INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 152 - Small business relief  

Subdivision 152-A - Basic conditions for relief under this Division  

Active asset test

SECTION 152-40   Meaning of active asset  

152-40(1)  


A *CGT asset is an active asset at a time if, at that time:


(a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a *business that is carried on (whether alone or in partnership) by:


(i) you; or

(ii) your *affiliate; or

(iii) another entity that is *connected with you; or


(b) if the asset is an intangible asset - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you.

Note 1:

An intangible asset need satisfy only paragraph (a) or paragraph (b).

Note 2:

The meaning of connected with in subparagraph (1)(a)(iii) and paragraph (b) is affected by section 152-78 .

Note 3:

An example of an asset that is inherently connected with a business is goodwill or the benefit of a restrictive covenant.

Note 4:

For businesses that are winding up, see section 152-49 and subsection 328-110(5) .

152-40(1A)  
(Repealed by No 42 of 2009)

152-40(2)  


Subsection 392-20(1) is disregarded in determining, for the purposes of subsection (1) of this section, whether an entity is carrying on a *business.
Note:

An entity would be taken to be carrying on a primary production business under subsection 392-20(1) if the business is carried on by a trust and the entity is presently entitled to trust income.

152-40(3)  
A *CGT asset is also an active asset at a given time if, at that time, you own it and:


(a) it is either a *share in a company that is an Australian resident at that time or an interest in a trust that is a *resident trust for CGT purposes for the income year in which that time occurs; and


(b) the total of:


(i) the *market values of the active assets of the company or trust; and

(ii) the market value of any financial instruments of the company or trust that are inherently connected with a business that the company or trust carries on; and

(iii) any cash of the company or trust that is inherently connected with such a business;
is 80% or more of the market value of all of the assets of the company or trust.

152-40(3A)  


A *share in a company, or an interest in a trust, mentioned in paragraph (3)(a) is an active asset at a time (the later time ) if:


(a) the share or interest was an active asset at an earlier time; and


(b) it is reasonable to conclude that the share or interest is still an active asset at the later time.

Note:

This ensures that the 80% test does not need to be applied on a day to day basis.

152-40(3B)  


A *share in a company, or an interest in a trust, mentioned in paragraph (3)(a) is an active asset at a time if:


(a) the share or interest fails to meet the requirements under subsection (3) at that time; and


(b) the failure is of a temporary nature only.

Note:

If a share in a company or an interest in a trust is chosen as a replacement asset, this ensures that a temporary failure of the 80% test does not automatically lead to CGT event J2 happening.

Exceptions

152-40(4)  
However, the following *CGT assets cannot be active assets :


(a) interests in an entity that is *connected with you, other than *shares and interests covered by subsection (3);


(b) shares in a company, other than:


(i) shares in a *widely held company that are covered by subsection (3), (3A) or (3B) and held by a *CGT concession stakeholder of the company; and

(ii) shares in any other company that are covered by subsection (3), (3A) or (3B);


(c) interests in a trust, other than:


(i) interests in a trust to which subsection (5) applies that are covered by subsection (3), (3A) or (3B) and held by a CGT concession stakeholder of the trust; and

(ii) interests in any other trust that are covered by subsection (3), (3A) or (3B);


(d) financial instruments (such as loans, debentures, bonds, promissory notes, futures contracts, forward contracts, currency swap contracts and a right or option in respect of a share, security, loan or contract);


(e) an asset whose main use by you is to *derive interest, an annuity, rent, royalties or foreign exchange gains unless:


(i) the asset is an intangible asset and has been substantially developed, altered or improved by you so that its *market value has been substantially enhanced; or

(ii) its main use for deriving rent was only temporary.
Example:

A company uses a house purely as an investment property and rents it out. The house is not an active asset because the company is not using the house in the course of carrying on a business. If, on the other hand, the company ran the house as a guest house the house would be an active asset because the company would be using it to carry on a business and not to derive rent.

Note:

The meaning of connected with is affected by section 152-78 .

152-40(4A)  


For the purposes of paragraph (4)(e), in determining the main use of an asset:


(a) disregard any personal use or enjoyment of the asset by you; and


(b) treat any use by your *affiliate, or an entity that is *connected with you, as your use.

Note:

The meaning of connected with is affected by section 152-78 .

152-40(5)  


This subsection applies to a trust if:


(a) interests in the trust are listed for quotation in the official list of an *approved stock exchange; or


(b) the trust has more than 50 *members, unless the trust is a discretionary trust or a trust where at least one of the following conditions is met during an income year:


(i) no more than 20 persons held, or had the right to acquire or become the holders of, *membership interests representing at least 75% of the value of the membership interests in the trust;

(ii) if there are *trust voting interests in the trust - at least 75% of the trust voting interests in the trust was capable of being controlled by no more than 20 persons;

(iii) at least 75% of the amount of any distribution made by the trustee during the year was made to no more than 20 persons;

(iv) if no distribution was made by the trustee during the year - the Commissioner is of the opinion that, if a distribution had been made during the year, at least 75% of the distribution would have been made to no more than 20 persons.

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