ATO Interpretative Decision

ATO ID 2003/715 (Withdrawn)

Income Tax

CGT small business concessions: active asset test - relevant business where taxpayer owns shares
FOI status: may be released

This ATO ID is withdrawn and is replaced by ATO ID 2003/844

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the 'relevant business', for the purposes of subparagraph 152-35(a)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) where the taxpayer's active asset is a share in a company, the business that was carried on by the company?

Decision

Yes. The 'relevant business', for the purposes of subparagraph 152-35(a)(ii) of the ITAA 1997 where the taxpayer's active asset is a share in a company, is the business that was carried on by the company.

Facts

The taxpayer and the taxpayer's spouse owned all the shares in an Australian resident company which carried on a business.

The company sold its business and made a capital gain from the disposal of goodwill. Just before the cessation of the business, the market value of the company's active assets was greater than 80% of all of the company's assets.

The company was wound-up during the year ended 30 June 2003 and CGT event C2 happened when the taxpayer's shares were cancelled.

The net assets of the company and its associates were at all times less than $5,000,000.

Reasons for Decision

A share in a company can be an active asset if the company satisfies the controlling individual test and the individual shareholder (the taxpayer) is a CGT concession stakeholder in the company - subsection 152-10(2) of the ITAA 1997. The company has to be an Australian resident company and it has to satisfy the 80% test - subsection 152-40(3) of the ITAA 1997.

For the taxpayer's shares to satisfy the active asset test under section 152-35 of the ITAA 1997, they have to be active assets at a particular point in time (the earlier of the CGT event in relation to the shares and, if the 'relevant business' ceased to be carried on in the last 12 months, or any longer period that the Commissioner allows, the cessation of the business) and for half of a particular period (in this case, from when the CGT asset (the shares) were acquired to the cessation of the business).

Subparagraph 152-35(a)(ii) applies in relation to the relevant test time, as the cessation of the business predated the CGT event happening to the shares. As the company always had at least 80% of its assets as active assets up until the cessation of the business, and assuming the 12-month (or such longer period as is allowed) requirement is satisfied, then just before the cessation of the business, the shares would be active assets because paragraph 152-40(3)(b) would be satisfied.

In our view, the 'relevant business' referred to in subparagraph 152-35(a)(ii) of the ITAA 1997 is the business that was carried on by the company in which the taxpayer held the shares.

This is evident from a reading of the explanatory memorandum accompanying amendments to extend the capital gains tax rollover relief for small business in Division 17A of the Income Tax Assessment Act 1936 (one of the predecessors of the small business CGT concessions in Division 152 of the ITAA 1997). The amendments allowed small business owners to dispose of the underlying assets of their business, or alternatively, where the business is carried on through a company or unit trust, to dispose of their shares or units and reinvest in new active assets or other shares or units.

The stated purpose, as per the explanatory memorandum, was to

enable individual taxpayers actively involved in managing their businesses through certain companies or unit trusts to obtain roll-over relief without separately selling active assets of the company or trust. The amendments will allow the sale of a business and roll-over where this is done through the sale of shares in a company.

Therefore, the relevant business for purposes of subparagraph 152-35(a)(ii) of the ITAA 1997 where the taxpayer's active asset is a share in a company, is the business that was carried on by the company.

Date of decision: 27 June 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
Division 17A

Income Tax Assessment Act 1997
   subsection 152-10(2)
   section 152-35
   paragraph 152-35(a)
   paragraph 152-40(3)(b)

Keywords
Active asset test
Capital gains tax
CGT small business relief
Small business 50% reduction

Business Line: Losses and CGT Centre of Expertise

Date of publication: 15 August 2003

ISSN: 1445-2782

history

	Date:	Version:
	27 June 2003	Original statement
You are here	19 September 2003	Archived

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