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Edited version of your written advice
Authorisation Number: 1012797488558
Ruling
Subject: CGT - small business concessions - active asset
Question 1
Will the property satisfy the active asset test for the purposes of the small business capital gains tax concessions?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
X Pty Ltd (the company) is the registered owner of a property (the property).
The property was acquired by the company in 19XX.
The company commenced carrying on its business (the business) from the property shortly after acquisition.
In 19XX, the ownership of the company changed when A and B purchased the shares in the company.
The company continued to carry on the business from the property until July 20XX at which time the business was transferred to the Y Trust (the trust).
The trust carried on the business from the property until 20XX and after that time has continued to use the property as a storage facility for the business.
In 19XX, A and B built a residence on part of the property which had previously been vacant land and have lived in the residence since that time.
No rent has been paid by A or B to the company while residing in the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 152-35(1)
Income Tax Assessment Act 1997 section 152-40
Income Tax Assessment Act 1997 subsection 152-40(4)
Income Tax Assessment Act 1997 paragraph 152-40(4A)(b)
Reasons for decision
Subsection 152-35(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset satisfies the active asset test if:
• you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period of ownership, or
• you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7 and a half years.
Section 152-40 of the ITAA 1997 provides the meaning of 'active asset'. A CGT asset will be an active asset at a time if, at that time, you own the asset and the asset was used or held ready for use by you, an affiliate of yours, or by another entity that is 'connected with' you, in the course of carrying on a business.
Importantly, subsection 152-40(4) of the ITAA 1997 provides that an asset whose main use is to derive rent cannot be an active asset. Paragraph 152-40(4A)(b) of the ITAA 1997 provides that to determine the main use of an asset, treat any use by your affiliate, or an entity that is connected with you, as your use. Notably, personal use of the asset by you or your affiliate is ignored in determining its main use.
In your case, the company will be deemed to have acquired the property in 19XX, when the change in ownership of the company occurred, which is more than 15 years. The company carried on the business in the property until 20XX, when the business was transferred to the trust. The property was an active asset of the company for more than seven and a half years.
As A and B are considered to be entities connected to the company, that is the shareholders of the company; their personal use of the property is considered to be the company's private use and is ignored when determining the property's main use.
As the company has used the asset in its business for more than seven and a half years, the property satisfies the active asset test contained in section 152-35 of the ITAA 1997.
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