ATO Interpretative Decision

ATO ID 2001/411 (Withdrawn)

Income Tax

CGT Small Business concessions/Active assets
FOI status: may be released

This ATO ID is withdrawn as the ATO view on this matter is now reflected in the publication Advanced guide to capital gains tax concessions for small business.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Will units acquired in a unit trust qualify as active assets for the purposes of Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, the units will be active assets, subject to the assets of all entities involved satisfying the requirements of section 152-35 and subsection 152-40(3) of the ITAA 1997.

Facts

A unit trust (UT1) has acquired a 50% interest in another unit trust (UT2).

UT2 owns 50% of the shares in a private company (C1).

C1 satisfies the 80% market value test under subsection 152-40(3) of the ITAA 1997.

All of UT2's other assets are active assets.

Reasons for Decision

The units in UT2 will be active assets in the hands of UT1 if UT2 satisfies the '80% market value test'(80% test) in subsection 152-40(3) of the ITAA 1997.

UT2 will pass the 80% test, at a given time, if the market value of its active assets are 80% or more of the total market value of all its assets.

Therefore, before UT2 can meet the 80% test the shares in C1 must be active assets of UT2, that is C1 itself satisfies the 80% test. Alternatively, if the C1 shares are not active assets, the units held by UT1 in UT2 may still be active assets, provided the total value of the C1 shares and any other non active assets held by UT2 are not more than 20% of the total value of all UT2's assets.

As C1 meets the 80% test, the C1 shares are active assets of UT2. Therefore UT2 satisfies the 80% test under subsection 152-40(3) of the ITAA 1997 and its units will be active assets in the hands of UT1.

Whether or not the units in UT2 or the shares in C1 meet the 80% test and are active assets for the purposes of the small business concessions is not simply determined at the time that the units or the shares were acquired. Section 152-35 of the ITAA 1997 specifies that the asset must be an active immediately before the CGT event occurring in respect of the asset (paragraph 152-35(a) of the ITAA 1997) and for more than half the period of ownership (paragraph 152-35(b) of the ITAA 1997.

Date of decision: 31 August 2001

Year of income: Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Section 152-35
   Paragraph 152-35(a)
   Paragraph 152-35(b)
   Section 152-40
   Subsection 152-40(3)

Keywords
Capital gains tax
Active Asset Test
CGT small business relief
Basic conditions for relief
Small business 50% reduction

Business Line: GGT (CoE)

Date of publication: 29 September 2001

ISSN: 1445-2782

history

	Date:	Version:
	31 August 2001	Original statement
You are here	11 March 2005	Archived

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