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Ruling

Subject: CGT small business concessions - active asset test

Question 1

Does the property satisfy the active asset test?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You own a property that you purchased over 15 years ago.

The property was used exclusively in carrying on a business for a period of more than 10 years. The business ceased over 12 months ago.

The business was run through a partnership for a period of time; you each held a 50% interest in the partnership.

Subsequently the business was run through a company where you each held a 50% shareholding in the company.

You now intend to sell the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-35

Reasons for decision

The active asset test is contained in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997). The active asset test is satisfied if:

· 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 test period detailed below, or

· you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years during the test period.

The test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases.

In this case, the business ceased more than 12 months before the CGT event will occur. Accordingly, the relevant period is from the acquisition date to the CGT event. As you have owned the property for more than 15 years, the property will need to have been active for at least 7.5 years during this period.

A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you.

An entity is connected with another entity if either entity controls the other entity, or if both entities are controlled by the same third entity. An entity controls another entity if it:

· beneficially owns or has the right to acquire beneficial ownership of, interests in the other entity that give the right to receive at least 40% (the control percentage) of any distribution of income or capital by the other entity, or

· if the other entity is a company, beneficially owns, or has the right to acquire beneficial ownership of, equity interests in the company that give at least 40% of the voting power in the company.

At all times the business was run by either a partnership where you each held a 50% interest or a company where you each held a 50% shareholding. Accordingly each of you were connected to both the partnership and the company. It follows that the property was an active asset as it was used in a business carried on by an entity connected to you from 1980s to 2009.

If the asset is sold within the ruling period, it will have been an active asset for more than 7.5 years of the period that you owned it and will pass the active asset test under section 152-35 of the ITAA 1997.