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Edited version of your written advice
Authorisation Number: 1012830582731
Date of advice: 26 June 2015
Ruling
Subject: Capital gains tax and the active asset test period
Question
Will the Commissioner allow a period longer than 12 months to treat the test period for the active asset test as ending at the cessation of the business under subparagraph 152-35(2)(b)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014.
The scheme commences on:
1 July 2013.
Relevant facts and circumstances
You purchased a building (the property) in the 200X financial year for the purpose of running a business.
The business was conducted until the 200X financial year when it was closed due to poor economic conditions.
The property was put on the market for sale, but did not sell until the relevant financial year.
The property was empty from the business's closure until sold.
The town your property is situated in is a small rural town with limited selling opportunities and you believe the length of time it took to sell the property was outside of your control.
Relevant legislative provisions
Income Tax Assessment Tax 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:
(a) 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 test period detailed below, or
(b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of least 7.5 years during the test period.
The test period:
(a) begins when you acquired the asset, and
(b) ends at the earlier of
(i) the CGT event, and
(ii) when the business ceased, if the business in question ceased in the 12 months before the CGT event or any longer period that the Commissioner allows.
In determining whether the Commissioner will allow a period longer than 12 months to treat the test period for the active asset test as ending at the cessation of the business, the Commissioner has considered the following factors:
• evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)
• prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)
• unsettling of people, other than the Commissioner, or of established practices
• fairness to people in like positions and the wider public interest
• whether any mischief is involved, and
• consequences of the decision.
In your case, your business was closed due to poor economic conditions. You tried to sell your property upon closing the business, however because the property is situated in a small rural town, there were limited selling opportunities. Your property was empty from when the business ceased until the property was eventually sold several years later.
Having considered the particular circumstances of this case, the Commissioner will allow a period longer than 12 months to treat the test period for the active asset test as ending at the cessation of the business under subparagraph 152-35(2)(b)(ii) of the ITAA 1997.
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