Edited version of your private ruling

Authorisation Number: 1012455670383

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Ruling

Subject: Active asset test

Question

Will the Commissioner exercise his discretion in relation to the active asset test and extend the time period?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling dated; and

· the documents provided with the application for private ruling.

You are shareholders in the company. The company carried on a business.

In the 2010-11 financial year you were approached to sell your business to a third party (the purchaser). The negotiations took several months and an agreement to sell the business.

You ceased to operate the business in the 20xx-xx financial year; however your obligations to pay another entity remained outstanding.

Your shares in the company were active assets up to the point the business ceased.

You intend to place the company into liquidation; however this could not proceed until the company's pre-existing obligations were met and the unresolved issues between the company and the third party purchaser were resolved.

ASIC is required to deregister the company 3 months after the final meeting. You have stated that it will not be possible to complete the liquidation before the end of the 20xx-xx financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-35, and

Income Tax Assessment Act 1997 Subparagraph152-35(2)(b)(ii).

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 least 7.5 years during the test period.

The test period:

begins when you acquired the asset, and

ends at the earlier of

the CGT event, and

when the business ceased, if the business in question ceased in the 12 months before the CGT event (under subparagraph 152-35(2)(b)(ii) of the ITAA 1997 the Commissioner can allow a longer period than 12 months).

In this case, the shares in the company were active assets up to the point the business ceased. The CGT event will occur when the company is liquidated and your shares are disposed of. As you were not in a position to liquidate the company within 12 months of the business ceasing, the active asset test will only be satisfied if the Commissioner allows a longer period under subparagraph 152-35(b)(ii) of the ITAA 1997. You anticipate that the CGT event will occur by the end of the 2013-14 financial year.

In determining if the discretion to allow a period longer than 12 months should be exercised, the Commissioner considers the following factors:

· whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension;

· whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension;

· whether there is any unsettling of people, other than the Commissioner, or of established practices;

· fairness to people in like positions and the wider public interest;

· whether there is any mischief involved; and

· the consequences of the decision.

After considering the relevant factors against your circumstances, it is considered that you have provided a reasonable and acceptable explanation for the delay in the liquidation of the company. It is accepted that the pre-existing obligations between the company and another entity and the purchaser, in addition to potential legal action, prevented the liquidation of the company.

The Commissioner will exercise the discretion set out under section 152-35(2)(b)(ii) of the ITAA 1997 and extend the time. Accordingly, if the CGT event occurs by this date, the test period for the active asset test will end on the date the business ceased.