Edited version of private advice

Authorisation Number: 1051754654646

Date of advice: 16 September 2020

Ruling

Subject: Small business concessions

Question

Is the property an active asset for the purposes of section 152-35 of the Income Tax Assessment Act 1997 (IATT 1997)?

Answer

Yes. The Commissioner accepts that you were holding the property ready for use in the course of carrying on a business.

Accordingly, the trustee has met the basic conditions to apply the small business retirement exemption concession. For more information please see QC 52290 on ato.gov.au.

Please note that the Commissioner has not determined your eligibility to use the small business 15-year exemption.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The company is the trustee of the trust.

The company was formed with two directors (director one and director two).

Property one was purchased to operate the business activities of director one and director two.

An additional director joined the company in XXXX (director three).

In XXXX, the company purchased the adjacent property of property one (property two).

The reason for the purchase of property two was to increase the size of the building and increase the existing patient carpark on property one.

Between XXXX and XXXX director two and director three experienced personal situations that required a change in the company's controlling interest.

These personal situations also resulted in emotional and financial strain affecting both director two and director three.

Both director two and director three advised that the extension project for property two was too much for them to proceed with and the project was subsequently put on hold.

In the middle of XXXX director two and director three begun the process of purchase of a new property to move their business.

After an informal verbal agreement between all three directors in 20XX, a Heads of Agreement was drafted detailing the context of the verbal agreement.

On XXXX, director two and director three were provided with cheques to pay out their interest in property two.

Director two and director three then refused to sign the Heads of Agreement.

In XXXX, director one received an email from director two and director three outlining changes made by the directors to the rental agreement of property one.

In their capacity as directors, director two and director three made the decision to reallocate the percentage of the floorspace at property.

These changes had a significant effect on director one's ability to operate their practice at property one.

Director one sent multiple written requests to director two and director three to have the rental agreement changes amended however these requests were not successful and the above percentages to the floorspace remained.

As director one was the sole owner of property two, they used the access to this property to resolve the limited access they now had to property one.

In XXXX director one became the sole director of the company.

Director one is over 55 years of age.

Property two was sold, creating a capital gain.

The trust has lodged trust income tax returns with the Australian Taxation Office (ATO).

The income for the trust is less than $XXX dollars per year.

The property has been intended to be used in the trust's business for at least half of the active asset test period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 subsection 152-35

Income Tax Assessment Act 1997 subdivision 152-D