Private ruling: Small business 15-year exemption
Date of advice: 23 March 2026
Published: 18 May 2026
Ruling period: Year ending 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the Trust entitled to disregard the capital gain from the disposal of the business assets under the 15-year exemption in Subdivision 152-B of the Income Tax Assessment 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The Trustee for the X Trust (the Trust) acquired a loan book more than 15 years ago. The Trust commenced a franchise business with X on 20XX. The Trust's trading name is X Pty Ltd. X is the sole shareholder and director of the corporate trustee for the Trust. The Trust commenced a 50/50 partnership with X Pty Ltd as Trustee for the XX Trust to carry on the business. The partnership was renewed for a period of time and then terminated. A new franchise agreement was executed with X Limited and the XXX Trust and the Trust. Another new franchise agreement was executed between X Limited and the Trust. Another new franchise agreement was executed between X Limited and the Trust and X. The Trust's net asset value including any connected entities or affiliates is less than $6 million. The sale price will be approximately $X and the Trust will make a capital gain. X is over 55 years of age. Upon the sale of the assets, X will cease involvement in the business and retire. X has received at least 20% of the distributions of income and capital from the Trust for the last 15 years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152-A | Income Tax Assessment Act 1997 Division 152-B

Reasons for decision: Summary: Basic conditions A capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division 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; (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 small business entity for the income year; (ii) you satisfy the maximum net asset value test (iii) 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; (iv) the conditions mention in subsections (1A) or (1B) are satisfied in relation to the CGT asset is an interest in an asset of the partnership (d) the CGT asset satisfies the active asset test Small business entity You're a CGT small business entity if you're an individual, partnership, company or trust that: • is running a business • has an aggregated turnover of less than $2 million. Aggregated turnover is your annual turnover plus the annual turnovers of any business entities that are your affiliates or connected with you. If your business is a partnership, it's the partnership and not the individual partner that must be the CGT small business entity. To work out whether you're a CGT small business entity for the current year, you need to calculate your aggregated turnover. You're a CGT small business entity for the current year if your: • aggregated turnover for the previous income year was less than $2 million • actual aggregated turnover is less than $2 million at the end of the income year. Active asset A CGT asset is an active asset at a time if, at that time: (a) you own the asset (whether the asset is tangible or intangible) 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) if the asset is an intangible asset-you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you. 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 your for a total of at least half of the period; (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 The period: (a) begins when you acquired the asset; and (b) ends at the earlier of: (i) the CGT event; and (ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business. | Detailed Reasoning - Control of a partnership: You control a partnership if you and your affiliates own, or have the right to acquire, interests in the partnership that give you both together a right to 40% or more of the partnership's net income (for tax purposes), distribution of income or capital of the partnership. 15-year exemption An entity that is a company or trust can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied: (a) the basic conditions are satisfied (b) the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event (c) the entity had a significant individual for a total of at least 15 years 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: • was 55 or over at that time and the event happened in connection with the individual's retirement; or • was permanently incapacitated at that time. Significant individual test You are a significant individual in a company or trust if you have a small business participation percentage in the company or trust of at least 20%. This 20% can be made up of direct and indirect percentages. A company or trust meets the significant individual test if it had at least one significant individual just before the CGT event. Direct small business participation percentage 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, and the trust makes a distribution of income or capital) is the lower percentage of either distributions of: • income that the entity is beneficially entitled to during the income year • capital that the entity is beneficially entitled to during the income year. Application to your circumstances In this case the Trust will dispose of the business assets causing a CGT event which will result in a capital gain. The Trust satisfies the maximum net asset value test. The asset satisfies the active asset test as it has been used in the course of carrying on a business by various connected entities (partnerships) totalling more than 7.5 years over the period of ownership. Therefore, the Trust satisfies the basic conditions. The Trust acquired the loan book and commenced business in 20xx. Therefore, the Trust has continuously owned the CGT assets for more than 15 years. Based on the pattern of distributions from the Trust, XXX has been a significant individual for a total of 15 years during which the Trust owned the relevant assets. Further, X is over 55 years of age, and the proposed CGT event will happen in connection with X's retirement. As all of the relevant requirements of the 15-year exemption have been satisfied, the Trust is entitled to disregard the capital made on the disposal of the business assets.