the property owners and the Trust. In some years, the Trust pays an amount for rent of the properties, but this is not consistent and depends on profitability and cashflow at the time. At all times, the properties have been used by this family group or entities controlled by them in their farming activities. The land has been used for cropping activities. The Taxpayer and person B's home is on approximately 2.5 hectares on property 1. Person C is the child of the Taxpayer. Person D is the spouse of person C. Person C has worked in the farming business since they left school and continues to work in the business of the Trust. Both person C and person D receive trust distributions from the Trust for the work they do. Person C and person D do not receive a salary for their work. They do not have any other business dealings and do not conduct business in their own names or through any entities connected with them. Person E is the child of the Taxpayer; they have in the past worked in the business but has not done so now for over 5 years. Person E has also received trust distributions from the Trust in the same fashion as person C. Person E does not have any other business dealings and is currently employed at a third-party unrelated business. All distributions made to person C and person E are paid to them to assist with their living costs. The Taxpayer and person B, due to their advancing ages, would like to transfer property 1 and 2 to person C and person D, as part of a family succession plan. The properties are proposed to be sold at well below market value. The prices have been negotiated with person C and D and represent a balance between what they can afford/fund as well as providing the Taxpayer and person B sufficient funds for retirement. Property Land Area Sale Price Estimated Market Value Property 1 Under 400 $X $X Property 2 Under 100 $X $X Total Under 500 Approx. $300,000 Approx. $5,500,000 Upon transferring the properties to person C and D, the Taxpayer intends to retire fully. They will stop working on the farm and crease doing all financial/admin roles they do for the business. Their working hours will decrease significantly. They currently work at least 30 hours per week, and this will decrease entirely. The Taxpayer and person B live in one of the homes on the properties and as part of the transfer they would like a life tenancy on the home to live in until they choose not to. After the property transfers have been completed, person B will resign as director of Company A and person C will be appointed director. The shares in Company A will be transferred to person C and D after the land transfers. The appointor of the Trust is currently the taxpayer, and this would also be changed to person C after the property transfers. There is only one trading business in the 20XX financial year being the Trust which had an aggregated turnover of less than $2 million in the 20XX year of income. Therefore, the Family Trust will be a small business entity for the 20XX year of income as its pervious year aggregated turnover was less than $2 million. The Taxpayer will not satisfy the $6 million net asset test at the time of the transfers. In each year since 2010, the Taxpayer and person B have collectively (or in some cases individually) received at least 40% of income distributions made by the trust. The trust did not make a capital distribution since 20XX until the 20XX year of income. The distributions made by the Trust, by percentage, from 20XX to 20XX are summarised in the below table. Income year Taxpayer Person B Person C Person D Person E 20XX 40.73 41.88 16.02 0 1.37 20XX 33.03 33.03 31.99 0 1.96 20XX 32.45 36.80 30.75 0 0 20XX 33.31 33.31 33.31 0 0.07 20XX 24.82 37.58 24.82 0 12.78 20XX 28.53 24.40 24.96 0 22.11 20XX 25.00 22.37 23.95 10.84 17.83 20XX 25.51 25.51 13.51 14.36 21.12 20XX 18.84 22.08 15.41 20.55 23.12 20XX 23.52 23.52 23.56 15.29 14.11 20XX 25.00 25.00 20.01 15.00 15.00 20XX 0 0 0 0 0 20XX 23.7 23.70 26.30 26.30 0 20XX 25.00 25.00 25.00 25.00 0 20XX 25.00 25.00 25.00 25.00 0 20XX 20.00 40.00 20.00 20.00 0

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 116-30 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 section 152-47 | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 section 328-125

Reasons for decision: Summary: To apply the small business CGT concessions, the basic conditions for relief under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) must be met. Paragraph 152-10(1)(a) and (b) of the ITAA 1997 states that a CGT event happens in relation to a CGT asset of yours in an income year and that the event (apart from this Division) would have resulted in the gain. Under section 104-10 of the ITAA 1997 CGT event A1 would occur in regard to the properties as there is a change of ownership from the Taxpayer and person B to another entity, that being the person C and D. Due to subsection 116-30(2) of the ITAA 1997, the market substitution rule will apply as they did not deal with each other at arm's length. As such each property transfer would result in a capital gain. Paragraph 152-10(1)(c) of the ITAA 1997 requires at least one of the following to apply: 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. The conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year. The Taxpayer will not satisfy any of the first three conditions as they themselves are not a small business entity, they do not satisfy the maximum net asset value test and they are not a partner in a partnership that is a CGT small business entity. Therefore, to meet the requirements of paragraph 152-10(1)(c) the conditions in subsection 152-10(1A) or (1B) must be satisfied. Under subsection 152-10(1A) of the ITAA 1997, the conditions are satisfied in relation to the CGT asset in the income year if: a) The taxpayer's affiliate, or an entity that is connected with them is a CGT small business entity for the income year. b) You do not carry on a business in the income year (other than in partnership) c) If you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and d) In any case - the CGT small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152 - 40(1)(a)(ii) or (iii) or paragraph 152 - 40 (1)(b)) in relation to the CGT asset. The Trust aggregated turnover for the 20XX is less than $2 million and it is a CGT small business entity for the 20XX income year. The Taxpayer does not carry on a business themselves or in partnership in relation to the CGT asset. Under subsection 328-125(4) of the ITAA 1997 the Trust will be "connected with" the Taxpayer if the Trust paid, or applied for the benefit of, the Taxpayer and their affiliates for any of the prior 4 income years an amount of income or capital of at least 40% of the total amount for that year. That is to say, the Taxpayer 'controls' the Trust. Under section 152-47 of the ITAA 1997 for the purposes of subdivision 152-A, in determining whether the Trust is connected with the Taxpayer (being the owner of the passively held CGT asset), person B is taken to be an affiliate of the Taxpayer. Therefore, the aggregated distribution of both the Taxpayer and person B will be relevant to determine the control percentage. The Taxpayer controlled the Trust for all years between 20XX to 20XX (inclusive). In every year, there was at least 1 of the prior four years with a control percentage of 40%. Therefore, the Trust is connected with the Taxpayer. Paragraph 152-10(1A)(d) is met. The Trust is the entity, that at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(iii) of the ITAA 1997) in relation to the CGT asset. Therefore, the requirements under paragraph 152-10(1)(c) are satisfied. Paragraph 152-10(1)(d) of the ITAA 1997 requires the CGT asset to satisfy the active asset test.The active asset test requires the asset to be active for at least half of the period specified in subsection 152-35(2) of the ITAA 1997 if the taxpayer owned the asset for 15 years or less. If owned for more than 15 years, then the asset was an active asset for at least 7 and ½ years in the specified period. The period begins when you acquired the asset and ends at the earlier of the CGT event or if the relevant business ceases to be carried on in the 12 months before that time or any longer period that the commissioner allows -the cessation of the business. The interest in property 2 was acquired in 19XX. To be an active asset, the property would need to be active for 7 and ½ years. The interest in property 1 is taken to be acquired in 20XX at the time of the conversion to freehold interest. For this property it would have to be active for at least half of the period specified in subsection 152-35(2) of the ITAA 1997. For an asset to be active, the taxpayer owns the asset, and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnerships) by the taxpayer, their affiliate or another entity that is connected with the taxpayer as per section 152-40(1) of the ITAA 1997. Since 19XX the properties have been used by the Trust in its business activities. As above, the Trust is connected with the Taxpayer. The properties would be active assets for the necessary periods of time and as such the properties would satisfy the active asset test. As all conditions are met, the basic conditions under subdivision 152-A of the ITAA 1997 are satisfied for the transfer of property 1 and property 2. There are additional conditions to be met for the 15-year exemption to apply to individuals and for a capital gain to be disregarded under section 152-105 of the ITAA 1997. The basic conditions in Subdivision 152-A need to be satisfied for the gain. As above in question 1, the basic conditions have been met so the first condition of the 15-year exemption is satisfied. Under paragraph 152-105(1)(b) of the ITAA 1997 the Taxpayer needs to have continuously owned the CGT asset for the 15-year period ending just before the CGT event. The interest in property 2 was acquired in 19XX. The period of ownership will include the 15-year period ending just before the CGT event and therefore the second condition will be met. Additionally, paragraph 152-105(1)(d) of the ITAA 1997 requires either the taxpayer is 55 or over at the time of the CGT event and the event happened in connected with their retirement or they are permanently incapacitated at the time of the CGT event. Withdrawn ATO Interpretative Decision ATO ID 2003/864 CGT small business concessions: 15 year exemption - retirement gave a further explanation to what it means by retirement. It will depend on the circumstances of each particular case, but there must be at least a significant reduction in the number of hours the individual is engaged in present activities or a significant change in the nature of present activities. Although withdrawn, the explanation is relevant and still holds true. The Taxpayer currently works at least 30 hours per week in the business and this will decrease entirely after transferring the properties to person C and D. The Taxpayer is over 70 years of age. The transfer of properties is part of the family succession to allow the Taxpayer and person B to retire from farming activities. The funds from the transfer will fund the Taxpayer's and person B's retirement. Therefore, this satisfies paragraph 152-105(1)(d) of the ITAA 1997. As all of the conditions under section 152-105 of the ITAA 1997 are satisfied the Taxpayer will be eligible to apply the 15-year exemption to disregard any capital gain arising from the transfer of property 2.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .