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Edited version of your written advice
Authorisation Number: 1012884204717
Date of advice: 15 October 2015
Ruling
Subject: Capital Gains Tax
Question 1
Are A and B your affiliates as per section 328-130 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Do you satisfy the small business concessions basic conditions as per subdivision 152-A of the ITAA 1997?
Answer
Yes.
This ruling applies for the following period
30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
The property was originally owned by C and D as tenants in common from approximately XXXX.
On the XXXX C transferred their half share equally to A, B, E, F and you.
Each new acquirer received 1/10th share in the property.
In XXXX, 'the group' being D, A, B, E, F and you, agreed to agist the land.
During XXXX the agisted livestock were causing issues.
In XXXX, a group meeting agreed to the removal of the agisted livestock.
At this meeting, A and B requested the group's agreement to commence their own individual operations on the land.
In XXXX notice was given for the agisted livestock to be removed.
In XXXX a group meeting was scheduled where it was agreed that A and B could run their businesses on the land subject to regular group meetings in respect of the use of the land.
It was agreed that no rent would be payable by A and B.
The business was run by A and B, in their individual names, on the land from that time.
The group subsequently signed a contract to sell the land.
A and B in addition to running the business on the land, also run another business.
Due to the nature of their second business they are often away for X weeks out of each X.
Consequently, A and B regularly relied on you to assist with their business operations.
You satisfy the maximum net asset test.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 152
Income Tax Assessment Act 1997 Subdivision 152-C
Income Tax Assessment Act 1997 Section 152-35
Income Tax Assessment Act 1997 Subsection 152-10(1)
Income Tax Assessment Act 1997 Section 328-130
Reasons for decision
In order to be eligible for the small business CGT concessions, a number of basic conditions must be satisfied. The basic conditions for the small business CGT concessions are outlined in subsection 152-10(1) of the ITAA 1997:
(a) a CGT event happens in relation to an asset that the taxpayer owns
(b) the event would otherwise have resulted in a capital gain
(c) one or more of the following applies
(i) the taxpayer satisfies the maximum net asset value test
(ii) the taxpayer is a "small business entity" for the income year
(iii) the asset is an interest in an asset of a partnership which is a small business entity for the income year, and the taxpayer is a partner in that partnership, or
(iv) the special conditions for passively held assets in sub-sections 152-10(1A) or 152-10(1B)are satisfied in relation to the CGT asset in the income year, and
(d) the asset satisfies the active asset test.
In this case a CGT event occurred when the contract of sale was entered into. The CGT event will result in a capital gain. Additionally, you will satisfy the maximum net asset value test just before the CGT event.
Active asset test
The active asset test is contained in section 152-35 of the 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.
An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company.
In this case, we accept that A and B are your affiliates as per section 328-130 of the ITAA 1997. Accordingly, the asset is an active asset as it was used in a business carried on by your affiliates.
As the property was owned by you for less than 15 years, and it was an active asset for more than half the ownership period, the active asset test contained in section 152-35 of the ITAA 1997 is satisfied. Therefore, the basic conditions in subsection 152-10(1) of the ITAA 1997 will be satisfied.