Private ruling: Capital gains tax - 15-year exemption
Date of advice: 2 February 2026
Published: 23 March 2026
Ruling period: Income year ending 30 June 20XX.
Date scheme commenced: During the 20XX income year.

Ruling: Q1: Does the Family Trust meet the conditions to apply the capital gains tax (CGT) small business 15-year exemption under Subdivision 152-B of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made by the trust on the disposal of its property? | A1: Yes.

Relevant facts and circumstances: Trustee Company (the Trustee) is trustee for the Family Trust (the Trust), which a principal individual (the Principal) was a director and beneficially held 2 shares in Trustee. At a later time, another family member (Individual 1) acquired 1 share in Trustee. The Trust acquired agricultural real property (the property) at a time more than 20 years ago. Investment Company (Investment Co) activities involve retaining trust distributions received and making loans available to the Trust. Each of the four directors, being the Principal's spouse, Individual 1, Individual 2 and Individual 3, beneficially hold fully paid ordinary shares in equal proportions. No additional classes of shares have been issued by Investment Co. Each of the four directors of Investment Co, while being family members, do not act in accordance with the others' direction or wishes. The principal individual, the Trust and Trustee (in its own capacity) entered into a partnership agreement (the agreement) in 20XX, forming a partnership (the Partnership), which specified that: • Each party agrees to become 'partners in the business'. • The Partnership is to carry on a business of 'primary production'. • Each partner's entitlement to the division of profits is: ­ The Principal XX%. ­ The Trust XX%. ­ Trustee (in its own capacity) XX%. The Trust made the property available to the Partnership for the purpose of carrying on its farming activities, but the property is not an asset of the Partnership. During 20XX, the Principal passed away. The principal individual's shares in Trustee are currently held by the estate, with Individual 1, Individual 3 and a third party individual acting as executors. The principal individual's will names the Principal's spouse, Individual 1, Individual 2 and Individual 3 as those intended to receive beneficial ownership of the shares in Trustee. In the 20XX financial year, the Partnership ceased trading and distributed its livestock to the Trust, as part of the distribution of Partnership farming assets to its partners. From the 20XX financial year, the Trust continued to carry on the farming business on its property. The livestock and farm operations of the Trust have been managed by a number of individuals previously involved in the operation of the Partnership, including the Principal's spouse, Individual 1, Individual 2 and Individual 3. In the 20XX financial year, the Trust will sell the property to a third-party purchaser. Just prior to the sale of the property, a new trustee company will be appointed for the Trust, with the shares in that company held equally by each of the Principal's spouse, Individual 1, Individual 2 and Individual 3. The Principal's spouse is more than 55 years of age and carries on a farming business in their own right as a sole trader. Following the sale of the property, the Principal's spouse will substantially reduce their farming activities, such that within two years after the sale they will have no involvement in farming operations. Individual 2 does not carry on any business in their own right but does carry on a farming business in partnership with their spouse. For the 15 income years prior to the sale of the property, beneficiaries receiving a distribution of at least 20% of the Trust's income or capital for an income year are: • 20XX: The Principal's spouse, Individual 1, Individual 2 and Individual 3, each receiving a XX% share of the income. • 20XX: No distribution - the Trust made a tax loss for this income year. • 20XX: ­ Investment Co, receiving XXX% of the income. ­ Individual 2, receiving XXX% of the capital. • 20XX: Investment Co, receiving XXX% of the income. • 20XX to 20XX: The Principal's spouse, receiving XXX% of the income. • 20XX: The Principal's spouse, receiving XXX% of the income. • 20XX: Other eligible family members (individuals), each receiving XXX% of the income. • For the 20XX financial year, the following entities reported ordinary income derived in the ordinary course of carrying on business activity: • The Trust: $X00,000. • The Principal's spouse: $X00,000. • Individual 2: $0. • Investment Co: $0.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 subsection 108-5(1) | Income Tax Assessment Act 1997 subdivision 152-A | Income Tax Assessment Act 1997 subdivision 152-B | 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)(c) | Income Tax Assessment Act 1997 subparagraph 152-10(1)(c)(i) | Income Tax Assessment Act 1997 paragraph 152-10(1)(d) | Income Tax Assessment Act 1997 subsection 152-10(1AA) | Income Tax Assessment Act 1997 paragraph 152-10(1AA)(b) | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-35(1) | Income Tax Assessment Act 1997 subsection 152-35(2) | Income Tax Assessment Act 1997 paragraph 152-40(1)(a) | Income Tax Assessment Act 1997 section 152-55 | Income Tax Assessment Act 1997 Section 152-65 | Income Tax Assessment Act 1997 subsection 152-70(1) | Income Tax Assessment Act 1997 subsection 152-70(5) | Income Tax Assessment Act 1997 section 152-75 | Income Tax Assessment Act 1997 subsection 152-78(2) | Income Tax Assessment Act 1997 subsection 152-78(3) | Income Tax Assessment Act 1997 subsection 152-110(1) | Income Tax Assessment Act 1997 paragraph 152-110(1)(b) | Income Tax Assessment Act 1997 paragraph 152-110(1)(c) | Income Tax Assessment Act 1997 paragraph 152-110(1)(d) | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 subsection 328-110(1) | Income Tax Assessment Act 1997 paragraph 328-110(1)(b) | Income Tax Assessment Act 1997 section 328-115 | Income Tax Assessment Act 1997 subsection 328-115(1) | Income Tax Assessment Act 1997 subsection 328-115(2) | Income Tax Assessment Act 1997 subsection 328-115(3) | Income Tax Assessment Act 1997 section 328-120 | Income Tax Assessment Act 1997 subsection 328-120(1) | Income Tax Assessment Act 1997 subsection 328-125(1) | Income Tax Assessment Act 1997 subsection 328-125(3) | Income Tax Assessment Act 1997 subsection 328-125(4) | Income Tax Assessment Act 1997 section 328-130 | Income Tax Assessment Act 1997 subsection 328-130(1) | Income Tax Assessment Act 1997 subsection 328-130(2)

Reasons for decision: Detailed Reasoning - Small business relief - basic conditions: Subdivision 152-A of the ITAA 1997 sets out the basic requirements that must be satisfied so that an entity may access relief from the capital gains tax (CGT) consequences arising in respect of certain CGT events. Specifically, subsection 152-10(1) of the ITAA 1997 provides that a capital gain may be reduced or disregarded 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; (This condition does not apply in the case of CGT event D1.) (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 (see section 152-15); (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). Basic condition: paragraph 152-10(1)(a) - a CGT event happens in relation to a CGT asset of yours A CGT asset is defined in subsection 108-5(1) as any kind of property or a legal or equitable right that is not property. Note 1 to section 108-5 lists some examples of CGT assets which include 'land and buildings'. Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. In your circumstances, the Trust's property is a CGT asset, which, upon disposal of the property to a third-party purchaser in the 20XX income year, gives rise to CGT event A1. On this basis, you satisfy the basic condition for relief under paragraph 152-10(1)(a) of the ITAA 1997. Basic condition: paragraph 152-10(1)(b) - the CGT event would have resulted in the gain Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base. In your circumstances, the disposal of the Trust's property in the 20XX income year will result in you making a capital gain. On this basis, you satisfy the basic condition for relief under paragraph 152-10(1)(b) of the ITAA 1997. Basic condition: paragraph 152-10(1)(c) - you are a CGT small business entity for the income year To be eligible to use the CGT small business concessions you must satisfy one of the subparagraphs under paragraph 152-10(1)(c) of the ITAA 1997. As the property is used firstly in carrying on the Partnership's primary production business and subsequently in the conduct of that activity in your own right, and it has not otherwise been determined whether you would satisfy the maximum net asset value test just before you transfer the property, subparagraph 152-10(1)(c)(i) of the ITAA 1997 is relevant in your circumstances. Accordingly, you must meet the requirements to be a 'CGT small business entity' for the year in which you transfer the property. Subsection 152-10(1AA) of the ITAA 1997 provides that you are CGT small business entity for an income year if: (a) you are a *small business entity for the income year; and (b) you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million. | Detailed Reasoning - Small business entity: Subsection 328-110(1) of the ITAA 1997 provides that you are a 'small business entity' for an income year if: (a) you carry on a *business in the current year; and (b) one or both of the following applies: (i) you carried on a business in the income year (the previous year) before the current year and your *aggregated turnover for the previous year was less than $10 million; (ii) your aggregated turnover for the current year is likely to be less than $10 million. | Detailed Reasoning - Carry on a business: Generally, a business involves a set of continuous and repeated activities you do for the purpose of making a profit. The term 'business' is defined in subsection 995-1(1) of the ITAA 1997 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? outlines some factors that indicate whether or not a business of primary production is being carried on, where paragraph 13 of TR 97/11 outlines relevant indicators of carrying on a business include: • whether the activity has a significant commercial purpose or character • whether the taxpayer has more than just an intention to engage in business • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity • whether there is regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • the size, scale and permanency of the activity • whether the activity is better described as a hobby, a form of recreation or sporting activity. Paragraph 15 of TR 97/11 states that no one indicator is decisive ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). Further, paragraph 16 of TR 97/11 states that the indicators must be considered in combination and as a whole. Whether a busin ess is being carried on depends on the general impression gained from looking at all the indicators (Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470 at 474; 5 AITR 548 at 551), and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. Commissioner of Taxation (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). In addition, in Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? the Commissioner expresses his view on when a company is taken to carry on a business specifically within the meaning of small business entity in: • Section 23 of the Income Tax Rates Act 1986 (ITRA 1986) as applicable in the 2015-16 and 2016-17 income years. • Section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997). Paragraph 18 of TR 2019/1 explains that most companies are in business if they intend to and are likely to make a profit. However, some companies are not in business. For example, a company is not in business if it: • holds assets solely for its shareholders' private use, and its running costs are funded solely by its shareholders • provides social and recreational activities for members without seeking to make a profit. In your circumstances, indicators relevant to determining whether the Trust is carrying on a business, whether alone or in partnership, are: • The Trust entered into the Partnership (with Principal individual and Trustee) in the 20XX income year, which the agreement expressed the intention to conduct a business in partnership and specified the nature of business to be primary production. • The partnership agreement also specifies aspects of dealing with the profit of the Partnership, including the entitlements of each partner in the sharing of any profits arising for an income year, which your entitlement is 10%. • The Trust contributed the use of the property for the purpose of carrying on the Partnership's primary production activity. • The Partnership's primary production activity continued over a period of XX years, until the 20XX income year, when the Partnership ceased trading. • Upon the cessation of the Partnership's primary production activity, the Trust commenced conducting primary production activity involving certain livestock acquired from the Partnership, including that farm operations of the Trust since that time have been managed by a number of individuals previously involved in the operation of the Partnership. On weighing the relevant indicators described in TR 97/11, for the purposes of subsection 328-110(1) of the ITAA 1997, it is considered that the Trust is carrying on a business in the current year (the 20XX income year) and was carrying on a business in the income year before the current year. | Detailed Reasoning - Aggregated turnover: Subsection 328-115(1) of the ITAA 1997 provides that your 'aggregated turnover' for an income year is the sum of the relevant annual turnovers, which subsection 328-115(2) provides that the relevant annual turnovers are: (a) your • annual turnover for the income year; and (b) the annual turnover for the income year of any entity (a relevant entity ) that is • connected with you at any time during the income year; and (c) the annual turnover for the income year of any entity (a relevant entity ) that is an * affiliate of yours at any time during the income year. However, subsection 328-115(3) provides that your aggregated turnover for an income year does not include the following amounts: (a) amounts • derived in the income year by you or a relevant entity from dealings between you and the relevant entity while the relevant entity is * connected with you or is your * affiliate; (b) amounts derived in the income year by a relevant entity from dealings between the relevant entity and another relevant entity while each relevant entity is connected with you or is your affiliate; (c) amounts derived in the income year by a relevant entity while the relevant entity is not connected with you and is not your affiliate. | Detailed Reasoning - Connected entity: Subsection 328-125(1) of the ITAA 1997 defines that an entity is 'connected with' another entity if: (a) either entity controls the other entity in a way described in section 328-125; or (b) both entities are controlled by the same third entity in a way described in section 328-125. Subsections 328-125(3) and (4) of the ITAA 1997 provide two ways to determine direct control for an entity that is a discretionary trust, being as follows: | Detailed Reasoning - 328-125(3): An entity (the first entity ) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its *affiliates, or the first entity together with its affiliates. | Detailed Reasoning - 328-125(4): An entity (the first entity ) controls a discretionary trust for an income year if, for any of the 4 income years before that year: (a) the trustee of the trust paid to, or applied for the benefit of: (i) the first entity; or (ii) any of the first entity's *affiliates; or (iii) the first entity and any of its affiliates; any of the income or capital of the trust; and (b) the percentage (the control percentage ) of the income or capital paid or applied is at least 40 % of the total amount of income or capital paid or applied by the trustee for that year. Subsection 328-125(7) of the ITAA 1997 describes indirect control of an entity, as follows: This section applies to an entity (the first entity ) that directly controls another entity (the second entity ) as if the first entity also controlled any other entity that is directly, or indirectly by any other application or applications of this section, controlled by the second entity. For example, through application of section 328-125 of the ITAA 1997, Entity A would be found to indirectly control Entity C if: • Entity A controls Entity B, and • Entity B controls Entity C. For the purposes of determining control of a discretionary trust, where a trust did not make a distribution of income or capital for an income year subsection 152-78(2) of the ITAA 1997 provides that: The trustee of a discretionary trust may nominate not more than 4 beneficiaries as being controllers of the trust for an income year (the relevant income year ) for which the trustee did not make a distribution of income or capital if the trust had a * tax loss, or no * net income, for that year. Subsection 152-78(3) of the ITAA 1997 provides that the effect of making a nomination under subsection 152-78(2) is that each nominated beneficiary controlled the trust for the relevant income year in a way described in section 328-125 of the ITAA 1997 (this means each nominated beneficiary is connected with the trust). Taxation Determination TD 2022/7 Income tax: aggregated turnover - application of the 'connected with' concept to partnerships, foreign hybrids and non-entity joint ventures sets out the Commissioner's view on determining whether an entity is connected with a partnership. Specifically, TD 2022/7 expresses that: • Subdivision 328-C of the ITAA 1997 applies to a 'partnership' as though it were an entity separate to its partners. Where a partner is capable of directly controlling a partnership based on the tests in subparagraphs 328-125(2)(a)(i) or (iii) (the 'general control tests') or the specific test for determining whether an entity directly controls a partnership under subparagraph 328-125(2)(a)(ii) (the 'partnership control test'). • When determining whether a partnership directly controls another entity under section 328-125, the partnership is the relevant entity, rather than the individual partners in their capacity as partners. • Where an entity is directly controlled by a partnership within the meaning of section 328-125, that entity will also need to consider whether it is indirectly controlled by any other entities that control the partnership, including the individual partners in their capacity as partners of the partnership. • Likewise, where a partner directly controls a partnership, that partner will also need to consider whether they indirectly control any other entities that are controlled by the partnership. In your circumstances, as at the date of the sale of the property in the 20XX income year, in the four prior income years the entities who have control of the Trust under subsection 328-125(4) of the ITAA 1997 are: • For the 20XX income year, no beneficiary received at least a 40% share of the total income or capital. • For the 20XX income year, as the Trust had a tax loss for that year, the Trustee will nominate the Principal's spouse as the controller for that year under section 152-78 ITAA 1997. • For the 20XX income year ­ Investment Co, who received 100% of the Trust's income for that year. ­ Individual 2, who received 100% of the Trust's capital for that year. • For the 20XX income year, Investment Co, which received 100% of the Trust's income for that year. • As the Trust's share in the profits of the Partnership is 10%, the Trust does not control the Partnership in any income year. On this basis, the Principal's spouse, Individual 2 and Investment Co are considered to be connected with the Trust for the income year under subsection 328-125(1) of the ITAA 1997. | Detailed Reasoning - Affiliate: Subsection 328-130(1) of the ITAA 1997 defines that an individual or a company is your 'affiliate' if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the individual or company business affairs. However, subsection 328-130(2) provides that an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share. To clarify the application of section 328-130 of the ITAA 1997, the note to this section explains that a partner in a partnership would not be an affiliate of another partner merely because the first partner acts, or could reasonably be expected to act, in accordance with the directions or wishes of the second partner, or in concert with the second partner, in relation to the affairs of the partnership. Directors of the same company, or the company and a director of that company, would be in a similar position. | Detailed Reasoning - In your circumstances:: • The Principal was the director of the Trustee, which the Trustee is also the trustee for the Trust. • Individual 1 and Individual 3 are each an executor of the Principal's estate and act as directors of the Trustee. • The Principal's spouse, Individual 1, Individual 2 and Individual 3 are directors and equal shareholders of Investment Co. • You have determined that each of Principal's spouse, Individual 1, Individual 2 and Individual 3, while being family members, do not act in accordance with each other's direction or wishes. On this basis, it is considered that each of the individuals do not act in accordance with the Trust's directions or wishes, or in concert with each other, in relation to their individual business affairs or those of Investment Co and Trustee. Therefore, each of the individuals, Trustee and Investment Co are not affiliates of the Trust within the meaning defined under section 328-130 of the ITAA 1997. | Detailed Reasoning - Annual turnover: The meaning of 'annual turnover' is defined in subsection 328-120(1) of the ITAA 1997 as being: 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. Certain modifications and exclusions are specified in section 328-120 of the ITAA 1997 that affect how you work out an entity's annual turnover. The meaning of 'ordinary income' is defined in section 6-5 of the ITAA 1997 as being '...income according to ordinary concepts...'. Generally, this includes income directly or indirectly from all sources, whether in or out of Australia. Whether the relevant entity's ordinary income is derived in the ordinary course of carrying on a business is determined by examination of the entity's structure, operational context and the activity being conducted. In your circumstances, for the 20XX financial year, the Trust's aggregated turnover under section 328-115 of the ITAA 1997 is $X,000,000, comprising of each connected entity's turnover, being: • The Trust: $X00,000. • The Principal's spouse: $X00,000. • Individual 2: $0. • Investment Co: $0. Therefore, the Trust's aggregated turnover for the 20XX income year does not exceed $2m, satisfying both paragraph 328-110(1)(b) and paragraph 152-10(1AA)(b) of the ITAA 1997. Conclusion- basic condition for relief under paragraph 152-10(1)(c) In your circumstances: • The Trust is carrying on a business in the current year (the 20XX income year) and was carrying on a business in the income year before the current year. • The Trust's aggregated turnover for the 20XX income year does not exceed $2m. On this basis, for the 20XX income year, the Trust is: • A small business entity under subsection 328-110(1) of the ITAA 1997. • A CGT small business entity under subsection 152-10(1AA) of the ITAA 1997. Therefore, it is considered that the Trust satisfies the basic condition for relief under paragraph 152-10(1)(c) of the ITAA 1997. Basic condition: paragraph 152-10(1)(d) - the CGT asset satisfies the active asset test Subsection 152-35(1) of the ITAA 1997 provides that 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) of the ITAA 1997 defines that the test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases. Paragraph 152-40(1)(a) of the ITAA 1997 provides that a tangible or intangible CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, or an entity connected with you. In your circumstances, you have owned for more than XX years and used the property in both the business you currently carry on (since the 20XX income year) and the business you previously carried on in partnership with Principal individual and Trustee (in its own right), the Partnership, from the 20XX income year to the 20XX income year. On this basis, the property is considered to be an active asset of yours for a total of at least 7½ years during the test period, satisfying the basic condition under paragraph 152-10(1)(d) of the ITAA 1997. | Detailed Reasoning - Small business relief - 15-year exemption: Subdivision 152-B of the ITAA 1997 sets out the requirements an entity must meet to apply the 15-year exemption, which allows an entity to disregard a capital gain arising from the disposal of a CGT asset that it has owned for at least 15 years. Specifically, subsection 152-110(1) of the ITAA 1997 provides that a company 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) the entity continuously owned the *CGT asset for the 15-year period ending just before the CGT event; Note: Section 152-115 allows for continuation of the period if there is an involuntary disposal of the asset. (c) the entity 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 the entity owned the CGT asset; (d) an individual who was a significant individual of the company or trust just before the CGT event either: (i) was 55 or over at that time and the event happened in connection with the individual ' s retirement; or (ii) (ii) was permanently incapacitated at that time. Relief condition: Paragraph 152-110(1)(c) - significant individual for 15 years The term 'significant individual' is defined in section 152-55 of the ITAA 1997. An individual is a significant individual in a company or a trust at a time if, at that time, the individual has a 'small business participation percentage' in the company or trust of at least 20%. Section 152-65 of the ITAA 1997 sets out that an entity's small business participation percentage in another entity is the sum of the entity's direct and indirect small business participation percentages in the other entity. Subsection 152-70(1) of the ITAA 1997 provides that an entity holds a 'direct small business participation percentage' at the relevant time in an entity equal to the percentage worked out using the table in that subsection. Where the relevant entity is a company, item 1 of the table in subsection 152-70(1) provides that an entity's direct small business participation percentage is: This percentage that an entity has because of holding the legal and equitable interests in *shares in the company: (a) the percentage of the voting power in the company; or (b) the percentage of any *dividend that the company may pay; or (c) the percentage of any distribution of capital that the company may make; or, if they are different, the smaller or smallest. Where the relevant entity is a trust, item 3 of the table in subsection 152-70(1) provides that an entity's direct small business participation percentage in a trust, where entities do not have entitlements to all the income and capital of the trust (a non-fixed trust) and the trust makes a distribution of income or capital, is the percentage of: (a) if the trustee makes distributions of income during the income year (the relevant year ) in which that time occurs - the percentage of the distributions to which the entity was beneficially entitled; or (b) if the trustee makes distributions of capital during the relevant year - the percentage of the distributions to which the entity was beneficially entitled; or, if 2 different percentages are applicable, the smaller. Where a discretionary trust had no taxable income or had a tax loss, and did not make a distribution of income or capital, subsection 152-70(5) of the ITAA 1997 operates such that an entity may work out its small business participation percentage in a discretionary trust by focussing on the most recent year that a distribution was made prior to the CGT event year. Section 152-75 of the ITAA 1997 provides that you work out the 'indirect small business participation percentage' that an entity (the 'holding entity') holds at a particular time in another entity (the 'test entity') by multiplying: (a) the holding entity ' s * direct small business participation percentage (if any) in another entity (the intermediate entity ) at that time; by (b) the sum of: (i) the intermediate entity ' s direct small business participation percentage (if any) in the test entity at that time; and (ii) the intermediate entity's indirect small business participation percentage (if any) in the test entity at that time (as worked out under one or more other applications of this section). | Detailed Reasoning - Note:: When testing an intermediate entity ' s indirect small business participation percentage in another entity, the intermediate entity becomes the holding entity. Further, subsection 152-75(2) of the ITAA 1997 provides that if there is more than one intermediate entity to which paragraph (1)(a) applies at that time, the holding entity's indirect small business participation percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate entities. In your circumstances: • As the Principal's spouse, Individual 1, Individual 2, Individual 3 and other family members each received distributions of at least 20% in 13 of the 15 income years prior to the proposed CGT event in the 20XX income year, those individuals have a direct small business participation percentage in the Trust of at least 20% for the respective income year. • In the 20XX income year, the Trust did not make a distribution as it had a tax loss. The individuals may work out their small business participation percentage based on the most recent year that a distribution was made prior to the CGT event. Accordingly, based on the 20XX income year, the Principal's spouse, Individual 1, Individual 2 and Individual 3 may determine that they have a small business participation percentage for the 2024 income year of XX%. • In the 20XX income year, the Trust distributed 100% of its income to Investment Co, which each of the Principal's spouse, Individual 1, Individual 2 and Individual 3 hold 25% of the ordinary shares, with no other shares on issue of a different class or with different rights attached, such that their entitlement to dividends that the company may pay is XX%. Accordingly, by treating Investment Co as the intermediate entity between the individuals and the Trust, each of the individual's indirect small business participation in the Trust is calculated to be XX%. On this basis, the Trust is considered to have had a significant individual for a total of 15 years during the period it has owned the property, such that the relief condition under paragraph 152-110(1)(c) of the ITAA 1997 is satisfied. Relief condition: Paragraph 152-110(1)(d) - connection with retirement The circumstances when a CGT event occurs 'in connection with' the 'retirement' of a significant individual is not defined within the ITAA 1997 and the term is not elaborated on within the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 7) Bill 2006. In Advanced guide to capital gains tax concessions for small business 2011-12 ( the SB CGT guide; NAT 3359, QC 25888), the Commissioner published general guidance in relation to determining whether an entity is eligible to apply the 15-year CGT exemption, which includes when a CGT event happens in connection with the retirement of a significant individual. Whether a CGT event happens in connection with a significant individual's retirement depends on the particular circumstances of each case, including where the CGT event occurs at some time either before or after that individual's retirement. For the circumstances to be regarded as a retirement of a significant individual, there would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce. The SB CGT guide includes examples to demonstrate the likely scope of the term, which the most relevant in your circumstances is as follows: A small business operator, over 55 years old, sells some business assets as part of a wind-down in business activity ahead of selling the business. Within six months, she sells the business and ends her present activities. If it can be shown that the earlier CGT event was integral to the business operator's plan to cease her activities and retire, the CGT event may be accepted as happening in connection with retirement. In your circumstances, the Principal's spouse is a significant individual of the Trust who is aged over 55 at the time the CGT event is to occur and will be significantly reducing their participation in farming activities within the two years following that CGT event. On this basis, the CGT event is considered to happen in connection with the Principal's spouse's retirement, satisfying the relief condition under paragraph 152-110(1)(d) of the ITAA 1997. | Detailed Reasoning - Conclusion: Therefore, with regard to your circumstances, as you have satisfied each of the 15-year exemption conditions under subsection 152-110(1) of the ITAA 1997 in relation to the disposal of the property in the 20XX income year, you may disregard the capital gain arising as a result of that CGT event.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.