Edited version of private advice

Authorisation Number: 1052000303577

Date of advice: 16 August 2022

Ruling

Subject: Small business relief - active asset test

Question 1

Does the property XXXXX satisfy the active asset test pursuant to section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997) and the meaning of active asset test pursuant to section 152-40 of the ITAA 1997?

Answer

Yes.

The active asset test will be past when you have owned the CGT asset for less than 15 years and the asset was an active asset of yours for a total of at least half the period. You acquired the property in 20XX and therefore have held the property for less than 15 years. The property has been your main source of income for at least half of those years in your primary production business. Subsection 152-40(4) of the ITAA 1997, lists the exceptions that apply to the definition of a CGT asset. The asset does not meet any of the exceptions. Subsequently, the asset satisfies the active asset test under section 152-35 of the ITAA 1997 and meaning of active asset test under section 152-40 of the ITAA 1997.

Further issues for you to consider

This ruling has not fully considered your eligibility for the small business CGT concessions. You should ensure that you satisfy the relevant basic conditions for the concessions. More information is available on our website www.ato.gov.au using keywords 'concessions for small business' to search or Quick Code 'QC 22655'.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 2022

Relevant facts and circumstances

In 20XX, Person YZ (you) were issued an Australian Business Number (ABN) to operate your primary production business.

From March 20XX, you operated and your primary production business on grazing property A (Property A).

In June 20XX, you acquired another property, Property B (Property B) for to expand your business.

From June 20XX to 20 August 20XX, Property B was rested to maximise long term grass production.

Towards the end of 20XX, you transferred livestock from Property A to Property B.

The value of the livestock when placed on Property B were approximately $XX per head, opposed to when departing Property B and returned to Property A, their value increases to approximately $XXX per head.

After the livestock are returned to Property A. Their weight has almost doubled.

In 20XX, you experienced health issues.

In August 20XX, you commenced offering casual agistment to other primary producers (WX). You charged WX a per head per week agistment charge for their livestock to graze on Property B.

A condition of the informal agistment arrangement was that you could reasonably request WX to reduce the number of livestock or remove them altogether at any time. You ensured all animals on your property had feed, water, were healthy and reported any matters of concern to their owners.

Your sales compared to agistment income received over the past financial years (FY) were:

From September 20XX to July 20XX, you only had your livestock on the property.

The agistment income received in the 20XX financial year was owing from the 20XX financial year.

The Growth in Livestock is calculated as being the difference in value between the livestock arriving Property B and then departing Property B to Property A.

In the 20XX financial year, you removed most of your livestock from the property and agisted the entire property.

You are considering gifting two-thirds of Property B to family members.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40