Edited version of private advice

Authorisation Number: 1051825579363

Date of advice: 24 June 2021

Ruling

Subject: Small business CGT concessions - residential property as an active asset

Question 1

Was the property an active asset under paragraph 152-40(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Based on the information provided by your director it is accepted that the property was predominantly used in the course of carrying on the business and the property was therefore an active asset. It is accepted any use of the asset to derive rent was very minor. It is accepted this was the case throughout your ownership of the property.

Question 2

Are you eligible for the small business CGT retirement exemption under Subdivision 152-D of the ITAA 1997 in relation to the disposal of the property?

Answer

Yes. You are a small business entity with an aggregated turnover of less than $2 million. The property was an active asset and you used it in conducting your business for more than 15 years. Your principal shareholder is a significant individual as they own XX% of the shares in you and is over 55 years old and intending to retire this year. Further information regarding making payments to your CGT concession stakeholders and the small business CGT retirement exemption in general can be found by searching our website ato.gov.au for QC 52290.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

DD Month YYYY

Relevant facts and circumstances

You are a private company which conducted a business making specialised equipment.

You are a small business entity with an aggregated annual turnover of less than $2 million.

The business came about due to separate employment of one of your directors. This director was employed by an unrelated third party involved in selling specialised equipment. Given the amount of specialised equipment that had been developed and the limited space within the buildings that utilised this equipment, this director could see a need for ancillary equipment and had the contacts that needed this ancillary equipment.

Your principal shareholder (XX% of shares) and director is now over 55 years old and intends to retire this year.

The business involved assembling the various components that were made by numerous unrelated third parties.

Assembly was mostly done at the home of the director. You never owned any commercial/industrial type property dedicated to this activity. The work was simple assembly and could be done at home where there was space to assemble but not to store stock.

You acquired a property over X years ago.

You purchased the property solely to use in the business and it was used in the business throughout your ownership period.

You disposed of this property recently.

The location of this property was chosen because you had recognised a market for the ancillary equipment in that region.

You wanted a base in the region to service that area and have subsequently supplied your specialised equipment to most relevant businesses in the region.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 152-40(1)(a)

Income Tax Assessment Act 1997 Subdivision 152-D