Private ruling: 15-year exemption
Date of advice: 28 May 2026
Published: 17 August 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to apply the small business 15-year exemption in section 152-105 of the Income Tax Assessment Act 1997 to disregard the capital gain you made on the sale of Lot 1, Lot 2, Lot 3, and Lot 4, in the year ending 30 June 20XX? | A1: Yes.

Relevant facts and circumstances: Person A is an individual taxpayer, born in a specified year (over 55 years of age at date of submission). Person A is a sole trader, carrying on a farming business. In this respect, person A has had an ABN and been registered for GST since 1 July 20XX. Person A's turnover for a specific income year is a specific amount and they had closing stock as at 30 June 20XX of a specified number. Person B is the child of Person A. Person B also operates a farming business as a sole trader. Person B has been using Person A's land for their farming operations since a specific month in 20XX. There are no formal agreements in place for the use of the land, and no rent or other reimbursement is paid by person B to person A, for use of the land. Person B's turnover from carrying on a farming business for the year ended 30 June 20XX is a specified amount with closing stock on 30 June 20XX of a specified number. The combined average number across both person A and person B has ranged from a specified number in 20XX to a specified numberin 20XX and a specified number in 20XX. The combined number of stock held annually is representative of what the properties can comfortably accommodate, based on the farming conditions in those years. In this respect, person A's stock numbers have reduced since 20XX to allow person B to build up their stock with the intention of them ultimately taking over all the operations in the future. The stock are not separated on the land and use the same brand. The brand is currently owned solely in person A's name but will transfer to person B once the partnership is wound up. Person A and Person B's relationship Family relationship: • Person B is person A's child. Dependence on person A's land: • Person B has no other land on which to carry on their farming business. Since a specified month in 20XX, person B has operated their farming business entirely on person A's properties, without any formal agreement, lease or rental arrangement. Person B's ability to operate their business is entirely dependent on person A's continued willingness to make the land available. No formal agreements or arm's length terms: • There are no formal or written agreements between person A and person B governing person B's use of the land. No rent or other consideration is paid. The arrangement is based solely on the family relationship and person A's goodwill. This absence of arm's length terms indicates that the relationship is not one of independent parties but rather one in which person B acts in accordance with person A's wishes regarding the use of the land. Integrated operations: • Person A and person B's stock are together on the same land. The livestock are not separated and use the same brand. This level of integration demonstrates that the businesses are interdependent, not independent. Consultation and coordination on business decisions: • Person A and person B consult each other regarding stock purchases and sales to ensure the land is not over or understocked. Stocking levels, stock movements and sales decisions are coordinated rather than made independently. Person A's control and influence: • As the owner of all four lots, person A has significant practical influence over person B's business operations. The nature of this family farming arrangement means that formal documentation, such as meeting minutes or written records of decisions, does not exist. This is typical of family farming operations where decisions are made informally and in person on, or in proximity to, the properties. Apart from the use of the land by person A and their child person B, the properties have not been leased or rented to other entities to use in carrying on a business. Person A has owned and actively used the following parcels of land in their farming business for more than 15 years: Lot 1 • Person A owns a 100% interest. This lot was originally acquired pre-CGT by person A and their parent, person C, as tenants in common with 50% each. Person A acquired their parent's share in a specific month in 19XX and this half was valued at an approximate amount at the time. • The lot is X hectares (approximately X acres) and contains a residence being a X-bedroom X, a work shed, improved pastures and dams. • The indicative market value of the lot is a specified amount. The post-CGT half interest is therefore valued at a specified amount. Lot 2 • Person A owns a 100% interest, and it was transferred in or around 19XX from their parent, person C. It was valued at an approximate amount at that time. • A small access road was purchased by person A on a specific month in 20XX for a specific amount and was added to Lot 2 in or around a specific month in 20XX. • This lot comprises X hectares (approximately X acres), improved pasture, and water from dams for livestock. There are no structural buildings. • The indicative market value is a specific amount. Lot 3 • Person A owns a 100% interest, and it was transferred in or around 19XX from their parent, person C. • This lot comprises X hectares (approximately X acres), has a residence being a X-bedroom house, work sheds, yards, improved pasture, dams and troughs for stock. • The indicative market value is a specific amount. This lot contains the principal place of residence. Lot 4 • Person A owns a 100% interest and it was transferred in a specific month in 19XX from their parent person C, for nil consideration. • This lot comprises X hectares (approximately X acres) and is vacant land with steeply timbered areas. • The indicative market value is a specific amount. The lots have been used solely for the livestock farming businesses operated by person A and person B. All four lots have been primarily used for business activities throughout person A's ownership period. There have been no periods during which any lot sat idle or was not used for livestock farming business. The business activities undertaken on the lots are breeding, raising, and sale, together with associated land management activities including pasture management, fencing, water infrastructure maintenance, and stock handling. No other business activities have been conducted on the lots. Person B is also a trades person, however person B's trades work has been performed off-site as employment income and has not been conducted on or from the lots. No business operations regarding person B's trade, storage, or workshop activities have taken place on the properties. The primary farming activity and sole source of income from the properties is the breeding and raising of specific livestock for sale. All four lots are worked as one livestock operation. The properties functions as one holding and livestock are moved between lots on a rotational basis to manage pasture recovery, stocking rates, and seasonal feed availability. Decisions about when to move livestock are made having regard to pasture condition, water availability. In support of the operations being considered a business as opposed to a hobby the following was provided: • Longevity: Person A has carried on a farming business continuously for over a specified number of years (ABN and GST registered since 1 July 20XX). Person B has operated their business on the same land since a specified month in 20XX, over a specified number of years. • Full-time commitment: Person A currently works approximately X hours per week on the properties. Their duties are extensive and consistent with a working livestock farm, including stock inspection, fencing, pasture management, health treatments, drafting, record-keeping, and sales (refer paragraph 14 of the PBR application). • Scale of landholding: The combined property totals approximately X hectares (X acres) across four lots, comprising improved pastures, dams, yards, sheds and water infrastructure. • Herd size: The combined average herd for 30 June 20XX was approximately X head (Person A: X and person B: X). In person A's experience, the combined herd size was consistent with the carrying capacity of the improved pasture, water points, yards, and associated infrastructure across the properties. • Commercial registrations: Both person A and person B hold active ABNs and are GST-registered. • Profitability: Person A's business has made profit in each of the 20XX to 20XX income years. Person A will sell the Lots to person B for a specified amount total in cash. There is no partnership currently, but it is anticipated that person A and person B may enter into a livestock farming partnership concurrent with the property transfers. It is contemplated that person A and person B will then jointly farm the properties for a limited period of time throughout this partnership: Person B will be the partner primarily responsible for the day-to-day business activities. The partnership arrangement between person A and person B is intended to be transitional. Its purpose is to facilitate an orderly handover of the farming operations from person A to person B following the transfer of the properties and recognise that person A will reduce their hours substantially but still have some interest in doing some limited farm work during retirement. The anticipated partnership details are: • Commencement: Concurrent with the property transfers, expected at the end of the 20XX income year. • Partnership interests: Person A 25%, Person B 75%. • Person A's role: Limited advisory and support role, assisting Person B with the transition (as noted in the ruling submission person B has been transitioning to work full-time on the farm since January 20XX). Person A will no longer be responsible for day-to-day operations. • Person A's working hours: Reduced from approximately X hours per week to approximately X hours per week. • Anticipated duration: The partnership is intended to operate for approximately three years only, with person A expected to fully retire from the partnership no later than 30 June 20XX, subject to earlier retirement depending on health. • Full retirement: Upon person A's exit from the partnership (June 20XX), they will cease to have any interest in the partnership and will cease to derive income from primary production activities. Person B will continue the farming business in their own right. The transitional nature of the partnership is consistent with the CGT event happening "in connection with" person A's retirement, as there will be both a significant reduction in hours worked and a significant change in the nature of person A's activities. The partnership is a mechanism for complete withdrawal from the business, not a continuation of it. Person A currently works approximately 40 to 50 hours a week on the properties. Their duties include: • Visiting and inspecting all areas of the properties to monitor pasture condition and water points. • Inspecting and repairing fences, gates and yards. • Monitoring stock health and condition (checking for illness, injury or pests). • Drafting and tagging stock. • Feeding and providing mineral supplements when required. • Maintaining water supply infrastructure (tanks, troughs, dams, pumps, pipes). • Administering animal health treatments when required. • Record-keeping of stock numbers, treatments and sales. • Managing pasture rotation, including moving stock between paddocks. • Weed and pest control across the property. • Operating and maintaining farm vehicles and machinery. • General property maintenance. • Attending stock sales or liaising with agents, vets and suppliers as required. As a direct result of the planned sale and retirement, person A will: • Reduce their working hours to approximately 15 to 20 hours a week. • Spend more time travelling and pursue interests such as fishing. • Shift from an active manual labour to a passive advisory role and will no longer be responsible for the day-to-day farming operations as listed above. Person A will no longer do fencing, drafting, maintaining the water supply infrastructure or heavy machinery work. • Responsible for monitoring, guidance and informal inspections as agreed in the partnership agreement. • Deposit the upfront payment from the sale into their savings account, adding this to funds for their retirement, including leisure activities.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 112-20 | Income Tax Assessment Act 1997 section 328-130 | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 Subdivision 152-A

Reasons for decision: Summary: The sale of the Lots will happen in connection with the retirement of person A under paragraph 152-105(d)(i). Person A satisfies the basic conditions in Dubdivision 152-A, owned the property for over 15 years, is over 55 years of age and retires at the time of the sale of the Lots, with scaled down duties in a newly established partnership with their child person B. | Detailed Reasoning - Small Business Entity: An entity will qualify as a CGT small business entity for an income year if it carries on a business in that year and its aggregated turnover is less than $2 million. This requirement is satisfied where either the entity carried on a business in the previous income year and its aggregated turnover for that year was below $2 million, or it can reasonably be expected that the entity's aggregated turnover for the current income year will be less than $2 million, in accordance with subsection 152-10(1AA) of the ITAA 1997. | Detailed Reasoning - The relevant CGT event: Under section 104-10 of the ITAA 1997, CGT event A1 occurs when a taxpayer disposes of a CGT asset, which happens upon a change in ownership of the asset from the taxpayer to another entity. This change may arise through an act, event or by operation of law. A disposal requires a change in beneficial ownership, not merely legal ownership. Accordingly, under section 104-10, CGT event A1 does not occur where a taxpayer ceases to be the legal owner of an asset but retains beneficial ownership. The timing of CGT event A1 depends on the nature of the transaction, under section 104-10. Where the disposal is made under a contract, the event occurs when the contract is entered into. If there is no contract, the CGT event occurs when the change of ownership actually takes place. | Detailed Reasoning - Affiliate: Person B qualifies as person A's affiliate under section 328-130 of the ITAA 1997 having regard to the practical reality of their relationship and conduct. Person B's farming business is wholly dependent on person A's land, with no formal or arm's length arrangements governing its use, indicating a relationship based on trust and familial goodwill rather than independence. Their operations are fully integrated, with shared use of land, co-mingled livestock, and coordinated decision-making on key business matters, supporting the conclusion that they act in concert in carrying on their business activities. Furthermore, person A retains significant practical influence as landowner, and person B could reasonably be expected to act in accordance with person A's wishes in relation to matters affecting the business. The absence of formal agreements and the informal, collaborative nature of decision-making are consistent with typical family farming arrangements and do not detract from the existence of affiliate status under section 328-130. Taken together, these factors demonstrate that person B acts in concert with, and under the influence of person A, consistent with the definition of an affiliate for the purposes of the relevant provisions. | Detailed Reasoning - Active Asset: To satisfy the basic conditions for the CGT small business concessions, the CGT asset must meet the active asset test under subsection 152-35(2) of the ITAA 1997. This test is satisfied where the taxpayer has owned the asset for 15 years or less and it was an active asset for at least half of the ownership period up to the CGT event or cessation of the business. Where the asset has been owned for more than 15 years, it must have been an active asset for a total of at least 7.5 years during the relevant period. Under subsection 152-40(1), the CGT asset is an active asset at the time if it is used at that time, or held ready for use, in the course of carrying on a business by the taxpayer, an affiliate, or a connected entity. However, under paragraph 152-40(4)(e), assets whose main use is to derive rent are generally excluded from being active assets, unless the rental use is only temporary. | Detailed Reasoning - Small Business 15-year exemption: The 15-year exemption allows an individual to fully disregard a capital gain arising from a Capital Gains Tax (CGT) event where specific legislative requirements are met. The small business entity must satisfy the basic conditions for small business CGT concessions set out in subdivision 152-A of the ITAA 1997. The individual must have continuously owned the CGT asset for at least 15 years prior to the event under section 152-105 of the ITAA 1997. In addition, at the time of the CGT event, the individual must either be aged 55 or over and the event must occur in connection with their retirement, or the individual must be permanently incapacitated, in which case the full capital gain is disregarded for tax purposes. | Detailed Reasoning - The basic conditions are: To access any small business CGT concession, including the 15-year exemption, the basic conditions under section 152-10 must be satisfied. These conditions require that a CGT event occurs in relation to a CGT asset owned by the entity during the income year and that the event would result in a capital gain. In addition under section 152-10, at least one of the following must apply: the entity is a CGT small business entity, satisfies the maximum net asset value test, is a partner in a small business partnership with an interest in a partnership asset, or holds a passive asset used in the business of an affiliate or connected small business entity. Finally, under sections 152-35 and 152-40, the CGT asset must satisfy the active asset test, meaning it was used or held ready for use in the course of carrying on a business for the required portion of the ownership period. In connection with retirement Whether a CGT event happens in connection with an individual's retirement depends on the circumstances of each case. A CGT event may be in connection with your retirement even if it occurs at some time before retirement. The Explanatory Memorandum (EM) to the New Business Tax System (Capital Gains Tax) Bill 1999, makes the following comments about the requirement to be permanently incapacitated or retiring as one of the conditions for the concession: 1.68 One of the requirements of this concession for an individual small business taxpayer is that they must be either permanently incapacitated at the time of the CGT event, or at least 55 years old and using the capital proceeds for their retirement. The provisions relating to the small business 15-year exemption do not refine what is meant by the phrase 'in connection with your retirement', nor does it give any indicate of the degree of retirement required in order to take advantage of this concession. It could be argued that the phrase 'in connection with retirement' means that the capital gain arising from the disposal of active assets is to be used to provide funds for a person's retirement rather than to precipitate retirement at the time of the CGT event. The words in the EM support this interpretation. The words 'in connection with' can also apply where the CGT event occurs sometime after retirement. This type of case would depend on its own particular facts and would need to be considered on a case-by-case basis. The Advanced guide to capital gains tax concessions for small business provides the following example: A small business operator 'retires' and their children take over the running of the business. Within six months, they sell some business assets and make a capital gain. Several reasons may have prompted the sale of the assets. If there is no relevant connection with the small business operator's business, the requirement would not be satisfied. However, if it can be shown that the reason for the disposal of the assets is connected to retirement and the later sale is integral to the small business operator's retirement plan, the sale may be accepted as happening in connection with retirement. | Detailed Reasoning - Application to your circumstances: Person A is carrying on a business of primary production as a sole trader, evidenced by your long-standing farming activities, GST registration since 1 July 20XX, and consistent operational involvement. The basic conditions contained in Subdivision 152-A of the ITAA 1997 are satisfied because: • you are a small business entity as you carry on a business with an aggregated turnover of less than $2 million. • the Lots satisfy the active asset test as it was used or ready for use, in the course of carrying on your business of cattle farming and sales. When combined with person B's turnover, and having regard to person B's status as person A's affiliate, the aggregated turnover remains significantly below the threshold. Accordingly, under sections 152-10 and 328-130, the small business entity requirement is satisfied. Under section 104-10, CGT event A1 happens in relation to the CGT assets when the lots are sold to your child person B, resulting in a change of legal and beneficial ownership from yourself to your child person B. Under the market value substitution rule, you are taken to have received the market value of the abovementioned lots, as the transfer to your child person B constitutes a non-arm's length transaction between related parties. Accordingly, the capital proceeds will be deemed to be the market value of the properties at the time of the CGT event, rather than the actual consideration of the specified amount, resulting in a capital gain under section 116-30. The CGT event A1 will occur at the time the contract for sale is entered into under section 104-10. Under sections 152-35 and 152-40, the properties satisfy the active asset test, as each lot has been owned for more than 15 years, ending just before the CGT event and has been continuously used in the course of carrying on a livestock farming business by person A and their affiliate, person B. The land has never been idle or used to derive other income, and has been actively used for stock breeding, raising and sale, together with associated land management activities. Accordingly, each property qualifies as an active asset for at least 7.5 years of the ownership period. Person B is characterised as person A's affiliate under section 328-130, having regard to the substance of their relationship. Person B's farming business is entirely dependent on person A's land and operates without formal arrangements. The activities are closely integrated, with shared stock and coordinated decision-making, demonstrating that person B acts in concert with person A. Person A's land ownership gives them significant influence over person B's operations, and person B could reasonably be expected to act in accordance with their wishes. The informal nature of the arrangement is consistent with family farming practices and does not detract from the conclusion that person B satisfies the affiliate definition under section 328-130 of the ITAA 1997. You are over 55 years of age and the CGT event is considered to have occurred in connection with your retirement. This is supported by the fact that you are disposing of the relevant Lots to your child person B, for consideration of a specified amount. The proceeds from the sale will be deposited into your savings account and will form part of the funds relied upon for your retirement, including funding leisure activities such as fishing. This demonstrates that the sale is undertaken as part of a transition into retirement rather than as part of an ongoing commercial strategy. Following the CGT event, you will significantly reduce your working hours from approximately 40 to 50 hours per week to around 15 to 20 hours per week. In addition, there will be a substantial change in the nature of your activities. You will move away from active, physical farm labour to a largely passive advisory role. You will no longer undertake day-to-day farming operations, including fencing, drafting, maintenance of water supply infrastructure, or the operation of heavy machinery. Your future involvement in the farming business will be limited to monitoring, providing guidance, and conducting informal inspections in accordance with the partnership agreement. Responsibility for the daily management and physical operation of the farm will transfer away from you, evidencing a clear withdrawal from active participation in the business activities. While the legislation does not require retirement to occur at a specific time relative to the CGT event, the overall factual circumstances demonstrate a significant reduction in both working hours and the nature of your activities. Consistent with the Commissioner's published view, a taxpayer is not required to fully or permanently retire from the workforce. Rather, retirement for the purposes of the small business 15-year exemption is established by a significant reduction in work or a substantial change in activities, which is satisfied in your circumstances when considered in their entirety. | Detailed Reasoning - Conclusion: Having regard to the above, the Commissioner would accept that you satisfy all of the relevant requirements to access the small business CGT concessions. You are carrying on a business of primary production as a sole trader and meet the definition of a CGT small business entity, as your aggregated turnover (including that of your affiliate, person B) is below $2 million. CGT event A1 will occur upon the disposal of the Lots to person B and due to the non-arm's length nature of the transaction, the market value substitution rule will apply such that the capital proceeds are taken to be the market value of the properties at the time of the event. Each of the Lots satisfies the active asset test, having been owned for more than 15 years and continuously used in the course of carrying on a livestock farming business by you and your affiliate. Person B is characterised as your affiliate, as they acts in concert with you and is significantly influenced by you in the conduct of their farming business. You are over 55 years of age and the CGT event occurs in connection with your retirement. The disposal of the properties, together with the transitional partnership arrangement, reflects a genuine and significant reduction in both your working hours and the nature of your activities, leading to your eventual full withdrawal from the business. Accordingly, as all of the conditions under section 152-105 of the ITAA 1997 are satisfied, you are entitled to apply the small business 15-year exemption to disregard the capital gain arising from the disposal of the above-mentioned Lots to your child person B, for the specified amount.