ATO Interpretative Decision
ATO ID 2001/378
Income Tax
CGT Small Business Concessions - meaning of 'active asset'FOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is intellectual property, that is disposed of prior to 1 July 2001, an active asset for the purposes of the Small Business CGT Concessions under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The intellectual property disposed of prior to 1 July 2001 is an active asset for the purposes of the CGT Small Business concessions under section 152-40 of the ITAA 1997.
Facts
The taxpayer is a 50% shareholder of a company involved in the development of computer software. The intellectual property associated with the software products being developed and sold by the company (in its normal course of business) was owned personally by the taxpayer. During the 2000 income year the company sold the entire software business to an unrelated third party. The contract stipulated that the taxpayer also dispose of their intellectual property rights and assign the intellectual property unreservedly to the purchaser.
Reasons for Decision
The taxpayer holds an item of intellectual property as defined in subsection 373-15(1) of the ITAA 1997. It consists of the rights (including equitable rights) that an entity holds under a Commonwealth law. Such a right can be regarded as a CGT asset under section 108-5 of the ITAA 1997.
Intellectual property is an active asset for the purposes of the subparagraph 152-40(1)(c)(ii) of the ITAA 1997.
Paragraph 152-30(1)(a) states that an entity will be connected with another entity if either entity directly or indirectly controls the other entity. If an entity has a minimum of a 40% interest in another entity it will be taken to control that entity.
The business of software product development, utilising the intellectual property is carried on by the company. The taxpayer owns a 50% interest in the company carrying on the business and as such is 'connected with' the entity carrying on the business. The intellectual property is an active asset of the taxpayer.
Date of decision: 10 July 2001
Legislative References:
Income Tax Assessment Act 1997
section 108-5
paragraph 152-30(1)(a)
sub paragraph 152-40(1)(c)(ii)
subsection 152-40(1)
subsection 373-15(1)
Keywords
CGT exemptions
CGT small business relief
Basic conditions for relief
Small business 50% reduction
Intellectual property rights
Active asset test
Connected entity
Controlling individual test
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 10 July 2001 | Original statement |
| 30 January 2004 | Archived |