Are the taxpayers eligible for the small business 15-year exemption in section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard the capital gain made from the sale of a commercial property?
Yes. The taxpayers satisfy the basic conditions in Subdivision 152-A of the ITAA 1997 and meet the requirements set out in section 152-105 of the ITAA 1997. Accordingly, the taxpayers are eligible to disregard the capital gain arising from the disposal of the property. This ruling applies for the following period: Year ended 30 June 20XX The scheme commenced on: DD MM 19XX
Taxpayers A and B (the taxpayers) jointly acquired a commercial property sometime in 19XX. From late 19XX to 20XX, the taxpayers operated a retail trade business through their company. The taxpayers were the directors and shareholders of the company, each holding a 50% ownership interest. The property was used by the company for storing goods and contained a showroom and office space used for daily business operations. The property was exclusively used for business purposes. Due to poor trading conditions arising from the COVID-19 pandemic, the company ceased operations in the 20XX-XX income year and was deregistered in late 20XX. The property was subsequently leased to an unrelated third party. During the 20XX-XX income year, the property was sold resulting in a capital gain. At the time of sale, both taxpayers were over XX years of age. Both taxpayers did not have any other employment apart from operating the company. In late 20XX, Taxpayer B withdrew from the company's operations due to illness. Taxpayer A retired when the company ceased its business activities.
Under section 328-125 of the ITAA 1997, the company is considered a connected entity of both taxpayers. It was also the only connected entity associated with them. For the purposes of subsection 152-10(1A), the company did not satisfy the requirement of carrying on a business at the property during the 20XX-XX income year, as it had ceased operations and vacated the property in the 20XX-XX income year. Neither taxpayer had any affiliates within the meaning of section 328-130 of the ITAA 1997. For the purposes of section 152-15 of the ITAA 1997, the taxpayers satisfied the maximum net asset value test. The total net value of their assets, including their private residence, was under $3 million. The taxpayers have owned the property for more than X years, and the company occupied and used the property to carry on its business for more than X years before ceasing operations.
Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 subsection 152-10(1A) Income Tax Assessment Act 1997 section 152-10 Income Tax Assessment Act 1997 section 152-15 Income Tax Assessment Act 1997 section 152-35 Income Tax Assessment Act 1997 section 152-40 Income Tax Assessment Act 1997 section 152-105 Income Tax Assessment Act 1997 section 328-125 Income Tax Assessment Act 1997 section 328-130