Private ruling: Capital gains tax – small business concessions – 15 year exemption
Date of advice: 8 June 2018
Published: August 2018
Ruling period: Year ending 30 June 20xx | Year ending 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will you be entitled to claim the small business capital gains tax (CGT) 15-year exemption under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You purchased land from your parents more than 15 years ago. The land consisted of XXX acres and was used by you for the purposes of farming. During the period in which you have owned the land, you have used it for mixed farming production. You have operated the farm as a sole trader with a turnover of less than $2 million and the net value of assets held by you is less than $X million. You are over 55 years of age and intend to sell the land and retire. Settlement of the sale of the land was to occur recently, but has been rescheduled and is likely to occur in in the next month. A gross capital gain will be made on the sale of the land.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Section 152-105

Reasons for decision: Summary: You will be eligible to apply the 15 year to the land when it is sold as you have used it as an active asset for the whole period in which you have owned the land and you are over 55 years of age and the sale of the land is connected with your retirement. | Detailed Reasoning - Small Business capital gain tax concessions: The basic conditions for the small business capital gains tax concessions 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 ● The event will result in a capital gain; and ● You are either a small business entity for the income year or you satisfy the maximum net asset value test; and ● The CGT asset satisfies the active asset test. | Detailed Reasoning - 15 Year small business concession: Section 152-105 of the ITAA 1997 states that you can disregard a capital gain from a CGT event happening to a CGT asset you have owned for at least 15 years if you: ● Satisfy the basic conditions Subdivision 152-A of the ITAA 1997; and ● Continuously owned the CGT asset for the 15 year period ending just before the CGT event happened; and ● If you are an individual ● you are at least 55 years old at the time of the CGT event and the event happens in connection with your retirement, or ● you were permanently incapacitated at the time of the CGT event. | Detailed Reasoning - Active asset test: A CGT asset is an active asset at a time if: a) 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 (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you; or b) ……….. The active asset test is satisfied if: ● 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 detailed below, or ● 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 7.5 years during the test period. 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. | Detailed Reasoning - Application to your situation: As you have owned the land in excess of 15 years and the land was an active asset for the entire period that you owned it, and you are over 55 years of age and selling the land in connection with your retirement, you meet the 15 year small business concession. Therefore, you will be able to disregard any CGT on the sale of the land.