Edited version of private ruling

Authorisation Number: 1011833616984

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Ruling

Subject: Small business CGT concessions - active asset - affiliates

Question 1:

Will the land that you intend to sell to your sibling satisfy the meaning of an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer: No.

Question 2:

Is your sibling, that conducts a business operation on the land that you intend to sell to them, an affiliate for the purposes of subsection 328-130(1) of the ITAA 1997?

Answer: No.

This ruling applies for the following periods:

1 July 2010 to 30 June 2011.

1 July 2011 to 30 June 2012.

The scheme commences on:

1 July 2010.

Relevant facts and circumstances

Your parent purchased land in the names of you and your sibling as joint tenants.

The purpose of the acquisition was to provide your sibling with land on which to conduct their business operation. Your sibling has used the land for this operation from purchase and continues to use the land in their business operation.

You have never had any say in the day to day running of the business operation nor have you been consulted as to conduct of the business operation nor have you received any benefit (financial or otherwise) from the land.

You conduct your own business operation on land which is totally separate to your siblings.

Your sibling conducting the business operation now intends to purchase the land from you - the land will be transferred to them. This has been agreed.

The land has been independently valued by a registered valuer.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 152-35(1)(a)

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 328-130

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Active asset

Paragraph 152-35(1)(a) of the ITAA 1997 provides that the active asset test will be satisfied for assets owned for less than 15 years, if the asset in question was considered an active asset for at least half the period of ownership.

An active asset is defined by section 152-40 of the ITAA 1997 to be a CGT asset that you own (whether tangible or intangible) that either you, an affiliate or connected entity use in the course of carrying on a business.

Therefore, the land will be an active asset if you, your affiliate or an entity connected with you uses the land in the course of carrying on a business.

You do not use the land in carrying on a business. Your sibling uses the land in carrying on a business and the land will only be an active asset if your sibling is your affiliate.

Affiliates

An affiliate is defined by section 328-130 of the ITAA 1997 as being an individual or company who acts or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the individual or company.

Relevant factors that may support a finding that a person acts in such a manner include:

· the existence of a close family relationship between the parties

· the lack of any formal agreement or formal relationship between the parties dictating how the parties are to act in relation to each other

· the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations, and

· the actions of the parties.

· Generally, another entity would not be acting in concert with you if they:

· have different employees

· have different business premises

· have separate bank accounts

· do not consult you on business matters, and

· conduct their business affairs independently in all regards.

Application to your circumstances

You own some land jointly with your sibling that was purchased by your parent. Your sibling uses the land to conduct their business operation. You have no say in the day to day activities of the operation and your sibling does not act in accordance with your directions or wishes.

You conduct a business operation on land that is separate from this jointly owned land.

Your sibling that conducts a business operation on land jointly owned with you is not your affiliate. This is because they do not conduct their business in concert with you or in accordance with your directions and wishes.

The jointly owned land will therefore not be an active asset to you.