Edited version of private advice

Authorisation Number: 1052284458384

Date of advice: 12 August 2024

Ruling

Subject: CGT - small business concessions

Question 1

Did CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen due to the sale of the property?

Answer

Yes.

Question 2

Do you satisfy the basic conditions for relief for the small business CGT concessions under section 152-10 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You own an interest in a property.

You signed a contract for the sale of the Property.

You did not carry on a business or have any association with a business that was using the land as part of their activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 152-10

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

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

Reasons for decision

Question 1

Section 104-10 of the ITAA 1997 provides that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity where the time of the CGT event is when the disposal contract is entered into.

In this case, CGT event A1 happened when you entered into a contract to dispose of your interest in the property.

Question 2

To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions.

The basic conditions for small business CGT relief, as set out in subsection 152-10 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 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 your case, the property was not used, or held ready for use, in the course of a business that was carried on by you, an affiliate of yours or an entity connected to you. Therefore, the property will not be an active asset of yours and therefore you did not satisfy the basic conditions for the small business CGT concessions in relation to the disposal of your interest in the Property.