CGT small business concessions - retirement exemption - CGT concession stakeholder a director and an employee.

Can the taxpayer, a private company, make an eligible termination payment under subsection 152-325(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to a CGT concession stakeholder who was an employee of the taxpayer if the CGT concession stakeholder remains a director of the company?

Yes. The taxpayer can make an eligible termination payment under subsection 152-325(1) of ITAA 1997 in relation to a CGT concession stakeholder who was an employee of the taxpayer if an employment of the CGT concession stakeholder has terminated. The CGT concession stakeholder can continue to be a director of the company.

The taxpayer sold a business which was acquired after 20 September 1985. A capital gain arose on the sale of a CGT asset of the business.

A CGT concession stakeholder of the taxpayer ceased to be an employee of the taxpayer on the sale of the business and would not be re-engaged as an employee of the taxpayer after the sale. The CGT concession stakeholder was a director of the company prior to the sale and continued to be a director after the sale. The taxpayer meets the basic conditions contained in Subdivision 152-A of ITAA 1997 for small business relief.

A company can choose to disregard all or part of a capital gain under the small business retirement exemption if, amongst other things, the conditions set out in section 152-325 of ITAA 1997 are satisfied.

Subsection 152-325(1) of ITAA 1997 requires a company to make an eligible termination payment in relation to a CGT concession stakeholder each time it receives an amount of capital proceeds from a CGT event for which it has chosen the retirement exemption.

An eligible termination payment in relation to a person means any payment made in respect of the person in consequence of the termination of any employment of the person. Employment includes the holding of an office (subsection 27A(1) of the Income Tax Assessment Act 1936 ). It is sufficient that there is a termination of an employment and that the payment is made in consequence of that termination. It does not matter that the employment is one of a number of employments held by a person.

In this situation the CGT concession stakeholder will cease to be an employee of the taxpayer on the sale of the business. The CGT concession stakeholder will not continue to perform duties nor be re-engaged to perform duties which are similar to those which have been terminated. It will not matter that the CGT concession stakeholder will continue as a director of the company. In these circumstances an employment has terminated and that termination is the reason for the payment. The payment is considered an eligible termination payment.