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Ruling

Subject: CGT - Small business concessions

Question:

Will your rural block of land meet the requirements of an active asset and satisfy the active asset test?

Answer:

Yes.

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You purchased a rural block of land more than 16 years ago.

You commenced running various livestock on the block of land which were subsequently slaughtered and sold through cattle markets or through other outlets.

You did this for more than seven and a half years.

At various times until the present day the land was used as storage or processing by various business's you have been involved in.

You satisfy the maximum net asset test.

You satisfy the basic conditions in section 152A.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-15

Income Tax Assessment Act 1997 Subsection 152-10(1A)

Income Tax Assessment Act 1997 Section 152-35

Income Tax Assessment Act 1997 Section 152-40

Reasons for decision

Small business CGT concession eligibility and the active asset test.

Section 152-10 of the ITAA 1997 contains the basic conditions you must satisfy to be eligible for the small business capital gains tax (CGT) concessions. These conditions are:

· a CGT event happens in relation to a CGT asset in an income year.

· the event would have resulted in the gain

· at least one of the following applies:

· you are a small business entity for the income year

· you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997

· you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership or

· the conditions in subsection 152-10(1A) or (1B) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year.

· the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

Section 152-40 of the ITAA 1997 provides the meaning of 'active asset'. A CGT asset will be an active asset at a time if, at that time, you own the asset and the asset was used or held ready for use by you, an affiliate of yours, or by another entity that is 'connected with' you, in the course of carrying on a business. However, an asset whose main use is to derive rent, can not be an active asset.

Section 152-35 of the ITAA 1997 explains that an asset will be an active asset if you have owned the asset for more than 15 years and it was an active asset for a total of at least 7 ½ years from the time when you acquired the asset until the CGT event. Or, you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the time from when you acquired the asset until the CGT event.

As the land is considered to be an active asset, and you satisfy the remaining basic conditions for the small business concessions, you are entitled to the 50% active asset reduction on the capital gain made in relation to the disposal of the land.