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Edited version of your written advice
Authorisation Number: 1012942557791
Date of advice: 8 February 2016
Ruling
Subject: Capital Gain Tax - Maximum net asset value test
Question 1
Will your interest in the property be disregarded under subparagraph 152-20(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) in working out the net value of your CGT Assets?
Answer
Yes.
This ruling applies for the following periods:
01 July 2015 to 30 June 2016
The scheme commences on:
01 July 2015
Relevant facts and circumstances
You operate a specialist practice and hospital as a sole proprietor.
You are not a small business entity.
You are contemplating selling your business and in doing so will make a capital gain.
You state that, in order to claim any small business CGT concessions your net assets must not exceed $6 Million.
The property is not your main residence.
You own the property jointly with your spouse.
The property has never been rented or used to produce assessable income.
It is used for personal use when attending social events, and when working late at your specialist practice.
The property has always been used and continues to be used for the personal use and enjoyment of you and your spouse.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 152-20(2)
Income Tax Assessment Act 1997 paragraph 152-20(2)(b)
Income Tax Assessment Act 1997 subparagraph 152-20(2)(b)(i)
Reasons for decision
Summary
Your interest in the property will be disregarded under subparagraph 152-20(2)(b)(i) of the ITAA 1997 in working out the net value of your CGT Assets.
Detailed reasoning
A basic condition for small business relief in Division 152 of the ITAA 1997 is that the maximum net asset value test in section 152-15 of the ITAA 1997 is satisfied. Under this test, the net value of the CGT assets of an entity and certain related entities must not exceed $6 million 'just before the CGT event' that gives rise to the capital gain for which relief is sought.
Subsection 152-20(1) of the ITAA 1997 explains what is meant by the term "net value of the CGT assets" of an entity. This term is used in working out whether an entity satisfies the maximum net asset value test in section 152-15.
Subsection 152-20(2) of the ITAA 1997 provides the assets to be disregarded in working out the net value of the CGT assets of an entity.
Paragraph 152-20(2)(b) of the ITAA 1997 states that if the entity is an individual they may disregard certain assets,
Subparagraph 152-20(2)(b)(i) of the ITAA 1997 explains that assets being used for the personal use and enjoyment of the individual or the individuals affiliate, are disregarded in working out the net value of the CGT assets of an entity.
Conclusion
Your property has never been rented or used to produce assessable income during the entire ownership period. The asset is considered to be an asset used solely for the personal use and enjoyment of the individual, or the individuals affiliate.
Accordingly, in the circumstances, the property is not required to be included in working out the net value of your CGT assets under section 152-20 of the ITAA 1997.