Private ruling: Small business retirement exemption
Date of advice: 7 September 2016
Published: November 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Can you apply the small business retirement exemption? | A1: Yes. This ruling applies for the following periods: Year ended 30 June 2016

Relevant facts and circumstances: You purchased a residential care home business before 2000 with some family members. The residential care home business provided services to the elderly that needed help with daily activities in return for a fee. The business was located overseas. You operated the business as a family partnership. You state your business had a turnover of less than $2 million and satisfied the definition of a small business entity. You sold the business in the relevant financial year. You have applied the 50% CGT discount and advise that you would like to access the small business retirement exemption for the remainder of your capital gain. You are over 55 years of age and an Australian citizen. You would like to deposit the capital gain into your superannuation fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 , Subdivision 152-A | Income Tax Assessment Act 1997 , Subdivision 152-D | Income Tax Assessment Act 1997, section 152-10 | Income Tax Assessment Act 1997, Subsection 152-305(1) | Income Tax Assessment Act 1997, Subsection 152-320(1)

Reasons for decision: Summary: Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997) provides a small business retirement exemption as part of the Capital Gains Tax (CGT) small business relief provisions. The basic conditions in Subdivision 152-A of the ITAA 1997 are: a) CGT event happens in relation to a CGT asset of yours in an income year, and b) the event would (apart from Division 152 of the ITAA 1997) have resulted in the gain, and c) at least one of the following applies a. you are a small business entity, or b. you satisfy the maximum net asset value test, or c. you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership, and d) (d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. | Detailed Reasoning - Small business entity: You will be a small business entity if you are an individual, partnership, company or trust that is carrying on a business and has less than $2 million aggregated turnover. | Detailed Reasoning - The maximum net asset value test: The total net value of CGT assets must not exceed $6 million. This test must be met just before the CGT event that results in the capital gain. You must consider the value of net assets for yourself, connected entities, and your affiliates or entities connected with your affiliates. | Detailed Reasoning - The active asset test: A CGT asset must be an active asset for half the ownership period if it has been owned for 15 years or less. Alternatively, if it has been owned for more than 15 years, it must be an active asset for at least seven and a half years. | Detailed Reasoning - Small business retirement exemption: Under subsection 152-305(1) of the ITAA 1997 an individual can choose the retirement exemption and disregard all or part of a capital gain if: a) the basic conditions in Subdivision 152-A are satisfied, and b) if the individual was under 55 just before making the choice, an amount equal to the asset's CGT exempt amount is rolled over into a complying superannuation fund or a retirement savings account (RSA), and c) the contribution is made; I. if the relevant CGT event is CGT event J2, J5 or J6 - when you made the choice; or II. otherwise - at the later of when you made the choice and when you received the proceeds. Subsection 152-320(1) of the ITAA 1997 states that an individual's CGT retirement exemption limit is $500,000. This is the total of all amounts that can be disregarded under the small business retirement exemption in an individual's lifetime. In your case, your facts indicate that you satisfy all of the elements to be eligible for the small business retirement exemption. As you are aged 55 or older, it is not necessary to contribute the proceeds from the CGT event into a superannuation fund or an approved rollover account.