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This basic condition allows you to access the concessions for a CGT asset you own where you are not carrying on a business, but that CGT asset is used in the business of your affiliate or an entity connected with you. It can also apply where your asset is held ready for use in, or is inherently connected with, the business of your affiliate or entity connected with you.
The following conditions must be satisfied at a time in the income year:
- Your affiliate, or entity connected with you, is a small business entity for the income year (that is, the income year in which the CGT event happens to your CGT asset).
- You do not carry on a business in the income year other than in partnership.
- If you carry on a business in partnership, the CGT asset is not an interest in an asset of the partnership.
- Your affiliate or entity that is connected with you at a time in the income year is the same small business entity that carries on the business and uses the asset at that time and the asset is the same asset that also meets the active asset test at that time.
There is a special rule for calculating aggregated turnover where the basic condition for passively-held assets applies.
An entity that is your affiliate, or is connected with you, is deemed to be an affiliate of, or connected with (as the case may be), the small business entity that uses the asset. This rule only applies if the entity is not already an affiliate or connected with the small business entity. In calculating the aggregated turnover of the small business entity, the turnover of entities that are deemed to be affiliates or connected entities must be included. The calculation of aggregated turnover is otherwise the same.
There is a special affiliate rule for spouses and children under 18 that applies in these cases.
Peter owns land that he leases to a company he wholly owns, Foxxy Farm Pty Ltd, which uses the land in its farming business. Peter does not carry on a business.
Under the law prior to the June 2009 amendments, Peter is not able to access the small business CGT concessions via the small business entity test because he does not carry on a business.
As a result of the June 2009 amendments, Peter would be able to access the small business CGT concessions via the small business entity turnover test depending on the aggregated turnover of Foxxy Farm Pty Ltd.
Assume the same facts as for the example above except that Peter has an affiliate Mike who carries on a separate business. Mike acts in accordance with Peter's wishes in running his business. The special rule for calculating aggregated turnover will apply to treat Mike as Foxxy Farm's affiliate also. When working out Foxxy Farm's aggregated turnover, Mike's turnover will need to be included.
Last modified: 20 Apr 2011QC 23096