Private ruling: The retirement exemption
Date of advice: 7 March 2018
Published: June 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: A1: Yes

Relevant facts and circumstances: In mid-20XX you disposed of shares in Company A in exchange for shares in Company B. This created a capital gain. After the application of the 50% CGT discount and the 50% active asset reduction, you are left with a capital gain of $XX. You satisfy the basic conditions to be eligible to apply the small business concessions. The beneficiary is the CGT concession stakeholder. The beneficiary is under 55 years of age. You have made contributions totalling $XX to a Superannuation fund on the beneficiaries behalf, however you did not make the necessary notification to the Superannuation fund at the time the contribution was made to advise the fund that the contribution were intended to be made in relation to the CGT small business retirement exemption. You intend to make the ‘choice’ to apply the CGT small business retirement exemption when you lodge your income tax return for the 20XX-YY income year on or before early 20XX. You intend to make the choice in writing. You intend to make another contribution to the complying superannuation fund of up to $XX, within 7 days of making the choice. You also intend to make the necessary notification to the complying superannuation fund at the time the contribution is made, advising that the contribution is a CGT small business retirement exemption contribution. In mid-20XX, you applied for a private ruling asking if the Commissioner has the discretion to allow further time to notify the superannuation fund of the contribution under subdivision 152-D of the ITAA 1997. A private ruling was issued in late 20XX advising that the Commissioner does not have the discretion to allow further time to notify the superannuation fund of the contribution.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-D | Income Tax Assessment Act 1997 subsection 152-305(2) | Income Tax Assessment Act 1997 section 152-60 | Income Tax Assessment Act 1997 section 152-320

Reasons for decision: Summary: Subdivision 152-D of the ITAA 1997 contains the small business retirement exemption. You may choose to disregard all or part of a capital gain under the small business retirement exemption if you satisfy certain conditions. If you are a company or trust, other than a public entity, you can choose to disregard all or part of a capital gain where you meet all the following conditions contained in subsection 152-305(2) of the ITAA 1997: ● you satisfy the basic conditions ● you satisfy the significant individual test ● you keep a written record of the amount you choose to disregard (the exempt amount) and, if there are more than one CGT concession stakeholders, each stakeholder’s percentage of the exempt amount (one may be nil, but together they must add up to 100%) ● you make a payment to at least one of your CGT concession stakeholders worked out by reference to each individual’s percentage of the exempt amount ● the payment is equal to the exempt amount or the amount of capital proceeds, whichever is less, and ● where you receive the capital proceeds in instalments, you make a payment to a CGT concession stakeholder for each instalment in succession (up to the asset’s CGT exempt amount). If a CGT concession stakeholder is under 55 years old just before receiving a payment, an amount equal to that payment must be paid to a complying superannuation fund or retirement savings account (RSA) on their behalf within 7 days of making the choice. The company or trust must notify the trustee of the fund or the RSA at the time of the contribution that the contribution is being made in accordance with the requirements of the retirement exemption. There is no requirement to make this contribution if the stakeholder was 55 years old or older. You must make payments: ● seven days after you choose to disregard the capital gain if you choose the retirement exemption for a J2, J5 or J6 event, or ● in any other case, 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. Section 152-60 of the ITAA 1997 provides that an individual is a CGT concession stakeholder of a company or trust at a time if the individual is a significant individual in the company or trust. The amount of the capital gain that you choose to disregard must not exceed your CGT retirement exemption limit or, in the case of a company or trust, the CGT retirement exemption limit of each CGT concession stakeholder receiving a payment. Under section 152-320 of the ITAA 1997, an individual’s lifetime CGT retirement exemption limit is $500,000, reduced by any previous CGT exempt amounts the individual has disregarded under the retirement exemption. In your case, you meet the basic conditions, satisfies the significant individual test the beneficiary is your CGT concession stakeholder. You will be eligible to apply the small business retirement exemption as long as you meet the remaining requirements under subsection 152-305(2) of the ITAA 1997 relating to the keeping written records of the amount disregarded, timing of payment and requirement to make payment to a complying superannuation fund or retirement savings account (RSA) on the beneficiary’s behalf.

Subject: The retirement exemption: Are you eligible to apply the CGT small business retirement exemption under Subdivision 152D of the Income Tax Assessment Act 1997 (ITAA 1997)?