ATO Interpretative Decision

ATO ID 2003/747 (Withdrawn)

Income Tax

CGT small business concessions: active asset test - sale of former business premises - 'just before' the CGT event
FOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the taxpayer's original business premises satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997) if the taxpayer vacated those premises in favour of larger premises shortly before selling the original premises?

Decision

No. The original business premises will not satisfy the active asset test in section 152-35 of the ITAA 1997 because they were not an active asset 'just before' the CGT event.

Facts

The taxpayer, a sole trader, carried on business from premises they owned. The premises had only been used for business purposes. Due to expansion of the business, the taxpayer vacated the premises and moved into larger premises. Shortly after moving, the taxpayer entered into a contract to sell the original premises.

Reasons for Decision

A basic condition for small business relief in Division 152 of the ITAA 1997 is that the active asset test in section 152-35 of the ITAA 1997 is satisfied. The active asset test requires, among other things, the CGT asset to be an active asset 'just before' the relevant CGT event (if the taxpayer's business has not ceased).

The reference to 'just before (the earlier of) the CGT event' in paragraph 152-35(a) of the ITAA 1997 refers to just before the time of the CGT event, that is, in the case of a sale of land under contract, just before the time of entering into the contract for the disposal of the land.

Furthermore, the words 'just before' in paragraph 152-35(a) of the ITAA 1997 effectively mean 'immediately before'.

In this case, the relevant CGT event is the sale of the original business premises (CGT event A1). Immediately before their sale, the premises were not used, or held ready for use, in the course of carrying on the taxpayer's business because the taxpayer had moved to other premises.

Accordingly, the original business premises were not an active asset just before the CGT event and therefore cannot satisfy the active asset test in section 152-35 of the ITAA 1997.

Date of decision:  21 July 2003

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 152-35
   paragraph 152-35(a)

Keywords
Active asset test
Capital gains tax
CGT small business relief
Basic conditions for relief
Time of CGT event

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  22 August 2003

ISSN: 1445-2782

history
  Date: Version:
  21 July 2003 Original statement
You are here 11 March 2005 Archived

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).