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Edited version of your private ruling
Authorisation Number: 1012502303264
Ruling
Subject: Capital gains tax
Question 1
Are the business assets active assets in accordance with section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are a partner in a partnership.
The partnership purchased a business.
The business was leased to and conducted by a non associated third party.
You want to retire. The other partner (continuing partner) will purchase your share of the assets.
You are dissolving the partnership and selling the assets used in the business.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-35.
Income Tax Assessment Act 1997 paragraph 152-40(4)(e).
Reasons for decision
Summary
We consider that the main use of the business assets is to derive rent and it is excluded from being an active asset under paragraph 152-40(4)(e) of the ITAA 1997.
Detailed reasoning
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
o the CGT event, and
o when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows).
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.
In your case, you purchased the business and associated assets. After purchase, you leased the business to an unrelated third party. You received rental income.
It is considered that you held a passive interest in the business assets and that you were not carrying on a business. Although the assets were still used for a business activity, it was an unrelated party that conducted these business activities. The unrelated party compensated you for the right to the use of your land and business assets to conduct these activities by paying you rent.
The business assets were not actively used in any of your business activities or the business activities of any of your affiliates or connected entities. Accordingly the business assets are not active assets and cannot pass the active asset test under section 152-35 of the ITAA 1997. You will therefore, not be able to access the small business concessions in relation to the sale of the business.