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Edited version of your written advice
Authorisation Number: 1012910618094
Date of advice: 18 November 2015
Ruling
Subject: Capital gains tax - active asset test
Question:
Is the estate of the deceased entitled to claim the small business capital gains tax (CGT) 15-year exemption to reduce the capital gain on the disposal of a property owned by the decease under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer:
Yes
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts
In 19XX the deceased inherited land for a deceased relative.
The deceased operated business activity of this land for more than 7 and a half years.
The deceased passed away and the property was subsequently sold after your death.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 152-10(1).
Income Tax Assessment Act 1997 Paragraph 152-35(1)(a).
Income Tax Assessment Act 1997 Paragraph 152-35(1)(b).
Income Tax Assessment Act 1997 Section 152-35.
Income Tax Assessment Act 1997 Section 152-105.
Income Tax Assessment Act 1997 Paragraph 152-40(1)(a).
Income Tax Assessment Act 1997 Subparagraph 152-40(1)(a)(i).
Reasons for decision
Small Business Concessions
According to the Advanced Guide to Capital Gains Tax Concessions for Small Business 2014-15, provides that where you are a beneficiary of the deceased state, legal personal representatives (executor), trustee or beneficiary of the testamentary trust or a surviving joint tenant you will be eligible for the 15-year exemption to the same extent that the deceased would have been just prior to the death if the asset is sold within two years of the deceased's death except that:
• the CGT event does not need to have be in connection with the retirement of the deceased
• the deceased needs to have been 55 or older immediately before their death, rather than at the time of the CGT event.
Note: the relevant legislation is outlined in section 152-80 of the ITAA 1997.
In this case, the estate held land of the deceased and for the deceased estate to qualify for the small business CGT concessions the deceased must have met the basic conditions just prior to their death as contained in subdivision 152A of ITAA 1997.
One of those conditions is the active asset test under section 152-35 of the ITAA 1997.
Active asset test
Subsection 152-35(1) of the ITAA 1997 states that a CGT asset satisfies the active asset test 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 period of ownership, or
• 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 7 and a half years.
A CGT asset is an active asset if at a given time, among other things, it is owned and used (or held ready to use) in the course of carrying on a business (paragraph 152-40(1)(a) of the ITAA 1997).
In this case the property was transferred to the deceased more than 15 years ago and disposed of recently triggering CGT event A1, therefore the property has been owned for a period of over 15 years. In considering whether the property was an active asset of the decease's business we need to consider the use of the property over the period of time the property was held.
A review of the information provided indicates the deceased used the property to carry on a business to derive income from their business activity for a period of more than 7 and a half years.
Accordingly, the property is considered to be an active asset for the purposes of subparagraph 152-40(1)(a)(I) of the ITAA 1997 for the entire period of ownership. The property therefore meets the active asset test contained in section 152-35 of the ITAA 1997.
As the other requirements for the 15 year exemption would have been met by the deceased, the trustee of the estate can apply the small business 15 year exemption to the capital gain.