ATO Interpretative Decision
ATO ID 2009/34
Income Tax
CGT Small Business Concessions: maximum net asset value test - assets used solely for personal use and enjoyment - vacant landFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 vacant land owned by an individual on which they intend to construct in the future a dwelling for private use disregarded in working out the net value of the CGT assets of the individual under subparagraph 152-20(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Vacant land owned by an individual on which they intend to construct in the future a dwelling for private use is not being used solely for personal use and enjoyment, and accordingly is not disregarded in working out the net value of the CGT assets of the individual under subparagraph 152-20(2)(b)(i) of the ITAA 1997.
Facts
An individual owns all of the shares in a company which carries on a business.
The individual also owns vacant land which is currently not being used for any purpose, but on which they intend to build a holiday house in the future for private use only.
The individual disposed of the shares in the company and made a capital gain. To qualify for the small business CGT concessions, the individual must satisfy the maximum net asset value test in section 152-15 of the ITAA 1997. To do this, the individual must determine if the vacant land is included in the net value of the CGT assets of the individual.
Reasons for Decision
To determine if a taxpayer satisfies the maximum net asset value test, the net value of the CGT assets of the taxpayer and certain related entities must be calculated just before the relevant CGT event (section 152-15 of the ITAA 1997).
The vacant land is property, and accordingly is a CGT asset under section 108-5 of the ITAA 1997.
In working out the net value of the CGT assets of an individual, assets being used solely for the personal use and enjoyment of the individual, or the individual's affiliate, are disregarded (subparagraph 152-20(2)(b)(i) of the ITAA 1997).
Subparagraph 152-20(2)(b)(i) of the ITAA 1997 does not take into account the intended future use of an asset.
In this case, the vacant land is not being used for any purpose. As subparagraph 152-20(2)(b)(i) of the ITAA 1997 does not have regard to the intended future use, it follows that the land is not being used solely for the personal use and enjoyment of the individual or the individual's affiliate.
Accordingly, the vacant land is not disregarded in working out the net value of the CGT assets of the individual under subparagraph 152-20(2)(b)(i) of the ITAA 1997. It is included in determining whether the individual satisfies the maximum net asset value test.
Date of decision: 29 April 2009Year of income: Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1997
section 108-5
section 152-15
subparagraph 152-20(2)(b)(i)
Keywords
Capital gains tax
CGT small business relief
Land
Date reviewed: 26 June 2017
ISSN: 1445-2782