CHAPTER 3
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SPECIALIST LIABILITY RULES
PART 3-3
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CAPITAL GAINS AND LOSSES: SPECIAL TOPICS
History
Part 3-3 inserted by No 46 of 1998.
Division 152
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Small business relief
History
Div 152 inserted by No 165 of 1999 (as amended by No 173 of 2000).
Subdivision 152-A
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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)
.
History
S 152-40(1) amended by No 41 of 2011, s 3 and Sch 5 item 97, by substituting
"
152-78
"
for
"
152-42
"
in note 2, effective 27 June 2011.
S 152-40(1) amended by No 42 of 2009, s 3 and Sch 2 items 8 to 10, by substituting paras (a) and (b), substituting
"
subparagraph (1)(a)(iii)
"
for
"
subparagraph (1)(a)(ii)
"
, and inserting notes 3 and 4, effective 23 June 2009. For application provision and transitional provision relating to choice, see note under s
152-10(1)
. Paras (a) and (b) formerly read:
(a)
you own the asset (whether the asset is tangible or intangible) and:
(i)
you use it, or hold it ready for use, in the course of carrying on a *business; or
(ii)
it is used, or held ready for use, in the course of carrying on a business by your *affiliate, or by 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 you, your affiliate, or another entity that is connected with you, carries on (for example, goodwill or the benefit of a restrictive covenant).
S 152-40(1) amended by
No 80 of 2007
, s 3 and Sch 4 items 15 to 18, by substituting
"
*affiliate
"
for
"
*small business CGT affiliate
"
in para (a)(ii), substituting
"
affiliate
"
for
"
small business CGT affiliate
"
in para (b) and inserting note 2 at the end, applicable to CGT events happening in the 2007-08 income year and later income years.
S 152-40(1) substituted by
No 55 of 2007
, s 3 and Sch 1 item 32, applicable to CGT events happening in the 2006-07 income year or later income years. S 152-40(1) formerly read:
152-40(1)
A *CGT asset is an
active asset
at a given time if, at that time, you own it and:
(a)
use it, or hold it ready for use, in the course of carrying on a *business; or
(b)
it is an intangible asset that is inherently connected with a business that you carry on (for example, goodwill or the benefit of a restrictive covenant); or
(c)
it is used, or held ready for use, in the course of carrying on a business by:
(i)
your *small business CGT affiliate; or
(ii)
another entity that is *connected with you.
152-40(1A)
(Repealed by No 42 of 2009)
History
S 152-40(1A) repealed by No 42 of 2009, s 3 and Sch 2 item 11, effective 23 June 2009. For application provision and transitional provision relating to choice, see note under s
152-10(1)
. S 152-40(1A) formerly read:
152-40(1A)
The following apply to a *CGT asset that you own if you are an individual:
(a)
the asset (whether it is tangible or intangible) is taken to be used, or held ready for use, in the course of carrying on a business by your *affiliate if the asset is used, or held ready for use, in the course of carrying on a business by your *spouse or child under 18 years;
(b)
if the asset is an intangible asset
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the asset is taken to be inherently connected with a business that your affiliate carries on (for example, goodwill or the benefit of a restrictive covenant) if the asset is inherently connected with a business that your spouse or child under 18 years carries on.
S 152-40(1A) inserted by
No 80 of 2007
, s 3 and Sch 4 item 19, applicable to CGT events happening in the 2007-08 income year and later income years.
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.
History
S 152-40(2) amended by No 42 of 2009, s 3 and Sch 2 item 12, by omitting
"
or (1A)
"
after
"
of subsection (1)
"
effective 23 June 2009. For application provision and transitional provision relating to choice, see note under s
152-10(1)
.
S 152-40(2) amended by
No 80 of 2007
, s 3 and Sch 4 item 20, by inserting
"
or (1A)
"
after
"
subsection (1)
"
, applicable to CGT events happening in the 2007-08 income year and later income years.
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.
History
S 152-40(3) amended by
No 55 of 2007
, s 3 and Sch 1 items 33 and 34, by substituting para (b)(ii) and (iii) for para (b)(ii) and repealing the note, applicable to CGT events happening in the 2006-07 income year or later income years. Para (b)(ii) and the note formerly read:
(ii)
any *capital proceeds that the company or trust received, during the 2 years before that time, from *CGT events happening to its active assets and that the company or trust holds in the form of cash or debt pending the acquisition of new active assets;
Note:
Paragraph
152-35(b)
requires a CGT asset to have been an active asset over a period of time. For a share in an Australian resident company to meet this requirement, the company would have to satisfy the 80% test in this subsection throughout that same period.
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.
History
S 152-40(3A) inserted by
No 55 of 2007
, s 3 and Sch 1 item 35, applicable to CGT events happening in the 2006-07 income year or later income years.
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.
History
S 152-40(3B) inserted by
No 55 of 2007
, s 3 and Sch 1 item 35, applicable to CGT events happening in the 2006-07 income year or later income years.
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
.
History
S 152-40(4) amended by No 41 of 2011, s 3 and Sch 5 item 98, by inserting the note at the end, effective 27 June 2011.
S 152-40(4) amended by No 42 of 2009, s 3 and Sch 2 item 26, by substituting
"
by you
"
for
"
in the course of carrying on the *business mentioned in subsection (1)
"
in para (e), applicable to CGT events that happen on or after 23 June 2009. For transitional provision relating to choice, see note under s
152-10(1)
.
S 152-40(4) amended by
No 55 of 2007
, s 3 and Sch 1 item 36, by substituting paras (b) and (c), applicable to CGT events happening in the 2006-07 income year or later income years. Paras (b) and (c) formerly read:
(b)
shares in companies, other than shares covered by subsection (3);
(c)
interests in trusts, other than interests covered by subsection (3);
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
.
History
S 152-40(4A) amended by No 41 of 2011, s 3 and Sch 5 item 98, by inserting the note at the end, effective 27 June 2011.
S 152-40(4A) inserted by No 42 of 2009, s 3 and Sch 2 item 27, applicable to CGT events that happen on or after 23 June 2009. For transitional provision relating to choice, see note under s
152-10(1)
.
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
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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.
History
S 152-40(5) inserted by
No 55 of 2007
, s 3 and Sch 1 item 37, applicable to CGT events happening in the 2006-07 income year or later income years.
History
S 152-40 amended by No 101 of 2003 and inserted by No 165 of 1999 (as amended by No 173 of 2000).
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