Edited version of private advice

Authorisation Number: 1051951359293

Date of advice: 25 February 2022

Ruling

Subject: Am I in business - small business CGT concessions

Question 1

Are you in the business of providing student accommodation?

Answer

Yes, having considered the circumstances and the factors set out in Taxation Ruling TR 97/11 we consider you are carrying on a business.

Question 2

Does the boarding house qualify as an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, your circumstances are similar to example 3 in Taxation Ruling TR 2006/78 which considers a boarding house to be an active asset as the tenants do not have exclusive possession. Given the property has been used in the business for the entire ownership period it will satisfy the active asset test.

Question 3

Can you choose to disregard all or part of the capital gain made in relation to the boarding house under the small business retirement exemption under Subdivision 152-D of the ITAA 1997?

Answer

Yes, as the requirements for the retirement exemption have been satisfied you can choose to disregard all or part of the capital gain provided you keep a written record of the amount you choose to disregard. Note that as you are over 55 years of age there is no requirement to pay any amount to a complying super fund.

This ruling applies for the following period:

Period ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances:

You are over XX years of age.

You and your spouse purchased the premises on 30 June 20XX for approximately $X.

Various works were completed to turn the premises into suitable boarding house accommodation.

The premises provided X bedrooms and shared common areas including loungeroom, kitchen and laundry also including two bathrooms.

Each bedroom was equipped with sheets, doonas, towels, throw blankets, matters protectors, study and bedside lights, laundry baskets and coat hangers.

Leasing contracts ranged between 12 months to a single university semester, also allowing separate rates for week-by-week accommodation.

Guests were provided with utilities inclusive of what they paid to stay at the premises including internet, water, trash removal, gardening, home cleaning and maintenance.

Management was done by you and your spouse. The turnover from the operations was less than $X million.

You provided substantial services with respect to operating the boarding house including the following:

•         provision of bedding

•         provision and restocking of basic supplies in communal kitchen and bathrooms

•         keeping the peace between tenants, resolving disputes

•         maintenance and cleaning of communal areas (kitchen, bathrooms, courtyard, etc)

The boarding house was sold on for approximately $X.

The capital gain was approximately $X.

The gain was split 50/50 between you and your spouse.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 Subdivision 152-D