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Edited version of your private ruling
Authorisation Number: 1012479001360
Ruling
Subject: CGT - small business concessions, active asset test
Question
Do the motor vehicle number plates satisfy the active asset test?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts and circumstances
Since inception you have operated a franchise.
Your franchise agreement was recently terminated.
You expect to continue to operate in the same industry.
You acquired motor vehicle number plates (number plates) which display the word "XXX".
When you acquired the number plates you claimed a business deduction for the expense in the year of acquisition.
You used the number plates as an advertising tool on the company owned and operated motor vehicle.
You intend to sell the number plates.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-20
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Proceeds from the sale of assets are treated as either:
· income according to ordinary concepts under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) derived in the course of carrying on a business, or
· an isolated transaction for the purpose of profit making; or
· subject to the capital gains tax provisions of the ITAA 1997.
Whether the proceeds are treated as income or capital depends on the situation and circumstances of each particular case.
In your case, you are in business and you purchased the number plates as an expense for your business and claimed a deduction for the cost of the number plates in the year they were purchased. That is, the expense is revenue in nature.
You intend to sell the number plates.
Receipts derived by a business in its ordinary course of trading are assessable as ordinary income under section 6-5 of the ITAA 1997.
Section 6-5 of the ITAA 1997 states that:
Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Section 118-20 of the ITAA 1997 primarily exists to ensure that amounts which are assessable income outside of the CGT provisions are not also taxed as capital gains. In the absence of such a provision, it is conceivable that a receipt properly characterised as ordinary income and which has also been derived as a result of a CGT event could result in the receipt being taxed twice. In your circumstances, when you sell the number plates any capital gain will be disregarded and any profit from the sale will need to be included as ordinary assessable income under section 6-5 of the ITAA 1997.
You have claimed a deduction for the cost of purchasing the number plates as an expense for your business and therefore the CGT provisions of the ITAA 1997 do not apply to you on any subsequent sale of the number plates. The CGT small business concessions are not applicable to the sale of the number plates and therefore the active asset test does not apply to them. Any profit made on the sale of the number plates will be ordinary income of the business.