Edited version of your written advice

Authorisation Number: 1013140713332

Date of advice: 19 December 2016

Ruling

Subject: Capital gains tax

Question 1

Are you entitled to apply the 50% general discount to your capital gain?

Answer

Yes.

Question 2

Are you entitled to apply the 50% active asset reduction to your capital gain?

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a small business entity.

In 20YY financial year you disposed of various properties.

You have owned the properties for over 20 years.

The properties have been used in carrying on a farming business for the entire ownership period.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 115-A

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-35

Income Tax Assessment Act 1997 Section 152-40

Reasons for decision

Question 1

The requirements for a discount capital gain are established in Subdivision 115-A of the Income Tax Assessment Act 1997 (ITAA 1997).

Section 115-10 of the ITAA 1997 states that a discount capital gain may be made by an individual, a complying superannuation entity or a trust. To be eligible, the capital gain must be made after 21 September 1999, on a capital gains tax (CGT) asset acquired at least 12 months before the (CGT) event.

You are a trust, who has held the properties for over 20 years. You are entitled to the 50% general discount on the capital gain for the disposal of the properties.

Question 2

Section 152-10 of the ITAA 1997 contains the basic conditions you must satisfy to be eligible for the small business capital gains tax (CGT) concessions. These conditions are:

● A CGT event happens in relation to a CGT asset of yours in an income year.

● The event would have resulted in the gain

● The CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

● At least one of the following applies:

(i) you are a small business entity for the income year

(ii) you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997

(iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or

(iv) you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.

A CGT asset will satisfy the active asset test if:

(a) you have owned the asset for 15 years or less and the asset was an active asset of your for a total of at least half of the test period, or

(b) you have owned the asset for more than 15 years and the asset was an active asset of your for a total of at least 7½ years during the test period.

The test period beings when you acquired the asset and ends at the earlier of the CGT event and if the relevant business ceased to be carried on in the 12 months before that time - the cessation of the business.

Section 152-40 of the ITAA 1997 provides the meaning of 'active asset'. A CGT asset will be an active asset if the asset was used or held ready for use by you, or your affiliate in the course of carrying on a business.

In your case, you are a small business entity and eligible for the small business concessions. You have held the properties for over 20 years and they were used in the course of carrying on a business for the entire ownership period. The properties are an active asset. You are entitled to apply the 50% active asset reduction to your capital gain.

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