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Edited version of your written advice
Authorisation Number: 1012717112384
Ruling
Subject: Capital gains tax
Questions and answers:
1. Is your sibling your 'affiliate' in accordance with the definition in section
328-130(1) of the Income Tax Assessment Act 1997?
Yes.
2. Is your capital gains tax asset an 'active asset' within the meaning of section 152-40(1) of the Income Tax Assessment Act 1997?
Yes.
This ruling applies for the following period:
1 July 2014 to 30 June 2015.
The scheme commenced on:
1 July 2014.
Relevant facts and circumstances:
You acquired ownership of a CGT asset after 20 September 1985.
The asset has been used continuously by your sibling in your sibling's business for several decades.
When you became the owner of the asset you conveyed to your sibling your expectations that the asset should be used to its proper potential and be properly maintained.
You intend to sell the asset.
Relevant legislative provisions:
Income Tax Assessment Act 1997 - Section 328-130(1)
Income Tax Assessment Act 1997 - Section 152-40(1)
Reasons for decision
Capital gains tax - small business concessions - meaning of 'affiliate'
Subsection 328-130(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an individual is an 'affiliate' of yours if that individual acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual.
The concept of what constitutes an 'affiliate' for the purposes of the capital gains tax (CGT) small business concessions is expanded on in the Australian Taxation Office publication Advanced guide to capital gains tax concessions for small business 2013-14 (the Guide).
In relation to what constitutes an 'affiliate', the Guide notes on page 18:
Whether a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer, is a question of fact dependent on all the circumstances of the particular case. No single factor will necessarily be determinative.
Relevant factors that may support a finding that a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer, include:
• the existence of a close family relationship between the parties,
• the lack of any formal agreement or formal relationship between the parties dictating how the parties are to act in relation to each other,
• the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations, and
• the actions of the parties.
You acquired ownership of a CGT asset after 20 September 1985. The asset has been used by your sibling in your sibling's business for several decades. When you became the owner of the asset you conveyed to your sibling your expectations that the asset should be used to its proper potential and be properly maintained.
Considering the above, it is reasonable to conclude that your sibling is your 'affiliate' as defined in section 328-130(1) of the ITAA 1997. In reaching this conclusion, we note the family connection and the insistence by you that your sibling should maintain the asset and use it to its proper potential. As such, it is reasonable to conclude that operating the business, there was a reasonable expectation that your sibling would act in accordance with your wishes.
Capital gains tax - small business concessions - 'active asset'
Paragraph 152-40(1)(a) of the ITAA 1997 provides that a CGT asset is an 'active asset' if, at the time a CGT event happens to the asset, you own the asset and it is used, or held ready for use, in the course of carrying on a business by your affiliate.
You own a CGT asset that has been used for business purposes by your sibling. As stated above, we consider your sibling to be your 'affiliate' for the purposes of the CGT small business concessions. Your sibling has used the asset continuously for business purposes for several decades. Accordingly, we consider the asset meets the definition of an active asset within section 152-40(1) of the ITAA 1997.
Conclusion
Your sibling is your 'affiliate' in accordance with the definition in section 328-130(1) of the ITAA 1997.
The asset is an 'active asset' within the meaning of section 152-40(1) of the ITAA 1997.
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