Edited version of private ruling

Authorisation Number: 1011859082748

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Ruling

Subject: Capital Gains Tax - active asset

Question

Does the block of land which adjoins your main business premises satisfy the Capital Gains Tax (CGT) active asset test in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The taxpayers own a block of land on which are premises from which they undertake income earning activities. They acquired the block prior to 20 September 1985. Shortly thereafter they purchased an adjoining block. That second block was held under a separate title for the entire period that it was owned.

The income earning activities on the original block commenced on a certain date. At the same time, an item was erected on the second block which was used in respect of the business on the other block.

The second block was not otherwise used in connection with the enterprise on the first block. The second block was subsequently sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 152-35.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 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 of the ITAA 1936 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

Unless otherwise stated, all legislative references in the following Reasons for Decision are to the Income Tax Assessment Act 1997.

Detailed reasoning

There are several concessions which may reduce or eliminate liability to pay tax on capital gains associated with the disposal of CGT assets. Those concessions are available, where certain qualifications are met, in respect of assets which are classified as active assets of a business.

The basic conditions that must be satisfied to obtain access to the concessions are set out in Sub-division 152-A. One of the basic conditions for access to the small business concessions requires that the relevant CGT asset satisfies the active asset test in section 152-35.

Under section 152-35, a CGT asset owned for more than fifteen years will satisfy the active asset test if it was an active asset for at least 7 ½ years. In the present case, you acquired the property more than fifteen years ago but it has been used in the conduct of the enterprise for less than 7 ½ years. Consequently, even if the property proved to be an active asset, it would not satisfy the active asset test as it does not meet the time period requirements of paragraph 152-35(1)(b).