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ATO Interpretative Decision

ATO ID 2004/650

Income tax

CGT small business concessions: basic conditions - CGT event happening in relation to a CGT asset - granting of a lease
FOI status: may be released

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

If CGT event F1 (about granting a lease) in section 104-110 of the Income Tax Assessment Act 1997 (ITAA 1997) happens, does that event happen 'in relation to' the underlying asset (the premises over which the lease is granted) so satisfying paragraph 152-10(1)(a) of the ITAA 1997 (one of the basic conditions for small business relief)?

Decision

Yes. A CGT event F1 capital gain will qualify for small business CGT relief on the basis that the CGT event happens 'in relation to' the underlying premises, so satisfying paragraph 152-10(1)(a) of the ITAA 1997.

Facts

The taxpayer operates a motel which they acquired after 19 September 1985. The taxpayer grants a lease to a third party to use the premises and run the motel business as consideration for the third party paying the taxpayer a lump sum.

Reasons for Decision

CGT event F1 in subsection 104-110(1) of the ITAA 1997 happens when the taxpayer grants, renews or extends a lease. A capital gain or capital loss may arise from the CGT event happening.

If the basic conditions under section 152-10 of the ITAA 1997 are satisfied, the taxpayer may be eligible to reduce the capital gain resulting from the CGT event using the small business concessions.

The first condition in paragraph 152-10(1)(a) of the ITAA 1997 requires that the CGT event happens in relation to a CGT asset of the taxpayer. The fourth condition in paragraph 152-10(1)(d) of the ITAA 1997 requires that the asset satisfies the active asset test.

With respect to the first condition it is considered the words 'in relation to' in paragraph 152-10(1)(a) of the ITAA 1997 are wide enough to allow reference to an underlying asset such as the premises over which a lease has been granted.

Therefore, if CGT event F1 happens, that event can be said to happen in relation to a CGT asset of the taxpayer, being the underlying premises over which the lease is granted, and accordingly paragraph 152-10(1)(a) of the ITAA 1997 can be satisfied.

Note: It is the underlying asset premises that must satisfy the active asset test in terms of paragraph 152-10(1)(d) of the ITAA 1997.

Date of decision:  22 June 2004

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 104-110
   subsection 104-110(1)
   Division 152
   section 152-10
   paragraph 152-10(1)(a)
   paragraph 152-10(1)(d)

Related ATO Interpretative Decisions
ATO ID 2003/346

Keywords
Active asset
Basic conditions for relief
Capital gains tax
CGT events F1-F5 - leases
CGT small business relief

Siebel/TDMS Reference Number:  4119732; 1-BBICVM3

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  6 August 2004
Date reviewed:  1 August 2017

ISSN: 1445-2782


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