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Edited version of private advice
Authorisation Number: 1052219757694
Date of advice: 7 February 2024
Ruling
Subject: CGT small business concessions basic conditions
Question
Do you satisfy the basic conditions to apply the small business capital gains tax (CGT) concessions?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2024
The scheme commenced on:
1 July 2023
Relevant facts and circumstances
You purchased a property (the property).
You used the property in the course of carrying on a business as a sole trader for over 7½ years.
The property was recently sold.
You satisfy the maximum net asset value test.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 152-10
Income Tax Assessment Act 1997 section 152-15
Income Tax Assessment Act 1997 section 152-35
Income Tax Assessment Act 1997 section 152-40
Reasons for decision
Basic conditions for relief
The basic conditions for small business CGT relief, as set out in subsection 152-10(1) of the ITAA 1997 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 a gain
(c) at least one of the following applies:
(i) you are a small business entity for the income year;
(ii) you satisfy the maximum net asset value test;
(iii) you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership; or
(iv) you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate, or an entity connected with you.
(d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.
Active asset test
Under subsection 152-35(1) of the ITAA 1997, a CGT asset will satisfy 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 test period, 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 test period.
Subsection 152-40(1) of the ITAA 1997 provides that a CGT asset is an active asset at a time if it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you.
In this case, the property was owned for more than 15 years and was an active asset for at least 7½ years, as it was used in the course of carrying on a business from XXYY to XXYY. Therefore, the property satisfies the active asset test. As the sale of the property will cause a CGT event that results in a capital gain and you satisfy the maximum net asset value test, you will satisfy the basic conditions under subsection 152-10(1) of the ITAA 1997.