Edited version of private advice

Authorisation Number: 1051817741848

Date of advice: 23 March 2021

Ruling

Subject: Active assets

Question

Is the xxxx licence and subsequent sale of xxxx allocation regarded as the sale of an active asset for the purposes of Division 152 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts

You obtained the xxxx license in 20XX.

You trade through entity A, where you have conducted a xxxx business and taken over operation since 20XX.

You have made temporary sales of part of the xxxx allocation on the license each financial year since obtaining it, to various parties using a xxxx broker.

You sold xxxx allocations of the xxxx license in the 20XX and 20XX income years.

Entity A is an entity that is connected with you.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Detailed reasoning

Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) provides some capital gains tax relief to small business. One of the conditions that must be satisfied to qualify for the small business CGT concessions is that the asset in question must satisfy the active asset test.

Active asset test

Under subsection 152-35(1) of the ITAA 1997, an 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 yours 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 yours for a total of at least 7½ years during the test period.

The test period:

•                     Begins when you acquired the asset, and

•                     Ends at the earlier of

o   the CGT event and

o   when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such loner time as the Commissioner allows).

Subsection 152-40(1) of the ITAA 1997 provides that a CGT asset is an active asset at a time you owned the asset and it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you, unless excluded by subsection 152-40(4).

Subsection 152-40(4) of the ITAA 1997 lists CGT assets that cannot be active assets. Generally, the exclusions refer to assets used mainly to derive rent, certain interests in trusts and companies and financial instruments.

Xxxx rights

Under subsection 108-5(1) of the ITAA 1997 a CGT asset is any kind of property or a legal or equitable right that is not property. Xxxx rights, such as xxxx licences and xxxx allocations are legal rights and are CGT assets.

A xxxx licence entitles its holder to take xxxx. Xxxx allocation is the xxxx of xxxx to which the xxxx licence holder is entitled to under the licence.

Where a xxxx right has been acquired after 19 September 1985 any disposal of that right will have CGT consequences. The capital gain on each disposal will equal the excess of the consideration over the cost base.

Where a xxxx licence is permanently transferred, a change in the ownership of the xxxx rights will occur, resulting in CGT event A1 happening.

A xxxx licence that is used in a xxxx business, may qualify as an active asset.

In your case, you acquired ownership of the asset (xxxx licence) in 20XX. The asset has been used by a connected entity, in carrying on a xxxx business since the date of acquisition and will continue to be used till the date of disposal. The exclusions in paragraph 152-40 of the ITAA 1997 do not apply. Hence, the asset satisfies the definition of an active asset.

Additional information

This ruling has not fully considered your eligibility for the CGT small business concessions; it has only addressed the requirements under sections 152-35 and 152-40 of the ITAA 1997. Before claiming any of the small business CGT concessions, you need to ensure that all other basic tests and other relevant requirements of Division 152 of the ITAA 1997 are met.

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