Private ruling: Capital gains tax
Published: June 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to the small business 50% reduction in regards to the capital gain resulting from the sale of the business? | A1: Yes. | Q2: Are you entitled to the small business retirement exemption in regards to the capital gain resulting from the sale of the business? | A2: Yes.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: · the application for private ruling, and · the documents provided with the application for private ruling. You are over 55 years of age. You conducted your business through a discretionary trust. The Trust acquired the business in 20XX and sold it in 20XX. On the day of the CGT event, the net assets of the business were less than $5 million. For the purpose of the maximum net asset value test, there are no other connected entities or affiliates that need to be taken into account. The business is an active asset. You are the sole director and shareholder of the trustee company. You are the appointer and guardian of the Trust. You have total control of the trust and solely determine the manner the trustee makes distributions of income or capital to the beneficiaries of the trust. You expect to receive 100% of the distributions of income and capital from the Trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10, | Income Tax Assessment Act 1997 section 115-215, | Income Tax Assessment Act 1997 Subdivision 152-C, | 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 section 152-50, | Income Tax Assessment Act 1997 section 152-55, | Income Tax Assessment Act 1997 section 152-60, | Income Tax Assessment Act 1997 Subdivision 152-D, | Income Tax Assessment Act 1997 subsection 152-305(2), and | Income Tax Assessment Act 1997 section 152-325.

Reasons for decision: Summary: According to the Advanced guide to capital gains tax for small business concessions 2010-11, an entity can access the small business CGT concessions if they meet the basic conditions and the further requirement for the individual concessions are satisfied. This is except for the small business 50% active asset reduction which applies if the basic conditions are satisfied. | Detailed Reasoning - Small business 50% reduction: To satisfy the basic conditions the entity must be considered a small business entity with an aggregated turnover of less than $2 million or you must satisfy the maximum net asset value test. This test requires your net assets plus those of your affiliates and connected entities to be less than $6 million. The asset is question must also satisfy the active asset test. A CGT asset is an active asset at a given time if, at that time you own it and it is used (or held ready for use) in the course of carrying on a business by you, a small business CGT affiliate of yours or an entity connected with you. In this case the Trust satisfies the basic conditions outlined above. Therefore, as a beneficiary of the trust, you are entitled to apply the small business 50% reduction to your distribution of the capital gain. | Detailed Reasoning - Small business retirement exemption: The small business retirement exemption allows for a lifetime limit of $500,000 to be disregarded if certain conditions are satisfied. To access the retirement exemption a trust needs to satisfy the significant individual test. A significant individual has a small business participation percentage in the trust of at least 20%. The 20% can be made up of direct and indirect percentages. An entity's direct small business participation percentage in a trust is the percentage of the income or capital of the trust that the entity is beneficially entitled to receive. In this case, you have not exceeded the retirement exemption lifetime limit of $500,000. You expect to receive 100% of the distribution of income and capital from the Trust. Therefore, you are considered to be a significant individual of the trust and will be entitled to the small business retirement exemption. As you are over 55 years of age, there is no requirement for the payment to be contributed to a complying superannuation fund on your behalf. | Detailed Reasoning - Additional information: The trust must make a payment to a CGT concession stakeholder by the later of seven days after you choose to disregard the capital gain and seven days after you receive the capital proceeds from the CGT event. There is also a requirement that the CGT exempt amount be specified in writing, for more information refer to the Advanced guide to capital gains tax small business concession 2010-11, available at www.ato.gov.au.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.