Edited version of private advice

Authorisation Number: 1051909749229

Date of advice: 15 October 2021

Ruling

Subject: CGT and the active asset test period

Question

Will the Commissioner exercise his discretion under subparagraph 152-35(2)(b)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You carried on a business under a company.

The business was operating out of a property which had insufficient storage space.

You purchased a commercial property on XXXX just down from where you were operating your business.

You used the commercial property exclusively to hold records for your business immediately upon purchase.

You sold your business on XXXX.

You are under a legal obligation to retain business records for five to seven years.

You sold the commercial property on XXXX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35; and

Income Tax Assessment Act 1997 subparagraph 152-35(2)(b)(ii)

Reasons for decision

Active asset test

The active asset test is contained in section 152-35 of the ITAA 1997. The active asset test is satisfied if:

(a) 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

(b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of least 7.5 years during the test period.

The test period:

(a) begins when you acquired the asset, and

(b) ends at the earlier of

(i) the CGT event, and

(ii) when the business ceased, if the business in question ceased in the 12 months before the CGT event or any longer period that the Commissioner allows.

In this case, the property was an active asset up until you ceased business during the 20XX financial year. The property was sold in XXXX, which is more the 12 months after you ceased business. The active asset test will only be satisfied if the Commissioner allows a longer period under subparagraph 152-35(2)(b)(ii) of the ITAA 1997.

Commissioner's discretion

In determining if the discretion to allow a period longer than 12 months should be exercised, the Commissioner considers the following factors:

•                    whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension

•                    whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension

•                    whether there is any unsettling of people, other than the Commissioner, or of established practices

•                    fairness to people in like positions and the wider public interest

•                    whether there is any mischief involved, and

•                    the consequences of the decision.

After considering your circumstances, it is considered that you have provided a reasonable and acceptable explanation for the delay in disposing of the property. The Commissioner will exercise the discretion set out under section 152-35(2)(b)(ii) of the ITAA 1997 and extend the time period.