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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012807813267

Ruling

Subject: CGT Small Business Concessions

Question 1

Is the coy eligible for the small business concessions?

Answer

No.

This ruling applies for the following period

30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

The coy acquired an Investment Fund Account.

The Investment Fund is a managed fund.

The fund is invested in various shares.

The coy disposed of various shares within the fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 subdivision 152-C

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 section 152-35

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

Reasons for decision

To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions. Subdivision 152-C of the Income Tax Assessment Act 1997 (ITAA 1997) applies the small business 50% active asset reduction provided the basic conditions are satisfied.

A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the following basic conditions are satisfied:

    • A CGT event happens in relation to a CGT asset of yours in an income year,

    • The event would have resulted in a gain,

    • The CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and

    • At least one of the following applies;

      • you are a small business entity for the income year,

      • you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997,

      • you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or

      • you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.

Active asset test

A capital gains tax (CGT) asset will satisfy the active asset test if:

      a) 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, or

      b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the test period.

The test period begins when you acquired the asset and ends at the earlier of the CGT event and if the relevant business ceased to be carried on in the 12 months before that time - the cessation of the business.

Subsection 152-40(1) of the ITAA 1997 details that a CGT asset is an active asset at a time if it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you.

Carrying on a business

Taxation Ruling TR 97/11 provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The factors are:

    • whether the activity has a significant commercial purpose or character

    • whether the taxpayer has more than just an intention to engage in business

    • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

    • whether there is regularity and repetition of the activity

    • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

    • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit

    • the size, scale and permanency of the activity, and

    • whether the activity is better described as a hobby, a form of recreation or sporting activity.

No one indicator is decisive. The indicators must be considered in combination and as a whole.

In this case, the company invested in an Investment fund. For this asset to satisfy the active asset test, it must have been used in the course of carrying on a business by the company for at least half of the ownership period.

We do not consider that the Investment Fund was used in the course of carrying on a business. The Fund was used for long term investment purposes and therefore, the company is not eligible for the small business concessions.


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