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Edited version of private advice
Authorisation Number: 2930013444012
Date of advice: 08 June 2020
Ruling
Subject: Extension of time to apply the active asset test
Question
Will the Commissioner exercise his discretion to further extend the period under subsection 152- 35(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to determine if the active asset reduction can be applied to a capital gain from the sale of a factory?
Answer
Yes.
Having considered the relevant facts, the Commissioner will apply his discretion under subsection 152-35(2) of ITAA 1997 and allow an extension of time until 31 December 20XX for you and your partner get the correct tax advice.
This ruling applies for the following period: 30 June 20XX
The scheme commences on: 1 July 20XX
Relevant facts and circumstances
The taxpayers purchased a factory in July 20XX and leased it to their company in which they are equal shareholders. The company carried on a manufacturing business from July 20XX until September 20XX.
The taxpayers sold their manufacturing business to a related party and leased the factory to that related party from October 20XX. The related party used the factory to continue the manufacturing business until October 20XX. The related party was an affiliate of the taxpayers. Accordingly, the factory was an active asset as it was used by an affiliate to carry on a business.
In October 20XX, the taxpayers sold the factory to the related party's family trust. The related party's sale was vendor financed and by private treaty. The related party provided a recent valuation report by an independent valuer which gave a range of valuations. The ATO accepts the related party transaction was done at market value as it was at the upper end of the valuation range.
The taxpayers owned the factory for a total 12 years July 20X to October 20XX. The company used the factory to carry out its business for 8 years (July 20XX to September 20XX). The company used the factory to carry out business for more than half of the time the taxpayers owned the factory. The factory was an active asset at the time of the sale.
The taxpayers need an extension of time to determine whether the capital gains from the sale of the factory can be reduced by the active asset concession. The extension of time request is based on conflicting tax advice on whether the taxpayers can access the active asset concession from the previous and present tax advisers.
Relevant legislative provisions
Subdivision 152-A of the Income Tax Assessment Act 1997
Subdivision 152-C of the Income Tax Assessment Act 1997
Section 328-130 of the Income Tax Assessment Act 1997
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