Edited version of private advice

Authorisation Number: 1052356316797

Date of advice: 30 January 2025

Ruling

Subject: CGT - small business concessions

Question 1

Is the Property an active asset in accordance with section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes. You use the property to carry on your business.

Subsection 152-40(1) provides that a CGT asset is an active asset at a time if 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.

Question 2

Does the Property satisfy the active asset test under subsection 152-35(1) of the ITAA 1997?

Answer 2

Yes. A comparative analysis on the mixed use of the property on both an area and income basis show that the majority of the business turnover and area was used for your related business activity rather than to derive rent.

Based on the assumptions, the property will satisfy the active asset test after DD MM 20XX as it would have been used by you in running a business for over X years while being owned for over X years. Further information about the small business CGT concessions can be found by searching for 'QC 22655' on ato.gov.au.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In 20XX, you and your former partner acquired property (the Property) which is comprised of one lot. You immediately moved into the Property and you have been residing in the dwelling as your main residence since acquisition.

In 20XX, you obtained an ABN as a sole trader. Later, your ABN was backdated effective from DD MM 20XX, being date you commenced operating your business.

In 20XX, you obtained your former partner's share of the Property under court orders as part of a separation agreement. The relationship breakdown rollover applies.

The Property is roughly X acres and is comprised of three different areas:

•                a house which is solely used as your principal place of residence - X% of total Property

•                land and structures used in your business - Y% of total Property

•                unusable land - Z% of total Property

The only income derived off the land is from your business. You have not used the main residence dwelling to produce income.

You intend on selling the Property in the near future. You do not intend to sell the Property before DD MM 20XX.

Assumptions

1.              The business will continue to operate until the Property is sold.

2.              There will be no change to business operations prior to the Property being sold.

3.              There will be no change to the use of the Property, nor the proportional percentages of use, prior to the Property being sold.

4.              The property will not be sold on or prior to DD MM 20XX, nor any contract of sale or settlement to occur prior to this date.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 subsection 152-35(1)

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 subsection 152-40(1)

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).