Edited version of private advice

Authorisation Number: 1052160697274

Date of advice: 24 August 2023

Ruling

Subject: CGT - small business concessions

Question

Does the property satisfy the active asset test under subsection 152-35(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for the purpose of the capital gains tax small business concessions?

Answer

Yes. Based on facts provided the majority of the land and workshop have been used in the course of business of a connected entity for more than the required test period (ie. for more than half the ownership period since owned for less than 15 years). Although a small area of the property was used for personal use and not generating any income, the Commissioner concludes that the assets main use is business related and the property can be considered an active asset.

This ruling applies for the following period

Year ending 30 June 20YY

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The property was purchased by the entity.

In 20YY the entity started planning the setup of a business on the property.

Council Regulations require a house to be built prior to constructing a business workshop.

On DD MM 20YY a house was constructed on the land.

On DD MM 20YY a business workshop was built.

On DD MM 20YY registered the business via a husband and wife partnership which is an entity connected to the entity that owns the property.

From DD MM 20YY until DD MM 20YY the house was used for personal accommodation purposes.

The site including the business workshop was used solely for business.

The entity's controller's principal place of residence was elsewhere until MM 20YY.

They then sold that property and moved into an apartment.

They then moved into the house built on the property as of MM 20YY.

The land and shed is still being used to this date in the partnership business.

The entity holds the land on which the business operates and receives rental income from the partnership.

The majority (over 80%) of the property is used in the partnership business.

No income is derived from personal use of land.

Turnover of the partnership over the last 6 years:</

Turnover in 2022 $XX,XXX

Turnover in 2021 $XX,XXX

Turnover in 2020 $XX,XXX

Turnover in 2019 $XXX,XX

Turnover in 2018 $XX,XXX

Turnover in 2017 $XX,XXX

The trust receives $XX,000 from the partnership per year for the leasing of the land.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection152-35 (1)

Income Tax Assessment Act 1997 section152-40

Income Tax Assessment Act 1997 subsection 152-40 (4)