Edited version of private advice

Authorisation Number: 1052114062630

Date of advice: 9 May 2023

Ruling

Subject: CGT - small business concessions

Question 1

Have the basic conditions in subsection 152-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) been satisfied by the Taxpayer in relation to the sale of the Property?

Answer

No.

Question 2

Have the requirements in Subdivision 152-B of the ITAA 1997 been satisfied by the Taxpayer in relation to the sale of the Property?

Answer

No.

Question 3

Have the requirements in Subdivision 152-C of the ITAA 1997 been satisfied by the Taxpayer in relation to the sale of the Property?

Answer

No.

Question 4

Have the requirements in Subdivision 152-D of the ITAA 1997 been satisfied by the Taxpayer in relation to the sale of the Property?

Answer

No.

This ruling applies for the following periods

Income year ended 30 June 20XX

The scheme commenced in

19XX

Relevant facts and circumstances

History of the Property

1.     The Taxpayer acquired the real property asset (the Property) in 19XX. The Property is zoned for commercial use only.

2.     The Taxpayer initially purchased the Property with the intention of using it to operate a café that also sells goods. However, the Taxpayer became preoccupied with another business that they carried on at the time.

3.     The Property consists of two floors. In relation to the total floor space of the Property, 55% is referable to the bottom floor and 45% is referable to the top floor.

19XX to 30 June 19XX

4.     In relation to the period from the date of acquisition of the Property in 19XX to 30 June 19XX, the Property was not leased and both the top floor and bottom floor remained vacant and unused for any purpose.

1 July 19XX to March 20XX

5.     In relation to the period from 1 July 19XX to March 20XX, both the top floor and bottom floor of the Property were leased to third party tenants and rental income was derived by the Taxpayer.

April 20XX to December 20XX

6.     In relation to the period from April 20XX to December 20XX, the Property was not leased to any tenant and did not derive any rental income.

7.     During this period various renovation works were undertaken on the Property e.g., flooring, plumbing and painting (Renovations).

8.     The purpose of the Renovations was to convert the Property into a café, which also sold goods, that the Taxpayer would own and operate (the Proposed Business).

9.     During this period, the Taxpayer also undertook the following activities in preparation for the Proposed Business:

•         The Taxpayer proposed to use the existing fit-out of the Property for the Proposed Business.

•         The Taxpayer purchased a cash register, several office items, a display unit, storage, stainless steel benches, café chairs and tables.

Top floor of the Property - 1 January 20XX to 30 November 20XX

10.  In the period from 1 January 20XX to 30 November 20XX, the top floor of the Property was leased to an unrelated, third party lessee.

Bottom floor of the Property - 1 January 20XX to December 20XX

11.  On 1 January 20XX, the Taxpayer entered into a three year lease agreement with a third party tenant for the bottom floor of the Property.

12.  In June 20XX, third party tenant subleased the bottom floor of the Property to a third party sublessee.

13.  In the period from September 20XX to December 20XX, the Taxpayer undertook some electrical works on the Property.

14.  In December 20XX, the sublessee vacated the Property and the third party tenant paid the remaining 12 months rental income to the Taxpayer after the sublessee vacated the Property.

Bottom floor of the Property - January 20XX to 31 July 20XX

15.  In January 20XX, the Taxpayer began preparing and renovating the bottom floor of the Property to accommodate a new business selling second-hand items (the New Business).

16.  In preparing to operate the New Business, the Taxpayer volunteered at another business to gain experience in the second-hand business.

17.  In January 20XX, the Taxpayer commenced cleaning and stocking the bottom floor of the Property. The Taxpayer acquired trading stock for the New Business through purchases from:

•         Lifeline;

•         Various auctions;

•         Other stores (such as thrift shops);

•         Garage sales; and

•         Council clean up

18.  The stock was not previously owned by the Taxpayer for her own personal use and enjoyment.

19.  Renovation works were also undertaken to prepare the Property for the New Business. This included:

•         cleaning the property;

•         polishing the floors;

•         painting the internal walls;

•         installing shelving;

•         plumbing works;

•         electrical works; and

•         other general repair works.

20.  For each income year ended 30 June 20XX to 30 June 20XX, the gross rental income derived from the Property was significantly greater than the gross business income derived from the New Business.

21.  For the income years ended 30 June 20XX and 30 June 20XX, the gross business income derived from the New Business was greater than the gross rental income derived.

Sale of the Property

22.  During the income year ended 30 June 20XX, the Taxpayer entered into a contract for the sale of the Property to a third party purchaser (Sales Contract).

23.  The Taxpayer continued to operate the New Business up until the day of settlement of the Property.

24.  The Applicant has advised that the Taxpayer expects to make a capital gain from the sale of the Property.

25.  The Property is characterised as a capital gains tax (CGT) asset in the hands of the Taxpayer at all relevant times.

The Taxpayer

26.  The Taxpayer has not been involved in any employment since starting the New Business and has not engaged in any form of employment since the sale of the Property.

27.  In relation to the income years ended 30 June 20XX and 30 June 20XX, the Taxpayer's aggregated turnover was less than $X million.

28.  The Taxpayer has not previously made a choice under Subdivision 152-D of the ITAA 1997 in any previous income tax return.

29.  The Taxpayer is over 55 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 subsection 152-10(1)

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-D

Reasons for decision

Question 1

Summary

1.    The Taxpayer does not satisfy the basic conditions in subsection 152-10(1) of the ITAA 1997 in relation to the sale of the Property.

Detailed reasoning

2.    The basic conditions for relief under the small business CGT concessions are outlined in subsection 152-10(1) of the ITAA 1997. These conditions are:

(a)   a CGT event happens in relation to a CGT asset of yours in an income year;

(b)   the event would (apart from this Division) have resulted in the gain;

(c)   at least one of the following applies:

(i)    you are a CGT small business entity for the income year;

(ii)   you satisfy the maximum net asset value (MNAV) test (see section 152-15);

(iii)  you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in an asset of the partnership;

(iv)  the conditions mentioned in subsection 152-10(1A) or 152-10(1B) are satisfied in relation to the CGT asset in the income year;

(d)     the CGT asset satisfies the active asset test (see section 152-35).

3.    Consideration of each of these requirements in the current circumstances is discussed below.

Basic condition (a) of subsection 152-10(1) of the ITAA 1997 - A CGT event happens in relation to a CGT asset of yours in an income year

4.    During the income year ended 30 June 20XX, the Taxpayer disposed of the Property via the Sales Contract with an unrelated, third party. The Property is a CGT asset (as defined in subsection 108-5(1) of the ITAA 1997) and CGT event A1 (in section 104-10) happened upon entering into the Sales Contract.

5.    Consequently, the requirements of paragraph 152-10(1)(a) of the ITAA 1997 are satisfied.

Basic condition (b) of subsection 152-10(1) of the ITAA 1997 - The event would have resulted in the gain

6.    Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base.

7.    The Applicant has advised that the Taxpayer has made a capital gain from the disposal of the Property under section 104-10 of the ITAA 1997.

8.    Consequently, the requirements of paragraph 152-10(1)(b) of the ITAA 1997 are satisfied.

Basic condition (c) of subsection 152-10(1) of the ITAA 1997 - at least one of the following applies:

(i)            you are a CGT small business entity for the income year

9.    Subsection 152-10(1AA) of the ITAA 1997 provides that you are CGT small business entity for an income year if:

(a) you are a small business entity for the income year; and

(b) you would be a small business entity for the income year if each reference in section 328-110 to $10 million were a reference to $2 million.

10.  Subsection 328-110(1) of the ITAA 1997 provides that you are a 'small business entity' for an income year if:

(a) you carry on a business in the current year; and

(b) one or both of the following applies:

(i) you carried on a business in the income year (the previous year) before the current year and your aggregated turnover for the previous year was less than $10 million;

(ii) your aggregated turnover for the current year is likely to be less than $10 million.

11.  Subsection 328-110(4) of the ITAA 1997 further provides that you are a small business entity for an income year (the current year) if:

(a)  you carry on a business in the current year; and

(b)  your aggregated turnover for the current year, worked out as at the end of that year, is less than $10 million.

12.  The Taxpayer carried on the New Business during the current year (the income year ended 30 June 20XX) and, therefore, satisfies paragraph 328-110(1)(a) of the ITAA 1997.

13.  The Taxpayer carried on the New Business in the income year before the current year (the previous year) and, based on the information provided, their aggregated turnover for the previous year was less than $X million and as such the Taxpayer satisfies paragraph 328-110(1)(b) of the ITAA 1997.

14.  The Taxpayer, therefore, is a small business entity for the income year ended 30 June 20XX as they meet the conditions in subsection 328-110(1) of the ITAA 1997 and consequently satisfy the CGT small business entity test in subparagraph 152-10(1)(c)(i).

15.  It is also noted that the Taxpayer may satisfy the 'small business entity' test in subsection 328-110(4) of the ITAA 1997 as they carried on the business during the income year ended 30 June 20XX and their aggregate turnover for this year, worked out at the end of that year, was less than $X million (based on the advised gross business income). In this regard, it is noted that, because the Taxpayer ceased the New Business part way through the 20XX income year they would be required to work out their annual turnover and aggregate turnover for this year using a reasonable estimate of what the annual turnover for the income year would be if the Taxpayer had carried on a business for the whole of the income year.

16.  Because the Taxpayer satisfies the requirements of subparagraph 152-10(1)(c)(i) of the ITAA 1997, the Taxpayer meets the requirements of paragraph 152-10(1)(c) of the ITAA 1997.

17.  It is, therefore, unnecessary to consider the additional tests in paragraph 152-10(1)(c) of the ITAA 1997, such as the MNAV test.

Basic condition (d) of subsection 152-10(1) of the ITAA 1997 - the CGT asset satisfies the active asset test

18.  Pursuant to subsection 152-35(1) of the ITAA 1997, a CGT asset satisfies the active asset test 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 period specified in subsection (2); 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 at least 7½ years during the period specified in subsection (2).

19.  Subsection 152-35(2) of the ITAA 1997 provides that the test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases.

20.  Subsection 152-40(1) of the ITAA 1997 provides that a tangible or intangible CGT asset is an active asset if you own the asset and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by you, your affiliate, or an entity connected with you.

21.  However, paragraph 152-40(4)(e) of the ITAA 1997 provides that an asset whose main use is to derive rent cannot be an active asset unless:

(i)            the asset is an intangible asset and has been substantially developed, altered or improved

by you so that its market value has been substantially enhanced; or

(ii)           its main use for deriving rent was only temporary.

Mixed use of a property

22.  Taxation Determination TD 2006/78 (Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent?) considers the active asset test and the main use to derive rent concept. Paragraph 26 of Taxation Determination TD 2006/78 states that:

If an asset is used partly for business and partly to derive rent at any given time, it will be a question of fact depended on all the circumstances as to whether the main use of the asset at that time is to derive rent. No one single factor will necessarily be determinative, and resolving the matter is likely to involve a consideration of a range of factors such as:

•        the comparative areas of use of the premises (between deriving rent and other uses); and

•        the comparative levels of income derived from the different uses of the asset.

23.  Example 5 considers the mixed use of a property and states:

Mick owns land on which there are a number of industrial sheds. He uses one shed (45% of the land by area) to conduct a motorcycle repair business. He leases the other sheds (55% of the land by area) to unrelated third parties. The income derived from the motorcycle repair business is 80% of the total income (business plus rentals) derived from the use of the land and buildings.

In determining if the main use of the land is to derive rent, it is appropriate to consider a range of factors. In this case, a substantial (although nevertheless not a majority) proportion by area of the land is used for business purposes. As well, the business proportion of the land derives the vast majority (80%) of the total income. In all the circumstances, the Tax Office considers the main use of the land in this case is not to derive rent and accordingly the land is not excluded from being an active asset by paragraph 152-40(4)(e) of the ITAA 1997.

Application to the current circumstances

24.  The Taxpayer acquired the Property in 19XX.

25.  The CGT event stemming from the Sales Contract happened during the income year ended 30 June 20XX.

26.  Based on these dates, the Taxpayer owned the Property for more than 15 years and, therefore, to pass the active asset test, the Property will need to be an active asset for a total of at least 7½ years.

27.  In the current circumstances, during the ownership test period, the Property has been used to both derive rent and to carrying on a business at various times. Accordingly, it is necessary to examine the following periods during the ownership test period to determine whether the Property was an active asset during these times.

19XX to 1 July 19XX

28.  In relation to the period from 15 April 19XX to 1 July 19XX, the Property was not leased and both the top floor and bottom floor remained vacant and unused for any purpose. Accordingly, the Property was not an active asset during this period.

1 July 19XX to March 20XX

29.  In relation to the period from 1 July 19XX to March 20XX, both the top floor and bottom floor of the Property were leased to third party tenants and rental income was derived by the Taxpayer. As the Property was not used in a business carried on by the Taxpayer (or an affiliate or a connected entity) during this period, it was not an active asset.

April 20XX to December 20XX

30.  In March 20XX, the tenant vacated the Property.

31.  In relation to the period from April 20XX to December 20XX, the Property was not leased to any tenant and did not derive any rental income.

32.  During this period Renovations were undertaken on the Property.

33.  The purpose of the Renovations was to convert the Property into a café which also sold goods that the Taxpayer would own and operate.

34.  During this period, the Taxpayer also undertook the following activities in preparation for the Proposed Business:

•         The Taxpayer proposed to use the existing fit-out of the Property for the Proposed Business.

•         The Taxpayer purchased a cash register, several office items, a display unit, storage, stainless steel benches and café chairs and tables.

35.  In the current circumstances, when considering whether the Property was an active asset during this period, it is necessary to consider, as required by subsection 152-40(1) of the ITAA 1997, whether it was used, or held ready for use, in the course of carrying on a business that was carried on by the Taxpayer (or an affiliate or a connected entity). With this in mind, it is noted that to satisfy this requirement a business must have been carried on.

36.  In this regard, it is noted that the actual date of commencement of a business activity is a question of fact (Goodman Fielder Wattie Ltd v. FC of T 91 ATC 4438; (1991) 22 ATR 26) (Goodman Fielder Wattie).

37.  As flagged in paragraph 98 of TR 2001/14, for a business activity to have commenced a person must have:

•         purpose, intention and decision to commence the business activity

•         acquired a minimum level of business assets to allow that business activity to be carried on, and

•         actually commenced business operations (Calkin v. CIR 1 NZLR 440).

38.  We must examine the above indicators in light of the characterisation of the business activity.

39.  In Goodman Fielder Wattie, Hill J stated at 4447:

'Critical to the resolution of the present controversy, is the characterisation of the business activity itself which is said to have commenced. It was conceded properly by the applicant that if the business claimed to be carried on by it was to be characterised as one of manufacturing and selling monoclonal antibody products, then that business did not commence until around November 1982 when the move to the Slacks Creek premises took place'.

40.  For example, if your business activity is characterised as a primary production activity, involving the planting and cultivating of trees, then the planting of the trees could be seen as the commencement of that business. Alternatively, if your business activity is characterised as the manufacturing and selling of a product, the business would generally be considered to commence once you have manufactured and began selling the product.

41.  In this case it is considered that the business activity the Taxpayer intended to carry on was generally characterised as retail and hospitality, the selling of a product and the provision of services. We can now consider the indicators set out above to determine whether this business activity has commenced.

Purpose, Intention and Decision

42.  The intention and purpose of a taxpayer in engaging in an activity is relevant to when a business commences. However, an intention to commence a business will not determine that the business activity has actually commenced.

43.  The chain of events leading to the commencement or start-up of a business activity often begins with a mere intention to establish the business activity. This is developed by researching the proposed business and, in some instances, by experiment. This process culminates in a final decision on whether to commence business. However, not all businesses commence in such an orderly manner.

44.  It seems reasonable to accept, based on the Taxpayer's prior experience in the retail/hospitality industry and the acquisition of various assets required to operate the Proposed Business during this period that the Taxpayer had an intention and, to a degree, had committed herself to the Proposed Business.

Acquisition of a minimum level of business assets to allow that business activity to be carried on

45.  Most business activities have a structure that provides the framework of the business. It is usually a collection of capital assets. What the particular capital assets are will depend on the particular business activity.

46.  In Calkin v. CIR [1984] 1 NZLR 440 Richardson J said at 446-447:

Clearly it is not sufficient that the taxpayer has made a commitment to engage in business:he must first establish a profit-making structure and begin ordinary business operations.

47.  For a business activity to commence, an appropriate business structure should be in place and begin ordinary business operations.

48.  As to what the business structure will consist of, and its size, will be a question of fact and degree, and will depend on the nature of the business activity.

49.  The Proposed Business activity involved the sale of goods and the provision of food and beverages. Although various capital items were acquired during this period, including a cash register, a display unit, storage, stainless steel benches and café chairs and tables, the Taxpayer had not yet purchased trading stock i.e., goods to sell and food and beverages which would be required as the minimum level of business assets to commence her business activity.

Commencement of Business Operations

50.  As noted by Brennan J in Inglis v Federal Commissioner of Taxation (1979) 10 ATR 493; 80 ATC 4001, the level of activity is important in deciding whether a business is being carried on. Brennan J stated at ATC 4004-4005; ATR 496-497 that:

The carrying on of a business is not a matter merely of intention. It is a matter of activity. Yet the degree of activity which is requisite to the carrying on of a business varies according to the circumstances in which the supposed business is being conducted.

51.  In Hadlow and FC of T [2002] AATA 1250; (2002) 2002 ATC 2294; (2002) 51 ATR 1197 the Small Taxation Claims Tribunal considered the amounts incurred by a taxpayer to research and develop a book. The question for decision was whether the activities were merely preparatory and preliminary or whether the activity had reached a stage where it was able to be characterised as a business.

52.  In concluding that the activity was not carried on as a business in the relevant years, member Mowbray stated at paragraph 26:

Clearly Mr Hadlow has the subjective intention to carry on a business, but that is not sufficient. There must be business activity. There is a real question whether the activities to date are merely preparatory or preliminary (see Goodman Fielder Wattie at 4447), and whether the project has reached the stage where it is able to be characterised as a business. There has been much activity but the concept of business does not equate with being busy (Goodman Fielder Wattie at 4447; 386; 339)

Mr Hadlow has researched, undertaken travel, and visited museums, libraries and farms in pursuit of a particularly interesting topic. He has expended money but has made no sales, received no advances nor signed any contracts.

53.  In the current circumstances, the systematic and regular transactions from which the Taxpayer would have produced revenue as part of her business operations, that is, customers actually purchasing her products, did not commence.

54.  Based on the above, it is considered that, although the Taxpayer may have had an intention, and made a decision, to undertake her Proposed Business, the activities undertaken during this period were preliminary to the carrying on of the intended business. As such the Taxpayer is not considered to have commenced or to be carrying on a business at the Property during this period such that the Property was not an active asset.

1 January 20XX to 31 December 20XX

Top floor of the Property - 1 January 20XX to 31 December 20XX

55.  In the period from 1 January 20XX to 31 December 20XX (and up until 30 November 20XX) the top floor of the Property was leased to an unrelated, third party lessee.

Bottom floor of the Property - 1 January 20XX to December 20XX

56.  On 1 January 20XX, the Taxpayer entered into a three year lease with a third party tenant for the bottom floor of the Property.

57.  In June 20XX, the third party tenant subleased the bottom floor of the Property to a third party sublessee.

58.  In the period from September 20XX to December 20XX, the Taxpayer undertook some electrical works on the Property.

59.  In December 20XX, the sublessee vacated the Property and the third party tenant paid the remaining 12 months rental income to the Taxpayer after the sublessee vacated the Property.

60.  As the Property was not used in a business carried on by the Taxpayer (or an affiliate or a connected entity) during this period, it was not an active asset.

1 January 20XX to 30 November 20XX

Top floor of the Property - 1 January 20XX to 30 November 20XX

61.  In the period from 1 January 20XX to 30 November 20XX, the top floor of the Property was leased to an unrelated, third party lessee.

Bottom floor of the Property - 1 January 20XX to 30 November 20XX

62.  In January 20XX, the Taxpayer began preparing and renovating the bottom floor of the Property to accommodate the New Business.

63.  In preparing to operate the New Business, the Taxpayer also volunteered at another business to gain experience in the second-hand business.

64.  In January 20XX, the Taxpayer commenced cleaning and stocking the bottom floor of the Property. The Taxpayer acquired trading stock for the New Business through purchases from:

•         Lifeline;

•         Various auctions;

•         Other stores (such as thrift shops, the Salvation Army etc.);

•         Garage sales; and

•         Council clean up.

65.  The stock was not previously owned by the Taxpayer for her own personal use and enjoyment.

66.  Renovation works were also undertaken to prepare the Property for the New Business. This included:

•         cleaning the property;

•         polishing the floors;

•         painting the internal walls;

•         installing shelving;

•         plumbing works;

•         electrical works; and

•         other general repair works.

67.  For each income year ended 30 June 20XX to 30 June 20XX, the gross rental income derived from the Property was significantly greater than the gross business income that was derived from the New Business.

68.  For each income year ended 30 June 20XX and 30 June 20XX, the gross business income derived from the New Business was greater than the gross rental income derived.

69.  Based on the information provided, it seems that, on face value, the Taxpayer commenced carrying on the New Business between 1 January 20XX and 30 June 20XX because, based on the previously identified factors, the Taxpayer:

(a)  had an intention and committed themself to the New Business based on their research and volunteer work, the acquisition of trading stock and renovations to the Property;

(b)  appears to have acquired a minimum level of business assets to allow that business activity to be carried on (based on the acquisition of trading stock and revenue derived during this period); and

(c)   actually commenced business operations through the sale of trading stock and derivation of income.

70.  During the period 1 January 20XX to 30 November 20XX, the Property was used partly to derive rental income and partly to derive business income. As previously highlighted, an asset whose main use is to derive rent cannot be an active asset (per paragraph 152-40(4)(e) of the ITAA 1997). Given that the Property is treated as one CGT asset, it will, therefore, be a question of fact depending on all the circumstances as to whether the main use of the asset, during some or all of this period, was to derive rent.

71.  It is initially noted that neither of the exceptions in subparagraph 152-40(4)(e)(i) or 152-40(4)(e)(ii) of the ITAA 1997 apply as the Property is not an intangible asset and its main use for deriving rent was not temporary.

72.  As noted above, when considering this matter, paragraph 26 of TD 2006/78 flags that no one single factor will necessarily be determinative, and resolving the matter is likely to involve a consideration of a range of factors such as:

•         the comparative areas of use of the premises (between deriving rent and other uses); and

•         the comparative levels of income derived from the different uses of the asset.

1 January 20XX to 30 June 20XX

73.  As previously noted, for each income year ended 30 June 20XX to 30 June 20XX, the gross rental income derived from the Property by the Taxpayer was significantly greater than the gross business income from the New Business, even though the New Business used a greater proportion of the floor space of Property (55% to 45%). In light of this, it is considered that, during this period, the main use of the Property was to derive rent such that the Property was not an active asset from 1 January 20XX to 30 June 20XX.

1 July 20XX to the date of the CGT event during the income year ended 30 June 20XX

74.  In contrast, from 1 July 20XX until the date of the CGT event during the income year ended 30 June 20XX, the gross business income derived during each income year from the New Business was greater than the gross rental income derived from the Property. When combined with the relative floor space, it would seem reasonable to accept that the main use of the Property during this period was not to derive rent and, therefore, the Property was an active asset.

Active Asset Conclusion- Property use from 1 January 20XX to the date of the CGT event during the income year ended 30 June 20XX

75.  Based on the above analysis, it is considered that, at most, during the period from 1 January 20XX to the date of the CGT event, the Property was an active asset from 1 July 20XX to the date of the CGT event during the income year ended 30 June 20XX i.e., less than 2 years.

76.  It is further noted that during the ownership test period, apart from that period specified in the preceding paragraph, the Property was not considered to be an active asset at any other time.

Conclusion - paragraph 152-10(1)(d) of the ITAA 1997

77.  Overall, it is considered that the Property does not satisfy the active asset test and paragraph 152-10(1)(d) of the ITAA 1997 because the Taxpayer owned the Property for more than 15 years and the CGT asset was not an active asset for at least 7½ years during the period of ownership.

Conclusion on subsection 152-10(1) and Subdivision 152-A of the ITAA 1997

78.  As detailed above, because the Taxpayer does not satisfy the active asset test in paragraph 152-10(1)(d) of the ITAA 1997, the Taxpayer does not satisfy the basic conditions in subsection 152-10(1) and Subdivision 152-A in respect of the capital gain made from the sale of the Property.

Questions 2 to 4

Summary

79.  The Taxpayer does not satisfy the requirements in Subdivision 152-B, Subdivision 152-C and Subdivision 152-D of the ITAA 1997 because the Taxpayer does not meet the basic conditions in section 152-10 and Subdivision 152-A in respect of the capital gain made from the sale of the Property.

Detailed reasoning

80.  To be eligible for each of the concessions outlined in Subdivision 152-B (Small business 15-year exemption), Subdivision 152-C (Small business 50% reduction) and Subdivision 152-D (Small business retirement exemption), it is a requirement that the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied.

81.  As detailed above, the Taxpayer does not satisfy the basic conditions in section 152-10 and Subdivision 152-A of the ITAA 1997 in respect of the capital gain made on the sale of the Property. Consequently, the Taxpayer also does not satisfy the requirements in Subdivision 152-B, Subdivision 152-C and Subdivision 152-D and is not eligible to apply these concessions.