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Edited version of your written advice
Authorisation Number: 1051213454566
Date of Advice: 20 April 2017
Ruling
Subject: Capital gains tax - small business concession and the active asset test
Question 1
Does the property satisfy the active asset test?
Answer
Yes
Question 2
Will an extension of time be granted in relation to the active asset test?
Answer
No
This ruling applies for the following periods:
30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
Partner A and Partner B (partners) purchased commercial property as joint owners.
From the date of acquisition, the property was leased to the Trust. The Trust operated a business from the property.
The partners receive 100% of the distributions from the Trust.
The business was sold.
The property was leased after the sale of the business until the date it was sold.
The partner's appointed a real estate agent to market and sell the property.
A contract of sale was entered into. This contract fell through.
Subsequently, a 2nd contract of sale was entered into.
The applicants satisfy the maximum net asset value test.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-35
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 at least 7.5 years during the test period.
The test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases.
In this case, the business ceased more than 12 months before the CGT event. Accordingly, the relevant period is from the acquisition date to the CGT event. As the partners owned the property for 15 years or less, the property will need to have been active for at least half of the relevant period.
The basic conditions for the small business CGT concessions have been met as the business assets at the time before the CGT event did not exceed $6 million. The business was run by a connected entity that the partners between them received 100% of the distributions. Each partner also held a 50% interest in the partnership.
Accordingly the partners were connected to both the partnership and the Trust. It follows that the property meets the active asset test as it was used in a business carried on by an entity connected to the partners for more than half of the relevant period. The asset does not need to be an active asset just before the CGT event.
Accordingly, as the active asset test has been met, there is no need for the Commissioner to exercise his discretion in relation to the active asset extension of time request.