Edited version of your private ruling

Authorisation Number: 1012505643916

Ruling

Subject: Capital gains tax

Question 1

Do storage facility 1 and storage facility 2 qualify as active assets for the purposes of the small business capital gains tax (CGT) concessions?

Answer

Yes.

This ruling applies for the following period:

Year ended 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 in the business of providing self storage space and other related services.

In the relevant financial year, contracts were entered into to sell storage facility 1 and storage facility 2. The land and buildings, business name, telephone numbers, domain names and email addresses will all transfer to the new owners.

In storage facility 1:

· There are x storage spaces. The spaces are available for hire for periods of 1 week to 12 months or longer. Your storage terms state that clients do not have the right to exclusive possession.

· There is an onsite office. Site is fully fenced and locked outside business hours. The site is fully alarmed with back to base monitoring.

· You offer various items for sale.

· You offer a number of items for loan to clients.

In storage facility 2:

· There are y storage spaces. The spaces are available for hire for periods of 1 week to 12 months or longer. Your storage terms state that clients do not have the right to exclusive possession.

· You check spaces at daylight and sunset and you visit the sites during the day. Overnight security patrols are conducted at random times by a security company.

The agreement with your clients outlines your right to enter the space in certain circumstances, and that you have the right to relocate the client to another space. The client cannot assign the rights under the agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-10.

Income Tax Assessment Act 1997 Section 152-35.

Income Tax Assessment Act 1997 Section 152-40.

Income Tax Assessment Act 1997 Subsection 152-40(1).

Income Tax Assessment Act 1997 Paragraph 152-40(1)(a).

Income Tax Assessment Act 1997 Subsection 152-40(4).

Income Tax Assessment Act 1997 Paragraph 152-40(4)(e).

Reasons for decision

As explained Taxation Determination TD 2006/78, for the small business concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply to reduce or disregard a capital gain, the relevant capital gains tax (CGT) asset must satisfy the active asset test in section 152-35 of the ITAA 1997. The active asset test requires the relevant CGT asset to be an active asset, both at a particular time and for half a particular period. However certain assets are excluded from being active assets and paragraph 152-40(4)(e) of the ITAA 1997 excludes, among other things, assets whose main use is to derive rent. Such assets are excluded even if they are used in the course of carrying on a business.

Your situation is very similar to that outlined in Example 2 of TD 2006/78. Storage facility 1 and 2 contain sheds available for hire for periods of 1 week to 12 months or longer. You provide office facilities and various items of equipment for loan or sale to clients. You enter into an agreement with each client that outlines your right to enter the storage space in certain circumstances and that you have the right to relocate the client to another space.

In your case, the arrangements entered into indicates that the users of the storage sheds do not have the right to exclusive possession but rather only the right to enter and use the sheds for certain purposes. The tenant/landlord relationship does not exist between the parties and therefore the amounts received are not rent. Accordingly, the storage facility 1 and 2 are active assets.