Private ruling: CGT - small business relief
Date of advice: 25 July 2025
Published: 29 September 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Would the cessation of the farming business upon the sale of the last remaining livestock trading stock by the Company constitute the disposal of the faming business and qualify as a CGT event? | A1: No | Q2: If the answer to question 1 is yes would the significant individuals qualify for an exempt distribution to be paid by the Company for the purpose of those individuals contributing those amounts to superannuation under the 15 year exemption contribution cap? | A2: No | Q3: As the business ceased and all assets were converted to cash and/or other financial investments, would all of those assets fail to qualify as active assets under the exception in paragraph 152-40(4)(d) and therefore no such distribution could be made? | A3: Yes | Q4: If the answer to question 3 is no, how would the limit for any such exempt amounts to be paid be calculated? | A4: Not applicable

Relevant facts and circumstances: 1. The Company operates a farming business established for over XX years. 2. Ownership and control of the Company passed to Person A and Person B over XX years ago. 3. The Company has continuously operated the farming business on land owned by the Company and the Person A until 20XX income year. 4. In recent years the activity has been solely livestock operations on land owned by the Person A. 5. The Person A and Person B retired when the farming business ceased in 20XX-XX income year following the final livestock sale transaction in MMYYYY. 6. The final dispersal of the livestock took place over XX period as follows: • Year ended 30 June 20XX - XX head sold for $X • Period ended 30 August 20XX - XX head sold for $X 7. The total sale proceeds from the sale of livestock were $X. 8. A block of primary production land owned by the Person A which was used by the Company in recent years to carry on the farming business is now leased to a third party, but the intention is to sell that block now that the Person A and Person B have retired. 9. The Company has accumulated financial assets of cash and shares sourced from annual profits from the farming business and the sale of primary production land previously owned by the Company. 10. The financial asset accumulations have been invested by the Company to ensure cash profits retain real value over time. 11. An estimated $X has been required to support the on-going business activity as working capital. 12. The net assets of the Company as at 30 June 20XX were $X. 13. The $X million turnover test is met. 14. The business has operated for more than XX years. 15. The Person A and Person B are significant individuals. 16. The Person A and Person B are both over 55 years of age and are permanently retiring.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 Division 70 | Income Tax Assessment Act 1997 section 70-80 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 118-25 | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 subsection 152-10(1) | Income Tax Assessment Act 1997 paragraph 152-10(1)(a) | Income Tax Assessment Act 1997 paragraph 152-10(1)(b) | Income Tax Assessment Act 1997 paragraph 152-10(1)(d) | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 subsection 152-40(4) | Income Tax Assessment Act 1997 paragraph 152-40(4)(d) | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: CGT event A1 will occur each time the Company disposed of the livestock. As the livestock will be trading stock at the time of each disposal, the anti-overlap provisions in section 118-25 disregards any capital gain or capital loss and the Company will be required to include what they got for the disposal in their assessable income under section 6-5 as ordinary income. As a result of the CGT being disregarded, there is no capital gain, so the Company will not satisfy the second basic condition for the small business CGT relief in paragraph 152-10(1)(b) and therefore the Company cannot access the CGT concessions. | Detailed Reasoning - Detailed reasoning: You make a capital gain or capital loss if a CGT event happens to a CGT asset (section 102-20). CGT assets are defined broadly under section 108-5 to include livestock. CGT event A1 happens if you dispose of your ownership interest in a CGT asset (subsection 104-10(1)). You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base (subsection 104-10(2) to (4)). Division 70 deals with the tax treatment of trading stock. The term 'trading stock' is defined very widely to include anything produced, manufactured or acquired, that is held for manufacture, sale or exchange in the ordinary course of business and live stock (section 70-10). The livestock used in the business falls within the definition of livestock (section 995-1). Disposal of trading stock in the ordinary course of business will be assessable income under section 70-80. Although the livestock are CGT assets under section 108-5, as livestock they are trading stock so that any gains and losses from the disposal of trading stock are taxed on revenue account rather than capital account. Under the anti-overlap provisions section 118-25 provides that a capital gain or a capital loss you make from a CGT asset is disregarded if at the time of the CGT event the asset is your trading stock. Consequently, any gain or loss from CGT event A1 will be disregarded and gross earnings from the sales will be required to be included in your assessable income, pursuant to section 6-5. As a result, the CGT on the disposal of trading stock is disregarded. Basic conditions for relief Division 152 provides CGT concessions that allow eligible taxpayers to disregard or defer some or all of a capital gain arising from the disposal of an active asset used in a small business. To qualify for any of the CGT small business concessions, an entity must satisfy several conditions that are common to all the concessions, known as the basic conditions. Subsection 152-10(1) sets out the basic conditions to be satisfied before a taxpayer can access the CGT concessions. Subsection 152-10(1) states: A capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain: (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 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; (d) the CGT asset satisfies the active asset test (see section 152-35). Application to your circumstances Disposal of trading stock The livestock are a CGT asset under section 108-5. CGT event A1 happens each time the Company disposes of the livestock as a CGT asset (subsection 104-10(1)). The Company makes a capital gain if the capital proceeds from the disposal are more than the asset's cost base (subsection 104-10(2) to (4)). Any net capital gain arising on the disposal is assessable income of the year of income in which the disposal occurs (section 104-10). In addition to the livestock being a CGT asset, as the livestock are part of the Company's primary production business, they also meet the definition of livestock in section 995-1, and in turn trading stock under paragraph 70-10(1)(b). This means that on the disposal of the livestock as trading stock what the Company gets for the disposal of the livestock is included as assessable income under section 70-80. As the sale of the livestock gives rise to both a capital gain under the CGT provisions and assessable income according to ordinary concepts under s 6-5, it triggers the anti-overlap provisions. The operation of section 118-25 means any capital gain or capital loss from the CGT event is disregarded where at the time of the CGT event, the asset is the Company's trading stock. Consequently, any gain or loss from CGT event A1 will be disregarded and gross earnings from the sale of the live stock will be required to be included in the Company's assessable income, pursuant to section 6-5. Basic conditions for small business relief Subsection 152-10(1) sets out the basic conditions to be satisfied before a taxpayer can access the CGT concessions. All four conditions must be met. Paragraph 152-10(1)(a) The Company will satisfy the first basic condition in paragraph 152-10(1)(a) when the CGT event A1 happens in relation to disposal of the cattle. Paragraph 152-10(1)(b) The second basic condition in paragraph 152-10(1)(b) requires that the CGT A1 event results in the capital gain. In your case the Company will not satisfy the second condition due to the operation of anti-overlap provision in section 118-25, which disregards the capital gain if at the time of the CGT event the asset is your trading stock. As the capital gain is already disregarded by section 118-25, the second basic condition will not be satisfied. Therefore, the basic conditions for relief under section 152-10 are not satisfied so the Company cannot access the small business CGT relief including the small business 15-year exemption. | Summary: To qualify for the small business CGT relief all of the basic conditions in section 152-10 must be satisfied. The first condition in paragraph 152-10(1)(a) requires a CGT event happen to a CGT asset of yours in an income year. Section 104-5 lists all the possible CGT events. Where there is no CGT event the first condition in paragraph 152-10(1)(a) will not be satisfied and therefore the Company cannot access the small business CGT concessions. | Detailed Reasoning - Detailed reasoning: Capital gains tax applies where a CGT event happens to a CGT asset. Under section 102-20 you make a capital gain or capital loss if and only if a CGT event happens. Capital gains are triggered when a CGT event in Division 104 happens. Section 104-5 lists the CGT events that can happen for which you can make a capital gain or capital loss. Meaning of Active Asset The basic condition for small business relief in paragraph 152-10(1)(d) requires the CGT asset to satisfy the active asset test in section 152-35. Subsection 152-35(1) relevantly states: A CGT asset satisfies the active asset test if: (a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period specified in subsection (2); or (b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the period specified in subsection (2). Subsection 152-35(2) states the period begins when you acquired the asset and ends at the earlier of when the CGT event happens, or the relevant business ceased. For a CGT asset of a business to be an active asset for the purposes of Division 152, it must firstly satisfy one of the 'positive tests' in subsection 152-40(1), and then also not be excluded by one of the exceptions in subsection 152-40(4). The meaning of active asset is set out in section 152-40. It provides: 152-40(1) A CGT asset is an active asset at a time if, at that time: (a) you own the asset (whether the asset is tangible or intangible) 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 partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you; or (b) if the asset is an intangible asset - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you. Note 1: An intangible asset need satisfy only paragraph (a) or paragraph (b). Note 2: The meaning of connected with in subparagraph (1)(a)(iii) and paragraph (b) is affected by section 152-78. Note 3: An example of an asset that is inherently connected with a business is goodwill or the benefit of a restrictive covenant. Paragraph 152-40(1)(b) requires an intangible asset, to be inherently connected with a business to be an active asset. Subsection 152-40(4) sets out exceptions to certain CGT assets that cannot be active assets. In particular, paragraph 152-40(4)(d) states: However the following CGT assets cannot be active assets: ... (d) financial instruments (such as loans, debentures, bonds, promissory notes, futures contracts, forward contracts, currency swap contracts and a right or option in respect of a share, security, loan or contract). Application to your circumstances In the case of the Company as discussed above, the sale of the trading stock triggers an A1 event, but does not apply more widely to other assets held by the Company like the cash and/or financial investments, so there are no capital gains consequences to the other assets of the Company at that time. Further, to qualify for the small business CGT relief all of the basic conditions in section 152-10 must be satisfied. The first condition in paragraph 152-10(1)(a) requires a CGT event happen to a CGT asset of yours in an income year. Section 104-5 lists all the possible CGT events. Where there is no CGT event the first condition in paragraph 152-10(1)(a) will not be satisfied. In addition, the basic condition in paragraph 152-10(1)(d) requires the CGT asset be an active asset and this will not be satisfied. Where the investments are financial instruments, they fall within the exception in paragraph 152-40(4)(d) and cannot be active assets. As there is no CGT event and therefore the small business basic conditions for relief in section 152-10 are not satisfied, the Company cannot access the small business CGT concessions.

Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated.