Private ruling: Small business entity concessions
Date of advice: 13 February 2017
Published: July 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: In order to determine the annual turnover of Applicant 2 for the year ended 30 June 2017 pursuant to subsection 328-120(1) of the Income Tax Assessment Act 1997 (ITAA 1997), is it necessary to include the proceeds from plant and livestock sold as part of the farming business and associated farmland that took place in the year ended 30 June 2017? | A1: No. | Q2: In order to determine the annual turnover of Applicant 2 for the year ended 30 June 2017 pursuant to subsection 328-120(1) of the ITAA 1997, is it necessary to include the interest income earned by Applicant 2 from the various bank term deposits it owns? | A2: Yes. | Q3: Will Applicant 2 be considered a “small business entity” for the year ended 30 June 2017 pursuant to subsection 328-110(4) of the ITAA 1997? | A3: Yes. | Q4: If the answer to Question 3 is yes, will Applicant 1 meet the “basic conditions for relief” set out in section 152-10 of the ITAA 1997 in relation to the land they have sold in the year ended 30 June 2017? | A4: Yes. | Q5: If the answer to Question 4 is yes, is Applicant 1 eligible to entirely disregard the capital gain in relation to the sale of the land that they have owned for more than 15 years by applying the “15-year exemption for individuals” pursuant to Subdivision 152-B of the ITAA 1997? | A5: Yes.

Relevant facts and circumstances: Applicant 1 is over 60 years of age. Applicant 2 is a private company. Since 19XX Applicant 2 has conducted a cattle and sheep farming business. Applicant 1 does not carry on a business. Applicant 1 is the sole director and shareholder of Applicant 2. Applicant 1 has been the sole director and shareholder of Applicant 2 since 19XX. Applicant 1 owned various freehold farmland interests, which pertain to parcels of land used by Applicant 2 in connection with its cattle and sheep farming business. The parcels of land were acquired by Applicant 1 variously between 19XX and 200X. There were numerous certificates of title which were grouped into distinct farmland parcels. The farm land parcels are collectively known as the 'Land'. All land holdings making up the Land have only ever been used in connection with the cattle and sheep farming business run by Applicant 2 for as long as the respective freehold farmland interests have been owned by Applicant 1. One of the farm land parcels comprises part of the Land and includes a homestead which has been Applicant 1's main residence for most of the ownership period. An unrelated third party recently offered to buy the farming business conducted by Applicant 2 and all the farmland making up the Land from Applicant 1. Applicant 1 entered into a contract of sale for the land to the third party in late 201Y. The capital proceeds received by Applicant 1 from the disposal of each parcel of land will exceed the cost base of each parcel of land. Applicant 2 will also enter into a linked contract to sell its cattle farming business to the third party buyer. The assets sold will include the livestock and plant. The sale of livestock and plant is to be made as a single transaction. The annual turnover of Applicant 2 in the five most recent income years has been less than $2 million except in the 201X/201Y year in which it exceeded $2 million. Applicant 2's turnover in the 201X/201Y year was unusually high and not representative of normal trading operations. This was due to a significant amount of livestock being sold. The reasons for this were on account of the Applicant 1's intention to retire and favourable prices at the time. The sale of this stock in the 201X/201Y year meant that the farm operations could start to wind back thereby reducing the labour input required by the director of the company as part of the overall retirement plan. The farm suffered drought conditions during the 201X/201Y financial year and a reduction in herd numbers meant that the business did not need to buy additional feed to keep the remaining stock healthy. For the year ended 30 June 201Z it is expected that sales revenue will be approximately $250,000 excluding the sale of livestock and plant to the third party buyer. Applicant 2 estimates its annualised turnover for the year ended 30 June 201Z, assuming the business sale had not yet occurred, to be significantly less than $1 million, based on the opening quantity and value of its livestock and assuming that the ordinary level of livestock sales would have occurred during this year. Applicant 2 has accumulated significant profits from its farming business over the period of its existence. The profits were invested in term deposits for passive investment purposes and to fund future dividend payments. These accumulated profits are represented mostly by bank term deposits. The funds on deposit are not required by Applicant 2 to meet the working capital needs of its farming business. The profits invested in term deposits are mainly from trading livestock sales. The portion of profit invested in term deposits varied each year. Interest was earned on these deposits. The principal amounts and interest earned on the term deposits, were usually reinvested at maturity. Any term deposits that had not been reinvested were transferred to the trading account as working capital. However instances of cash being transferred from the term deposits into the trading account were rare. Applicant 2 maintained a bank account (trading account) separate to the term deposits for use in its business. None of the cash in the term deposits is company capital. For the year ended 30 June 201Z interest earned on term deposits will not cause annual turnover to exceed $2 million. Applicant 1 has on a full time basis historically run the business conducted by Applicant 2 and up until the sale of the business will be actively involved with the management, contract negotiations, and the day to day running of the farming activities. Upon the transfer of the land, and the subsequent disposal of the trading stock and plant and equipment owned by Applicant 2, Applicant 1 will not have any more involvement with any business activities carried out on the land and will retire. Existing staff working on the farm will cease employment upon the sale of land. Applicant 1 does not satisfy the maximum net value asset test. Applicant 2's annual turnover does not require adjustment to include or exclude amounts from affiliates or other connected entities.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-A | 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)(c) | Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(i) | Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(ii) | Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(iii) | Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(iv) | Income Tax Assessment Act 1997 subsection 152-10(1A) | Income Tax Assessment Act 1997 subsection 152-35(1) | Income Tax Assessment Act 1997 subsection 152-35(2) | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 paragraph 152-105(a) | Income Tax Assessment Act 1997 paragraph 152-105(b) | Income Tax Assessment Act 1997 paragraph 152-105(c) | Income Tax Assessment Act 1997 paragraph 152-105(d) | Income Tax Assessment Act 1997 section 328-10 | Income Tax Assessment Act 1997 subsection 328-10(1) | Income Tax Assessment Act 1997 subsection 328-110(4) | Income Tax Assessment Act 1997 section 328-115 | Income Tax Assessment Act 1997 section 328-120 | Income Tax Assessment Act 1997 subsection 328-120(1) | Income Tax Assessment Act 1997 subsection 328-120(5 ) | Income Tax Assessment Act 1997 section 328-125 | Income Tax Assessment Act 1997 section 328-130

Reasons for decision: Summary: The annual turnover of Applicant 2 does not include the proceeds from the sale of livestock and plant sold as a part of the sale of the farming business. | Detailed Reasoning - Detailed reasoning: The meaning of 'annual turnover' is provided in section 328-120 of the ITAA 1997. Subsection 328-120(1) of the ITAA states: An entity's annual turnover for an income year is the total *ordinary income that the entity *derives in the income year in the ordinary course of carrying on a *business.' The term 'ordinary income' is defined in section 6-5 of the ITAA 1997 as income according to ordinary concepts. An entity's annual turnover therefore includes all income according to ordinary concepts derived in the ordinary course of carrying on a business. 'In the ordinary course of carrying on a business' is not defined in the ITAA 1997. The term therefore takes its ordinary meaning. In Doutch v FC of T [2016] FCAFC 166, which was an appeal against the decision of the AAT, the Court considered Reasons provided by the Tribunal: 70 The phrase "in the ordinary course of carrying on a business", as it appears in s 328-120(1) of the ITAA 1997, is not defined in the ITAA 1997 and it is necessary to construe those words. In engaging in the exercise of statutory construction, the Court is to consider the text of the statute in context. The High Court in Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 observed as follows at [39]: "This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text" [Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at 46 [47]]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself. 71 The extrinsic materials to which the High Court referred includes an explanatory memorandum. 72 The definition of "annual turnover" in s 328-120(1) of the ITAA 1997 was inserted into the ITAA 1997 by Tax Laws Amendment (Small Business) Act 2007 ( TLASBA 2007 ). The "Explanatory Memorandum" to the Tax Laws Amendment (Small Business) Bill 2007 ( EM ), which Bill was ultimately enacted as the TSLABA 2007, commencing from the 2008 income year, states: | Detailed Reasoning - What does 'in the ordinary course of carrying on a business' mean?: ........ 2.15 In general, income is derived in the ordinary course of carrying on a business if the income is of a kind that is regularly or customarily derived by the entity in the course of carrying on its business, arising out of no special circumstance or event. Similarly, the income is derived in the ordinary course of carrying on a business if the income although not regularly derived, is a direct result of the normal activities of the business . 2.16 Ordinary income may be derived in the ordinary course of carrying on a business even if it is not the main type of ordinary income derived by the entity. Similarly, the income does not need to account for a significant part of the entity's overall receipts. It is sufficient that the ordinary income is of a kind derived regularly or customarily in the carrying on of a business. [Emphasis added.] 73 In the Tribunal's view, the EM provides assistance in the construction of s 328-120(1) because it does not displace, but rather confirms the ordinary meaning of the words "income....derived....in the ordinary course of carrying on a business" as to refer to income which is an incident of, or directly related to, the carrying on of the normal day to day activities of the business in question, even if that income is not regularly derived in that way. Thus, income is derived in the ordinary course of carrying on a business where: (a) the income is of a kind that is regularly or customarily derived by an entity in the course of carrying on its business, arising out of no special circumstance or unusual event; and (b) the income, although not regularly derived, is derived as a direct result of the normal activities of the business. In this case, the business carried on by Applicant 2 is a cattle farming business. The assets of the business being sold in conjunction with the sale of the business include the livestock and plant of the business. Income from the disposal of livestock is of a kind that is customarily or regularly derived by a cattle farming business, however in this case the disposal of the livestock occurred largely due to the sale of the cattle farming business. That is, the income from the disposal was the result of an unusual event or special circumstance. The sale of the livestock by Applicant 2 is not a disposal in the ordinary course of business and is instead a disposal of the assets of the business so that the business is no longer carried on. Similarly the disposal of the plant of Applicant 2's cattle farming business is not a disposal in the ordinary course of carrying on the cattle farming business. Further, it cannot be said that although not regularly derived, the income from the sale of the plant is derived as a direct result of the normal activities of the business. The sale of the livestock and plant by Applicant 2 is not a disposal in the ordinary course of Applicant 2 carrying on its business of cattle farming. As a result, the annual turnover of Applicant 2 for the purposes of section 328-120 of the ITAA 1997 does not include the proceeds for the sale of the livestock or plant that is sold as a part of the sale of the farming business. | Summary: The annual turnover of Applicant 2 includes the interest income earned by Applicant 2 on its term deposits. | Detailed Reasoning - Detailed reasoning: Subsection 328-120(1) of the ITAA 1997 provides that an entity's annual turnover for an income year is the total ordinary income that the entity derives in an income year in the ordinary course of carrying on a business. Taxation Ruling TR 2002/11 Income tax: Simplified Tax System eligibility - STS average turnover (TR 2002/11) is written in the terms of former STS sections of the ITAA 1997, however its explanation as to what is 'in the ordinary course of carrying on a business' in respect of interest income, is applicable with regards to the interpretation of subsection 328-120(1) of the ITAA 1997, and in particular, whether interest income is included in annual turnover. TR 2002/11 states: 72. An entity will need to include investment income such as interest on invested funds or rental income in its *value of the business supplies for the relevant year if that income constitutes the value of a supply made by the entity in the ordinary course of carrying on its business. This will be a question of fact to be determined in light of the facts of the particular case. 73. If the entity is a company, this question needs to be approached bearing in mind that any exploitation by a company of its assets for the benefit of its shareholders prima facie amounts to the carrying on of a business by the company. See for example the following remarks of Lord Diplock in American Leaf Blending Co Sdn Bhd v. Director-General of Inland Revenue [1978] 3 All ER 1185 at 1189: ' . . . in the case of a company incorporated for the purpose of making profits for its shareholders any gainful use to which it puts any of its assets prima facie amounts to the carrying on of a business. Where the gainful use to which a company's property is put is letting it out for rent, their Lordships do not find it easy to envisage circumstances that are likely to arise in practice which would displace the prima facie inference that in doing so it was carrying on a business.' 74. The effect of this presumption is that where a company makes a supply giving rise to investment income such as rental or interest income, that supply can generally be presumed to be a supply made by the company in the course of carrying on a business. The value of that supply (i.e., the interest or rental income) will therefore need to be included in the company's STS group turnover. This is unless the presumption can be rebutted or it can be demonstrated that the exploitation of the asset is a supply occurring outside of the ordinary course of the company's business… Further, paragraphs 83-85 of TR 2002/11 provide the following examples in respect of whether interest income is derived in the ordinary course of business. | Detailed Reasoning - Example 1A - general bank interest: 83. The Smith Family Partnership runs a residential building business. Payments from customers for building work by the partnership are deposited in the partnership's bank account twice a week. The interest paid by the bank on the funds deposited will be included in the partnership's *STS group turnover. The interest paid by the bank on the funds deposited constitutes the value of supplies made by the partnership to its bank as a regular part of carrying on its business. | Detailed Reasoning - Example 1B - interest on an investment account excluded from STS group turnover: 84. Following on from Example 1A, recently the partnership sold several old pieces of equipment which it no longer needed or wished to replace. It hadn't sold any items of plant or equipment for about four years. The partners had assumed that they would simply have to scrap any items they could not sell. The partners agreed to deposit the sale proceeds in a short term cash deposit account to earn some interest until payment for the replacement equipment became due in a few months time. The partnership had not followed this practice before and is unlikely to do so again as it has no further assets planned for sale or scrapping in the next year or so. The partnership will not need to include the interest paid on this account in its *STS group turnover. The interest is the value of an unusual, irregular supply made outside of the ordinary course of the partnership's business. | Detailed Reasoning - Example 1C - interest on an investment account included in STS group turnover: 85. Following on from Example 1B, the partnership later finds that it routinely has more funds at hand than needed to discharge its present liabilities. Encouraged by the interest paid on the sale proceeds that had been deposited, the partnership decides to place all its surplus business funds in a short term money market account. Amounts are transferred from the partnership's general banking account to this investment account whenever the partnership's managing partner decides that the partnership has a temporary surplus of funds. Over the course of the past year this has happened about once a month. The partnership will need to include this interest in its *STS group turnover as the interest paid on this investment account represents the value of supplies made on a regular and recurrent basis, i.e., supplies made in the ordinary course of carrying on the partnership business. Whether the interest income earned by Applicant 2 on its term deposits is included in its annual turnover depends on whether the interest income earned on its term deposits is ordinary income derived by Applicant 2 in the ordinary course of carrying on its business. Interest income is ordinary income according to ordinary concepts. Generally, the derivation of interest income by a business is common practice and is a direct result of the normal activities of the business, even if it is not the main type of ordinary income of that business. There will, however, be some circumstances in which interest income may not be considered to be derived in the ordinary course of an entity carrying on its business. Such a situation may arise, for example, where the source of the funds for the investment is not the working capital of the business. Applicant 2 maintains a bank account for use in its business, separate to its term deposit accounts. Applicant 2 has invested its accumulated profits that were not required to meet its working capital needs in the term deposits. The accumulated profits were primarily from trading livestock sales made in the ordinary course of Applicant 2 carrying on its farming business. The profits were invested in term deposits for passive investment purposes and to fund future dividend payments. In most cases the term deposits (principal and interest) were reinvested at maturity, however any that were not reinvested were returned to the trading account for use as working capital in the business. The funds in the term deposits did not comprise any of the Applicant 2's capital. Given that the source of the funds in the term deposits was surplus working capital derived by Applicant 2 in the ordinary course of its business, the interest income derived on the term deposits is therefore derived in the ordinary course of Applicant 2 carrying on its business. Applicant 2's intention of passive investment or funding future dividend payments from the term deposits does not cause the term deposit interest income to be characterised differently. The annual turnover of Applicant 2, for the purposes of section 328-120 of the ITAA 1997, includes the interest income earned by Applicant 2 on its term deposits. | Summary: Applicant 2 will be a small business entity (SBE) as defined in subsection 328-110(4) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Subsection 328-110(4) of the ITAA 1997 states: You are also a small business entity for an income year (the current year ) if: (a) you carry on a *business in the current year; and (b) your *aggregated turnover for the current year, worked out as at the end of that year, is less than $2 million. Section 328-115 of the ITAA 1997 provides the meaning of 'aggregated turnover'. An entity's aggregated turnover for an income year is the sum of the annual turnover of the entity, its affiliates or a connected entity less amounts from dealings between such entities. An entity is 'connected with another entity' if either entity controls the other in the manner specified in section 328-125 of the ITAA 1997. A company will be connected with an individual if the individual: ● owns interests in the company that carry the right to receive at least 40% of distributions by the company, or ● owns equity interests in the company that carry the right to exercise or control the exercise of at least 40% of the voting power in the company. Where an entity only carries on a business for part of the year, its turnover must be worked out using a reasonable estimate of what its turnover would have been had it operated for the entire year (subsection 328-120(5) of the ITAA 1997). Applicant 2's expected sales revenue for the year ended 30 June 201Z is expected to be approximately $250,000, excluding the sale of the livestock which will occur with the sale of the business. Applicant 2's estimate of its annual turnover for the year ended 30 June 201Z, had it carried on business for the whole of the year, is that it would be less than $1 million, based on the opening quantity and value of its livestock and assuming that the ordinary level of livestock sales would have occurred during the year. Applicant 1 is the sole shareholder of Applicant 2. Applicant 2 is 'connected with Applicant 1' because Applicant 1 owns 100% of the voting power of Applicant 2 and has the right to receive 100% of distributions from Applicant 2. Applicant 2's annual turnover does not require adjustment to include or exclude amounts from Applicant 1. As discussed at questions 1 and 2, Applicant 2's annual turnover includes ordinary income earned in the ordinary course of business for the income year. The proceeds from the sale of the business plant and livestock are not included in the annual turnover however interest income derived on the term deposits is included. Applicant 2's estimate of annual income had it carried on business for the whole year, adjusted to include the interest expected to be earned on its term deposits, will not cause its estimated annual income to exceed $2 million. Therefore, given that Applicant 2 carried on a business in the current income year and that its aggregated turnover for the current year is less than $2 million, Applicant 2 will be a SBE as defined in subsection 328-110(4) of the ITAA 1997. | Summary: Applicant 1 will satisfy the basic conditions for relief in section 152-10 of the ITAA 1997 in relation to the land that it has sold. | Detailed Reasoning - Detailed reasoning: Division 152 of the ITAA 1997 includes a number of concessions that provide relief from capital gains tax (CGT). The basic conditions for relief from CGT are specified in subsection 152-10(1) of the ITAA 1997: 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 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. All of the basic conditions specified in subsection 152-10(1) of the ITAA 1997 are satisfied by Applicant 1 as explained below. | Detailed Reasoning - Basic condition (a) - a CGT event happens: Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens if you dispose of a CGT asset. 'CGT asset' is defined in section 108-5 of the ITAA 1997 and includes any kind of property. A CGT asset is disposed of if a change of ownership occurs from one entity to another (subsection 104-10(2) of the ITAA 1997). The time of the CGT event is specified in subsection 104-10(3) of the ITAA 1997 and as is relevant, is the time when you enter into the contract for the disposal. Applicant 1 entered into a contract of sale in late 201Y for the Land which comprised numerous freehold farmland interests, acquired by Applicant 1 between 19XX and 200X. CGT event A1 happened to each freehold farmland interest when Applicant 1 entered into the contract for sale of the Land. Basic condition (a) was satisfied. | Detailed Reasoning - Basic condition (b) - the event results in a capital gain: Subsection 104-10(4) of the ITAA 1997 states you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. Applicant 1 will make a capital gain in relation to the disposal of the Land because the capital proceeds will exceed the cost base of each of the land titles. This condition is satisfied. | Detailed Reasoning - Basic condition (c) - one of the requirements listed is satisfied: Paragraph 152-10(1)(c) of the ITAA 1997 states that one of the requirements listed at (i) to (iv) must be satisfied. Applicant 1 does not satisfy the requirements in subparagraphs 152-10(1)(c)(i) to (iii) of the ITAA 1997 therefore they must satisfy subparagraph 152-10(1)(c)(iv) of the ITAA 1997 which requires that the conditions in either subsection 152-10(1A) or (1B) of the ITAA 1997 are satisfied. Subsection 152-10(1A) of the ITAA 1997 states: The conditions in this subsection are satisfied in relation to the *CGT asset in the income year if: (a) your *affiliate, or an entity that is *connected with you, is a *small business entity for the income year; and (b) you do not carry on a *business in the income year (other than in partnership); and (c) if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and (d) in any case - the small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b)) in relation to the CGT asset. All of the requirements of subsection 152-10(1A) of the ITAA 1997 are satisfied as explained below. Requirement (a) - As discussed in Question 3, Applicant 1 is connected with Applicant 2 which is a SBE for the income year. This requirement is satisfied. Requirement (b) - Applicant 1 does not carry on a business in its own name. This requirement is satisfied. Requirement (c) - This requirement is not relevant as there is no partnership. Requirement (d) - Applicant 2, which is the SBE, uses the land (the CGT asset) owned by Applicant 1 in carrying on the business as referred to in the active asset test discussed in basic condition (d) below. This requirement is satisfied. | Detailed Reasoning - Basic condition (d) - CGT asset satisfies the active asset test: To satisfy this basic condition, the CGT asset must be an 'active asset' and it must satisfy the 'active asset test'. Section 152-40 of the ITAA 1997 provides that a CGT asset is an 'active asset' at a time, if at that time you own the asset and it is used, or held ready for use, in the course of carrying on a business that is carried on by you, your affiliate, or another entity that is connected with you. As stated above, the land owned by Applicant 1 is a CGT asset and it is an active asset because it has been used by Applicant 2, an entity connected with Applicant 1, in carrying on its farming business. Subsection 152-35(1) of the ITAA 1997 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 7 1/2 years during the period specified in subsection (2). In accordance with subsection 152-35(2) of the ITAA 1997 the period begins when the asset is acquired and ends at the earlier of the CGT event or the cessation of the business. Applicant 1 satisfies the active asset test. Applicant 1 acquired the various parcels of the Land between 19XX and 200X. From the time of acquisition, the land has been used by Applicant 2 in carrying on its farming business. The only exception being, the parcels of the Land which comprise a homestead, which has been Applicant 1's main residence during most of Applicant 1's ownership of the land. | Summary: Applicant 1 satisfies the requirements of the '15-year exemption for individuals' in section 152-105 of the ITAA 1997 and can disregard the capital gain in relation to the Land acquired 15 years prior to the date of the sale contract. | Detailed Reasoning - Detailed reasoning: Section 328-10 of the ITAA 1997 specifies the concessions available to small business entities in relation to CGT. Item 1 of the table in subsection 328-10(1) of the ITAA 1997 lists a concession for 'CGT 15-year asset exemption' as provided for in Subdivision 152-B of the ITAA 1997. Section 152-105 of the ITAA 1997 specifies the requirements for an individual to qualify for the 15-year exemption: If you are an individual, you can disregard any *capital gain arising from a *CGT event if all of the following conditions are satisfied: (a) the basic conditions in Subdivision 152-A are satisfied for the gain; (b) you continuously owned the *CGT asset for the 15-year period ending just before the CGT event; (c) if the CGT asset is a *share in a company or an interest in a trust - the company or trust had a *significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which you owned the CGT asset: (d) either: (i) you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or (ii) you are permanently incapacitated at the time of the CGT event. Paragraph 152-105(a) of the ITAA 1997 is satisfied because Applicant 1 satisfies the basic conditions in Subdivision 152-A as discussed at Question 4. Paragraph 152-105(b) of the ITAA 1997 is satisfied in respect of the land which Applicant 1 acquired 15 years prior to the date of the sale contract. Applicant 1 continuously owned those parcels of the Land since acquisition. Applicant 1 entered the contract of sale of all the Land in late 201Y. The Land that was acquired 15 years prior to the date of the sale contract has been continuously owned for 15 years prior to the CGT event happening. However, the parcels of land acquired after that time do not satisfy this requirement as they have not been owned for the 15 year period just before the CGT event. Paragraph 152-105(c) of the ITAA 1997 is not applicable because the CGT asset is land. Paragraph 152-105(d) of the ITAA 1997 requires that the individual is over 55 years of age and the CGT event happens in connection with the individual's retirement. Applicant 1 is over 60 years of age. Upon the transfer of the Land, and the subsequent disposal of the business by Applicant 2, Applicant 1 will have no further involvement with any business activities carried out on the Land and will retire. The retirement requirement will therefore be satisfied. Applicant 1 satisfies the requirements of the 15-year exemption for individuals in section 152-105 of the ITAA 1997 in relation to the parcels of the Land acquired 15 years prior to the date of the sale contract, and can disregard the capital gains in respect of the sale of those.