Edited version of private advice

Authorisation Number: 1052389995559

Date of advice: 30 April 2025

Ruling

Subject: CGT - small business concessions

Question 1

Does the Property satisfy the active asset test under section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes. You have owned the property since November 20XX. The property has been used in the course of carrying on a business by the Trust for your entire ownership period. You have demonstrated that the Trustee of the Trust acts, or could reasonably be expected to act, in accordance with your directors or wishes. Therefore, the Commissioner is satisfied that you control the Trust in accordance with subsection 328-125(3) of the ITAA 1997.

As the property has been used in the course of carrying on a business by an entity connected with you for your entire ownership period the Property will satisfy the active asset test in section 152-35 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Trust is a discretionary trust.

The Corporate Trustee was incorporated in June 19XX.

The Trust was established by deed of settlement in June 19XX.

You are a director of the Corporate Trustee and have been since incorporation.

Person A and person B have also been directors of the Corporate Trustee since incorporation.

Person B has been the sole shareholder of the Corporate Trustee since March 20XX.

You and person A each held equal interests, in fee simple, in the farming property (the Property).

The Property was transferred to you and person A from the Trust in November 20XX, by way of gift.

You and person A executed a contract of sale in October 20XX, selling the Property to an unrelated their party.

The Corporate Trustee has carried on a primary production business of growing vegetables and seeds through the entire period from November 20XX to October 20XX (the Property ownership period).

Through the Property ownership period the Corporate Trustee has enjoyed the sole usage of the Property in furtherance of its primary production activities.

You and person A informally licence the usage of the Property to the Corporate Trustee. There was never any formal rental agreement or rent paid to you or person A in respect of this licence agreement.

You, person A and person B were each discretionary beneficiaries of the Trust during the Property ownership period.

You only received one distribution of income or capital greater than 40% throughout the period 1 July 20XX to 30 June 20XX, being the income year ended 30 June 20XX.

For all other income years during this period, the Trust's net income (including capital gains) was distributed by the Corporate Trustee (by means of a resolution of its directors) to you, person A and person B in approximately equal shares.

During the Property ownership period, you were the driving force behind the operation of the farming business conducted by the Corporate Trustee during the period. In this regard, during this period:

•                You conducted most of the banking and management of the finances of the Trust since the death of your late father in December 20XX.

•                You managed and completed the bookkeeping for the Trust.

•                You had the leading role in making all high-level decisions pertaining to the farm business.

•                Although person A was also highly involved in the farming business activities of the Corporate Trustee during this period, his degree of involvement was secondary to your involvement.

•                Person B has since retired from working in the farming business and has not been involved in the farming activities since the passing of their spouse.

During the Property ownership period, you have mainly been responsible for ensuring the tax compliance of the Corporate Trustee by being the contact person that engages and liaises with its accountants and the tax agent to prepare annual accounts and income tax returns for the Trust.

You complete the following:

•                You deal with the purchasers of produce.

•                You were the primary contact with the company who did the irrigation work that went onto your land.

•                You are the main point of contact with suppliers.

•                You are predominately the main contact for your accountants.

•                You are predominately the contact for repairs and machinery sales.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 328-125

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