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Did the capital gains tax (CGT) event happen in connection with your retirement in accordance with paragraph 152-105(d) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

You owned a property (Property A) jointly with your spouse which was purchased prior to 20 September 1985. You conducted a business on Property A and on a separate property owned by you (Property B) in partnership with your spouse. You hold a 50% interest in the partnership. The partnership is a small business entity. You have sold property A. Immediately following the sale of Property A, you changed your business activities. This enabled you to reduce your working hours.

Income Tax Assessment Act 1997 paragraph 152-105(d)

The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with a taxpayer's retirement', nor does it give any indication of the degree of retirement required in order to take advantage of this concession. Accordingly, whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. 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 used in the Explanatory Memorandum (EM) to the New Business Tax System (Capital Gains Tax) Bill 1999 support this interpretation: 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

It is not necessary for there to be a permanent and everlasting retirement from the workforce. However, there needs to be at least a significant reduction in the number of hours worked, or a significant change in the nature of the activities, to be regarded as 'in connection with your retirement' for the purposes of paragraph 152-105(d) of the ITAA 1997. In your case, there is a significant reduction in the number of hours worked. The reduction in hours indicates a desire to undertake a transition into retirement. As a consequence, it is reasonable to conclude that the disposal of Property A happened 'in connection with' your retirement.