Edited version of your written advice

Authorisation Number: 1012697923921

Ruling

Subject: CGT - SBC - Commissioner's discretion to extend the active asset test period

Question

Will the Commissioner exercise his discretion contained in subsection 152-35(2) of the Income Tax Assessment Act 1997 in relation to the active asset test and extend the time period?

Answer:

Yes

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You were partners in a small retail business which operated from a suburban shop that you owned.

Since acquisition, the property was always used in your business.

You listed the property and business for sale in 200X.

The business was sold X years later.

The agents attempted unsuccessfully, due to the effects of the Global Financial Crisis, to sell the property.

You listed the property with a new agent in 20XX.

You signed a contract for the sale of the property later in that year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-35 and

Income Tax Assessment Act 1997 Subparagraph 152-35(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).

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 this case, the property was an active asset for more than three years when you put the business and the property up for sale. The property was sold more than 12 months after the cessation of the business.

As the disposal of the property did not occur within 12 months of the cessation of the business being carried on by the company, the test period ends at the time of the CGT event in 20XX. The asset was not active for at least half of the test period. Therefore, the active asset test will only be satisfied if the Commissioner allows a longer period under subparagraph 152-35(2)(b)(ii) of the ITAA 1997, allowing the test period to end at the time the business ceased. 

Commissioner's discretion

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 sale of the property.

It is accepted that a downturn in the market was responsible for the delay in the sale of the property.

The Commissioner will exercise the discretion set out under section 152-35(2)(b)(ii) of the ITAA 1997 and extend the time period to the date the property was sold. Accordingly, the test period for the active asset test will end on the date the business ceased.