Edited version of private advice

Authorisation Number: 1052046595531

Date of advice: 27 October 2022

Ruling

Subject: CGT - active asset test

Question

Does the Property 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 pursuant to section 152-40 of the ITAA 1997?

Answer

Yes. You have owned a property for more than 15 years, and it has been used in the course of carrying on a business by you for at least 7.5 years during the ownership period. We do not consider that the exceptions in subsection 152-40(4)(e) of the ITAA 1997 have any application in the circumstances. Therefore, the Property will satisfy the meaning of active asset in section 152-40 of the ITAA 1997 and the active asset test in section 152-35 of the ITAA 1997.

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In the relevant year you purchased the commercial property (Property).

You have owned the Property for more than 15 years.

During the ownership time, you have carried on a storage shed hire business on the Property.

There are multiple storage sheds on the Property.

There are also several commercial sheds located on the Property which have been used to derive rental income.

During the Property ownership period, the income from the storage hire business has consistently been over 50% of the total income received from the mixed use of the Property.

The area utilised in the process of carrying on a storage hire business is over 50% of the total area of the Property.

The storage sheds have been hired out under the terms of the Standard Self Storage Agreement, conditions of which provide that:

•         The Storers have the right to access to the rented space during Access Hours as posted by the Owner

•         The Owner may refuse access to the storage space in certain circumstances

•         The Owner has the right to enter under certain circumstances

•         The Storer cannot assign their rights under the Agreement to others

•         The Storer cannot use the space for the operation of a business or other activity

•         The Owner reserves the right to relocate the Storer to another Space under certain circumstances.

The commercial sheds have been leased under the Commercial Lease agreement.

The conditions of the Commercial Lease agreement provide that the tenants of these sheds have the right to exclusive possession of the premises on the day on which the term of the lease commences.

The Property was managed by the directors for 2 years since the date of the business establishment.

To date, the Property is managed by the agent who finds potential storers, conducts inspections, collects storage fees.

The directors remained heavily involved in the day-to-day operation of the storage hire business. Their duties include:

•         Mowing and landscaping gardens

•         Maintaining parking areas

•         Vermin control

•         Shed maintenance, including roller door and walls repairs

•         Maintaining security systems, fences, replacing lost keys, monitoring security cameras

•         Providing after hours assistance and emergency repair services

•         Bad debt management, including arranging, advertising and facilitation of goods to be auctioned

•         Collection of keys, cleaning, rubbish disposal upon storage sheds being vacated

•         Preparing all business-related paperwork, ensuring compliance with taxation obligations.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Further issues for you to consider

This ruling has not considered the basic conditions which must be satisfied in order to apply the small business CGT concessions. More information is available on our website www.ato.gov.au by searching keywords 'concessions for small business' or Quick Code 'QC 22655'.