Edited version of private advice

Authorisation Number: 1051947682798

Date of advice: 8 February 2022

Ruling

Subject: CGT and maximum net asset value test

Question 1

Is the property a disregarded asset under section 152-20 of the Income Tax Assessment Act 1997 (ITAA 1997), for the purpose of calculating your Capital Gains Tax assets for the Maximum Net Asset Value (MNAV) test under section 152-15 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 20XX

The scheme commences on:

1 July 20XY

Relevant facts and circumstances

You are the directors and shareholders of XYZ Pty Ltd.

You are considered connected entities of XYZ Pty Ltd.

You acquired the property as joint tenants on 1 July 20XY.

Your intention in purchasing property was to use it as a holiday house.

The property was not used to produce assessable income and has been used, and has always intended to be used, solely for your personal use and enjoyment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 paragraph 152-20(2)(b)

Income Tax Assessment Act 1997 subparagraph 152-20(2)(b)(i)

Income Tax Assessment Act 1997 section 328-130

Income Tax Assessment Act 1997 subsection 328-130(1)

Reasons for decision

Section 152-10 of the TAA 1997 lists the basic conditions for accessing capital gains concessions in Division 152 of the ITAA 1997. Relevantly, one of the conditions is satisfying the MNAV test.

A taxpayer satisfies the MNAV test if, just before the CGT event, the net value of their CGT assets and those of certain related entities does not exceed $6,000,000 (section 152-15 of the ITAA 1997).

All CGT assets of all relevant entities need to be included unless they are specifically excluded by the legislation.

Paragraph 152-20(2)(b) of the ITAA 1997 provides that in working out the net value of the CGT assets of an entity:

b) if the entity is an individual, disregard:

(i) assets being used solely for the personal use and enjoyment of the individual, or the individual's affiliate (except a dwelling, or an ownership interest in a dwelling, that is the individual's main residence, including any adjacent land to which the main residence exemption can extend because of section 118-120); and

...

Section 995-1(1) of the ITAA 1997 defines "Affiliate" as having the meaning given by section 328-130 of the ITAA 1997. Subsection 328-130(1) states that an individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company.

You are the directors and shareholders of XYZ Pty Ltd. You are considered connected entities of XYZ Pty Ltd.

In this case, you acquired the property as joint tenants on 1 July 20XY. From this date the property was not used to produce assessable income and has been used, and has always intended to be used, solely for your personal use and enjoyment.

Therefore, the property is a disregarded asset for the purposes of calculating your Capital Gains Tax assets for the MNAV test under section 152-15 of the ITAA 1997.