Edited version of private advice

Authorisation Number: 1052264868986

Date of advice: 25 June 2024

Ruling

Subject: CGT - small business concessions

Question

Will the deceased estate satisfy the basic conditions for the capital gains tax (CGT) small business concessions under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

In 20XX, the deceased acquired a property.

The property was used by the deceased in the course of carrying on a farming business for approximately X years.

In 20XX, bushfires impacted the property, resulting in the deceased ceasing the business.

Due to the damage sustained by the property from the bushfires, the deceased did not recommence the business.

The deceased passed away.

The deceased estate intends to sell the property.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 subsection 152-35(1)

Income Tax Assessment Act 1997 subsection 152-40(1)

Reasons for decision

The basic conditions for small business CGT relief, as set out in subsection 152-10(1) of the ITAA 1997, are:

1. a CGT event happens in relation to a CGT asset of yours in an income year
2. the event would have resulted in a gain
3. at least one of the following applies:
   1. you are a small business entity for the income year;
   2. you satisfy the maximum net asset value test;
   3. 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
   4. 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.
4. the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

Under subsection 152-35(1) of the ITAA 1997, a CGT asset will satisfy the active asset test if:

1. 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 asset's ownership period, or
2. 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 asset's ownership 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.

Application to your circumstances

In this case, the deceased estate is intending to sell the property, which is a CGT event that will likely result in a gain.

The deceased acquired the property for approximately X years and owned it until their date of death. Furthermore, the property was used by the deceased in the course of carrying on a farming business for approximately X years. Therefore, the property was an active asset for approximately X years during its approximate X year ownership period.

Since the property was not an active asset of the deceased for a total of at least half of the property's ownership period, the property will not satisfy the active asset test. Thus, the basic conditions for the small business CGT concessions will not be satisfied under section 152-10 of the ITAA 1997.