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Edited version of your written advice
Authorisation Number: 1051380199470
Date of advice: 4 June 2018
Ruling
Subject: Small business active asset test
Question
Did the Asset satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 at the time of the CGT event?
Answer
No.
This ruling applies for the following period:
1 July 2014 to 30 June 2018
The scheme commences on:
1 July 2014
Relevant facts and circumstances
Company A purchased the Asset in January 2015 and sold the Asset in February 2018 for a gain.
The main use of the Asset by Company A was to derive rent.
Relevant legislative provisions
Section 152-35 of the Income Tax Assessment Act 1997.
Reasons for decision
All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated.
Section 152-35 states:
(1) A *CGT asset satisfies the active asset test 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 period specified in subsection (2); 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 at least 7 1 / 2 years during the period specified in subsection (2).
(2) The period:
(a) begins when you *acquired the asset; and
(b) ends at the earlier of:
(i) the *CGT event; and
(ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows--the cessation of the business.
An ‘active asset’ is defined in section 152-40.
However, certain CGT assets cannot be active assets even if they are used in the course of carrying on a business. Relevantly, subsection 152-40(4)(e) excludes assets whose main use is to derive rent (unless such use was only temporary).
The main use of the Asset by Company A was to derive rent and subsection 152-40(4)(e) excludes the Asset from being an active asset.
Accordingly, the Asset will fail to meet the active asset test under section 152-35.
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