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Edited version of your written advice

Authorisation Number: 1012808172909

Ruling

Subject: Capital gains tax and the active asset test

Question

Does your property satisfy the active asset test for the small business capital gains tax (CGT) concessions under section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2015.

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

The X Family Trust (the trust) is carrying on a business.

The trust owns property which is available for long and short-term hire.

The property first earned income in the 199X financial year and has been available for hire since.

The property is managed by a property manager under instructions from the trustees of the trust.

The agreement is provided by the trustees.

Bad debts are followed up by the trustees.

A website advertising the property has been set up by the trustees.

The trustees have direct communication with the property manager in regards to negotiations of the terms and conditions of the agreement.

The property is cleaned and repaired by the trustees.

Site maintenance and gardening is undertaken by the trustees.

All expenses are paid by the trustees apart from pest control which is paid from the income collected by the property manager.

The trustees spend approximately a combined total of X hours per week working for the property.

One portion of the property is used to store equipment for gardening and maintenance for the use of the trustees.

Security is provided by way of a locked compound and each part of the property is locked with padlock bolts. Security lighting is also provided.

Under the terms of the agreement the client hiring the property can be relocated without consent.

The client cannot assign rights to access the property.

Under the agreement, the property is only accessible during access hours posted by the Facility Owner. The Facility Owner can enter in certain circumstances.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35.

Reasons for decision

Active asset test

The active asset test is contained in section 152-35 of the ITAA 1997. The active asset test is satisfied if:

The test period:

A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, or an entity connected with you.

A CGT asset is not an active asset if its main use is to derive rent (subsection 152-40(4) of the ITAA 1997). However, Tax Determination TD 2006/78 clarifies that there may be circumstances under which a premises may be used in a business of providing accommodation for reward that may satisfy the active asset test.

TD 2006/78 provides the following example:

In your case, the trust has owned the property for over 15 years, and used the premises to produce assessable income for more than 7.5 years during the test period. The trust is carrying on a business. There is no tenant/ landlord relationship between the trust and entities that hire the property, and accordingly the property is not excluded as an asset whose main use is to derive rent. Therefore the property meets the active asset requirements for the small business CGT concessions under section 152-35 of the ITAA 1997.


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