Businesses that are winding up
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Passively-held assets and partner's assets
If you are accessing the concessions using the basic condition for passively-held assets or a partner’s assets, there is a special rule that affects the period of time that your asset is an active asset in the CGT event year. It applies in the income year the CGT event happens where:
- a business previously carried on by your affiliate, an entity connected with you or a partnership in which you are a partner, is being wound up and the asset is no longer being used in the business, and
- the asset was used, held ready for use in, or inherently connected with the business at a time in a previous income year when you ceased to carry on the business.
This rule treats the entity as carrying on the business for a moment in time in the income year the CGT event happens and treats the asset as being used, held ready for use in, or inherently connected with, the business at that same moment in time in the CGT event year. The asset must still pass the active asset test.
This rule is also required to enable you to meet the basic condition for passively-held assets and partner’s assets.
Test period when business ceases
If the CGT event happens within 12 months after the business ceased, the test period can end when the business ceased.
This aspect of the active asset test allows some flexibility in the situation where a business is sold, or has otherwise ceased, and an asset previously used in the business is sold after that time. The asset only needs to be an active asset for half (to a maximum of 7.5 years) of the shorter test period during the total time the asset was owned.
If the CGT event happens more than 12 months after the business ceased, the test period ends either:
- when the CGT event happens, or
- when the business ceased, if the ATO grants you an extension of time.
Requests for an extension of time are considered on the merits of each case.
For the purposes of the active asset test, the cessation of a business includes the sale of a business.
Laura purchased business premises in February 2012 and immediately started to carry on her business from the premises. Her business expanded and she moved to larger premises across the street in April 2015. She entered into a contract to sell the original premises in July 2015. The premises were an active asset for at least half the period beginning in February 2012 and ending just before the CGT event in July 2015 and accordingly the active asset test is satisfied.
End of example
Special rules affect eligibility for the small business CGT concessions for businesses that are winding up.