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Edited version of your written advice
Authorisation Number: 1013031458562
Date of advice: 8 June 2016
Ruling
Subject: CGT - small business concessions - active asset test
Question 1
Is the land an active asset?
Answer
Yes
Question 2
If the land was disposed of during the 2015-16 financial year without you recommencing your primary production business activities prior to disposal would it satisfy the active asset test?
Answer
Yes.
Question 3
If the land was disposed of during the 2016-17 financial year without you recommencing your primary production business activities prior to disposal would it satisfy the active asset test?
Answer
Yes.
This ruling applies for the following periods
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on
1 July 2015
Relevant facts and circumstances
You own multiple 'blocks' of land which were acquired between the 19XX-XX and 20XX-XX financial years, inclusive.
From the time of acquisition of each block until the 20YY-YY financial year you carried on primary production business activities on the land.
Due to a medical condition, you leased the land to an unrelated third party. At the time, you intended to resume your primary production business activities when the leased expired.
However, as your medical condition had not improved, you extended the lease. The current lease will expire in the 2016-17 financial year.
The lessee has approached you regarding the possibility of purchasing the land from you. This would occur in either the 2015-16 or 2016-17 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 104-10(5)
Income Tax Assessment Act 1997 Section 152-35
Income Tax Assessment Act 1997 Paragraph 152-40(4)(e)
Reasons for decision
The active asset test is contained in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997). The active asset test is satisfied 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 the test period detailed below, 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 7.5 years during the test period.
The test period is from when the asset is acquired until the capital gains tax (CGT) event.
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, your spouse or child, or an entity connected with you.
Paragraph 152-40(4)(e) of the ITAA 1997 states, however, that an asset whose main use in the course of carrying on the business is to derive rent cannot be an active asset unless the main use for deriving rent was only temporary.
The test period for the land cannot be accurately calculated as you have not yet entered into a contract(s) to dispose of the land. As of the date of your application, all blocks had been held for over 15 years.
All of the blocks of land were used in carrying on your primary production business activities for more than 7.5 years.
The land has been leased since you ceased your business and the current lease expires in early 2017. At the end of the lease expiration period, the land will have been used to derive rent for XX years. It is considered that the period in which the land was used to derive rent is minor compared to the total period you have owned the land and the potential test period.
Therefore the land is considered to be an active asset for the purposes of the active assets test. It will remain an active asset even if a contract for its sale is not entered into until 30 June 2017. You are not required to recommence your business activities prior to the disposal of the land.
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