Edited version of private advice

Authorisation Number: 1052129562261

Date of advice: 8 August 2023

Ruling

Subject: CGT - small business concessions

All legislative references are to the Income Tax Assessment Act 1997.

Question 1

Were you connected with the Unit Trust under section 328-125 for the purpose of the sale of the Property?

Answer

Yes. At all relevant times through your ownership and sale of the Property, you and your spouse were trustees of the Family Trust. Unless you are otherwise connected to the Unit Trust, you and your spouse were deemed to be affiliates under section 152-47 and controlled the Family Trust under subsection 152-125(3). As the Family Trust owned more than 40% of the voting units in the Unit Trust, you and your spouse, controlled the Unit Trust under subsection 328-125(7) and (2) and were connected to it under paragraph 328-125(1)(a).

Question 2

Did the Property satisfy the active asset test pursuant to section 152-35 for the purpose of its sale?

Answer

Yes. The Unit Trust, an entity connected to you, used the Property in carrying on its business. Considering the nature of the Property, the nature of the business conducted by the Unit Trust, and the Properties use in this business, we consider the Property to have been your active asset under 152-40 throughout your ownership period. As the business use by the Unit Trust was for a period of more than half your ownership period of less than 15 years the Property satisfied the active asset test under section 152-35 at the time of its sale.

Question 3

Did you satisfy the basic conditions for relief under section 152-10, allowing you to reduce your capital gain from the sale of the Property, under the small business capital gains tax (CGT) concessions?

Answer

Yes. In the income year the Property was sold being the 2021-22 income year, the basic conditions in subsection 152-10(1) were satisfied as follows:

•         A CGT event occurred when you disposed of the Property, satisfying paragraphs 152-10(1)(a).

•         The CGT event resulted in a capital gain to you (apart from Division 152), satisfying paragraph 152-10(1)(b).

•         Subsection 152-10(1A) and paragraph 152-10(1)(c) were satisfied as follows:

-   The Unit Trust, an entity connected to you was a CGT small business entity on the basis of it carrying on a business and having an aggregated turnover under $2 million for the 2020-21 income year.

-   You did not carry on a business.

-   The Unit Trust carried on its business in relation to the Property.

•         The Property satisfied the active asset test under section 152-35, consequently paragraph 152-10(1)(d) was satisfied.

This ruling applies for the following period:

Year ending 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You purchased the Property as a vacant block of land over 10 years ago.

You sold the Property during the 2021-22 financial year, resulting in a gain.

You constructed a shed and installed a hardstand on the Property shortly after you acquired it.

Throughout your ownership period of the Property, the shed, hardstand, driveway and immediate areas have been used in a business carried on by the Unit Trust.

In addition to the areas used by the business, the Property had a portion of vacant land that was not used for any purpose.

The primary purpose of the shed and hardstand was to store the Unit Trust's business equipment and machinery.

The Unit Trust also used the shed in its business for the purpose of assembling products, quoting and office work.

The Unit Trust used the Property for its business since settlement, with a sea container used for storage prior to the shed construction.

The Unit Trust used the Property for its business on a daily basis, as the Property was at a more convenient location to your home than the alternative business premises.

You have advised of some minor incidental private storage use of the shed and hardstand.

During your ownership period of the Property, you and your spouse were the trustees of the Family Trust and the Family Trust owned more than 40% of the voting units in the Unit Trust.

You did not carry on a business in the 2021-22 income year in your own name.

You did not charge rent to the Unit Trust for its use, nor did you earn any other income from the Property during your ownership.

The Unit Trust paid insurance for the shed during your period of ownership.

The Unit Trust has operated the business for many years, it employs a number of staff and is profitable. The Unit Trust operated its business in the 2020-22 income year.

The Unit Trust's aggregated turnover per section 328-115 was under $2 million for the 2020-21 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 subsection 152-10(1A)

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-47

Income Tax Assessment Act 1997 section 328-125

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