Edited version of private advice

Authorisation Number: 1051714182321

Date of advice: 13 July 2020

Ruling

Subject: Income tax - small business capital gains tax concessions

Question 1

Is the Property an active asset of the Trust under section 152-35 of the Income Tax Assessment Act 1997?

Answer

Yes. Based on the information provided, it is viewed that the Property was used by a Company connected with the Trust for their business activities. While the Property has been used to earn rental income for the Trust, the use of the Property by the Company is treated as the use of the Trust. Therefore, the Property is treated as an active asset of the Trust.

Question 2

Can the Trust access the small business CGT concessions in relation to the sale of the Property?

Answer

Yes. The Trust satisfies the maximum net asset value test and the Property is an active asset. The Commissioner is satisfied the Trust meets the basic conditions for relief under section 152-10 of the Income Tax Assessment Act 1997.

Question 3

Can A and B utilise the small business retirement exemption in relation to the sale of the Property?

Answer

Yes. The Trust meets the basic conditions for the small business CGT concessions, A and B are significant individuals of the Trust, and the Trust will make a payment to A and B. Therefore, the Trust satisfies the requirements under section 152-305 and 152-325 of the Income Tax Assessment Act 1997 and can utilise the exemption to reduce the capital gain.

Additional information

The Trust must make the payments to A and B by the later of seven days after the Trust chooses to disregard the capital gain, or seven days after the Trust receives the capital proceeds from the CGT event. Failure to do so will mean the conditions have not been satisfied and the retirement exemption will not be available.

This ruling applies for the following periods:

Year ended 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

The Trust owns a property (the Property) approximately 300 meters away from the Company's address.

The beneficiaries of the Trust are A and B.

The Company rents the Property from the Trust for business related storage.

Customers were brought to the Property every business day to look items stored at the Property.

Employees went to the Property frequently to drop off and pick up items at the Property.

There were no other activities undertaken at the Property.

There was no private use of the Property.

Trust sold the Property as vacant land.

The capital gain will be distributed to A and B.

A and B were both over 55 years old at the time of the CGT event.

The net value of the assets of the Trust, A and B and their connected entities did not exceed $6 million at the time of selling the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-50

Income Tax Assessment Act 1997 section 152-55

Income Tax Assessment Act 1997 section 152-305

Income Tax Assessment Act 1997 section 152-325