Private ruling: CGT small business retirement relief and Division 7A
Published: March 2014
Ruling period: 1 July 2014 to 30 June 2015

Ruling: Question and answers | Does a payment made on or after 23 June 2009 to a Capital Gains Tax (CGT) concession stakeholder of a private company to comply with the CGT small business retirement relief rules fall outside the Division 7A payment rules? | Yes

Relevant facts and circumstances: You meet the 'basic conditions' and any other conditions for the small business retirement exemption. You are disposing of company property to the sole director/shareholder, of the company, at market value. The sole director/shareholder is an employee of the company and a concessional stakeholder in the company.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 subsection 152-305(1) | Income Tax Assessment Act 1997 subsection 152-305(2) | Income Tax Assessment Act 1997 subsection 152-325(9) | Income Tax Assessment Act 1997 subsection 152-325(10)

Reasons for decision: Summary: Under section 152-D of the Income Tax Assessment Act 1997 (ITAA 1997), you may choose to disregard all or part of a capital gain if you satisfy the conditions for the small business retirement exemption. Section 152-10 of the ITAA 1997 sets out the basic conditions for small business capital gains tax (CGT) concessions, they are; a) a CGT event happens in relation to a CGT asset of yours in an income year; b) the event would (apart from this Division) have resulted in the gain; c) at least one of the following applies: (i) you are a 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 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; d) the CGT asset satisfies the active asset test Under subsection 152-305(2) of the ITAA 1997 a company or trust may choose to disregard all or part of a capital gain if; a) the basic conditions in Subdivision 152-A are satisfied for the *capital gain; and b) the entity satisfies the significant individual test, and c) the company or trust conditions in section 152-325 are satisfied. Section 152-325 of the ITAA 1997 sets out conditions to be satisfied by the company. Only when the company has met these conditions will subsection 152-35(10) of the ITAA 1997 apply. Subsection 152-35(10) of the ITAA 1997 states; This Act applies to the payment, to the extent that it is less than or equal to the amount mentioned in subsection (3) for the stakeholder, as if; a) It were not a dividend; and b) It were not a frankable distribution. | Detailed Reasoning - Application to your circumstances: You satisfy the conditions for the small business retirement exemption, the individual is an employee of the company and a concessional stakeholder in the company. Therefore Division 7A of the Income Tax Assessment Act 1936 does not apply to treat the transfer of the property, by the company at market value, to the individual as a dividend.

Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not considered the application of Part IVA to the arrangement you asked us to rule on.