Private ruling: CGT for small business - basic conditions
Date of advice: 2 July 2021
Published: September 2021
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do you satisfy the basic conditions under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Section 328-110

Reasons for decision: Summary: The capital gains tax (CGT) provisions provide some small business relief in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Basic conditions: To qualify for the small business CGT concessions, the basic conditions as contained in subdivision 152-A of the ITAA 1997 must be satisfied. The basic conditions under section 152-10 of the ITAA 1997 are: • A CGT event happens in relation to a CGT asset of yours in an income year, • The event would have resulted in a gain (apart from Division 152), • The CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and • At least one of the following applies; - you are a small business entity for the income year, - you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997, - 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, or - you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you. | Detailed Reasoning - Active asset test: A capital gains tax (CGT) asset will satisfy 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 test period, 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 test period. Subsection 152-40(1) of the ITAA 1997 details that a CGT asset is an active asset at a time if it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you. In this case, the property satisfies the active asset test. | Detailed Reasoning - Small business entity: You are a small business entity for a year if you carry on a business in the current year and one or both of the following apply: 1) you carried on a business in the previous year and your aggregated turnover for the previous year was less than $X million 2) your aggregated turnover for the current year is likely to be less than $X million (subsections 152-10(1AA) and 328-110(1) of the ITAA 1997). Aggregated turnover is your annual turnover plus the annual turnovers of any business entities that are your affiliates or that are connected with you. You are a small business entity for the purposes of subdivision 152-A of the ITAA 1997. | Summary: You satisfy the basic conditions in section 152-10 and subdivision 152-A of the ITAA 1997. Please note, that most of the concessions in Division 152 of the ITAA 1997 have further requirements that you must satisfy for the concession to apply. However, the small business 50% reduction has no further requirements and can apply if the basic conditions are satisfied.

Relevant facts: The property was purchased by entity A and entity B for $xxxx in xxxx. | Entity A and entity B conducted a business on the property for over XX years. | Entity B passed away in xxxx. | Entity A continued the business with their relation, entity C performing more of the physical work associated with the business. | Entity A passed away in xxxx. | The property was transferred to entity A and entity B's children from entity A's deceased estate on xxxx. | The children formed a Partnership and the property is an asset of the partnership. All partners are equal shares in the partnership. | The partnership (you) conducted a business themselves on the land since xxxx and will continue the business until close to settlement date of the property. | The property was sold on xxxx for $xxxx. Sale terms were xx% payable on contract signing and the balance upon settlement which is due on xxxx. The xx% has been paid. | The turnover for the partnership in the 20XX-XX income year was $xxxx. | There are no connected entities or affiliates of the partnership. | The aggregated turnover is less than $X million.