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Edited version of private ruling
Authorisation Number: 1011766040561
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Ruling
Subject: Small business 15-year exemption for a rental property
Question
Are you eligible for the small business 15 year exemption upon the sale of your rental property?
Answer
No
Relevant facts
You stated that you were carrying on a small business by buying and selling properties for leasing to earn profits.
You used to own a number of properties.
You have disposed of a property.
The property was used mainly for deriving rent with tenant lease agreements typically over X months and longer. This property was not part of any holiday apartments.
Question
Detailed reasoning
Section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you must first satisfy at least one of the following conditions:
· you are a small business entity
· you satisfy the maximum net asset value test, or
· you are a partner in a partnership that is a small business entity, and the CGT asset is an asset of the partnership.
You must also satisfy the active asset test.
Section 152-40 of the ITAA 1997 provides the meaning of 'active asset' for the purposes of the Capital Gains Tax (CGT) Small Business Concessions.
Paragraph 152-40(4)(e) of the ITAA 1997 provides that an asset whose main use is to derive rent cannot be an active asset, unless that main use is only temporary. That is, even if the asset is used in a business it will not be an active asset if its main use is to derive rent.
The term 'rent' has been described as referring to the payments made by a tenant/lessee to a landlord/lessor for exclusive possession of the leased premises.
As the main use of the property has been to derive rent, it is not an 'active asset' for the purposes of section 152-40 of the ITAA 1997. You are therefore not qualified for the small business exemptions.