Private ruling: CGT - small business concessions
Date of advice: 13 December 2024
Published: 28 January 2025
Ruling period: Year Ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Does A Trust satisfy the basic conditions for accessing the small business CGT concessions under Division 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the proposed transfer of the land? | A1: Yes. A CGT event resulting in a gain happened in 20YY when A trust sold the land. The trust owned the land for over 15 years, and it was used by a connected trust that is a small business entity to carrying on a primary production business for over 7.5 years. Person A and person B are both 50% beneficiaries of A Trust and B Trust. | Q2: Is A Trust eligible for the small business 15-year exemption under section 152-110 of the ITAA 1997, allowing them to disregard the capital gain arising from the proposed transfer of the land? | A2: Yes. A Trust satisfies the basic conditions under Division 152-A of the ITAA 1997. The land was continuously owned by A trust for over 15-years. In the 20YY income year the distributions went 50% to person A and 50% to person B so person A and person B are considered to both have a 50% small business participation percentage in A Trust for 15 years when applying paragraph 152-70(5)(b) of the ITAA 1997. A Trust is considered to have a significant individual for 15 years and one of those significant individuals, person A was over 55 years old when the land sold. After the sale, person A became unemployed and only works a few hours a fortnight to upkeep the land, so the sale of the land is in connection with retirement. Therefore, A Trust is entitled to the small business 15-year exemption.

Relevant facts and circumstances: A Trust is a discretionary trust established in 19YY. The trustees of XXXXX Trust are person A and person B. The trustees and beneficiaries of A Trust have signed a nominated beneficiary form to nominate person A and person B to be controllers of the trust for the 20YY financial year. A Trust purchased property A in January 19YY B Trust purchased property B in August 19YY. Together, the properties are referred to as 'the land'. The land is on two titles zoned as primary production land. B Trust was established in June 20YY. Trustees of XXXXX Trust are person A and person B. The beneficiaries of XXXXX Trust are person A and person B. B Trust commenced using the land in its primary production business from July 20XX. No lease is paid from the B Trust to A Trust, and finance facilities held by B Trust utilise this land as security. A capital gain has been realised in the 20YY financial year. A contract was signed in June 20YY to transfer the property owned by A Trust to person A and person B as tenants in common in equal shares. The annual turnover of B Trust for the years ended 30 June 20YY and 30 June 20YY was less than $2 million. B Trust ceased farming the land in the 20YY financial year, due to unfavourable conditions, with the land now being leased to an unrelated party. B Trust isperson A and person B's primary source of income. They do not own or have interests in any other businesses. Person A was XX years old and person B was XX years old at time of the sale of land. Person A and person B do not carry on a business alone or in partnership. Before the transfer person A worked full time in the business working at least 40 hours per week or up to 60-80 hours a week depending on the time of year and seasonal work requirements. In July 20YY a lease agreement was signed to lease the land to an unrelated third party. After the transfer person A reduced his hours to 2-3 hours per fortnight to upkeep of the land that is leased. A Trust had no distributable income or capital for 14 years as the land was used for no consideration by the connected entity B Trust. In the 20YY financial year, the distribution of XXXXX was 50% to person A and 50% to person B.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 152-A | 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 152-55 | Income Tax Assessment Act 1997 section 152-65 | Income Tax Assessment Act 1997 section 152-70 | Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 328-125