Edited version of private advice

Authorisation Number: 5010087099874

Date of advice: 30 November 2022

Ruling

Subject: CGT - active asset test

Question 1

Are you carrying on a business and considered to be a small business entity for the purposes of section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

After weighing up the relative business indicators and objective facts surrounding your case it considered that you are carrying on a business. Furthermore, as your aggregated turnover is under $X million you are considered to be a small business entity.

Question 2

Do you satisfy the basic conditions for the capital gains tax (CGT) small business concession under section 152-10 of the ITAA 1997 in relation to the disposal of the specified CGT asset and any intangible assets of the business?

Answer

Yes.

Having considered all circumstances and the relevant facts, it is accepted that a tenant/landlord relation does not exist between the partnership and the clients using the storage units. Therefore, the amounts received by the partnership are not considered rent. This means the property will satisfy the active asset test for the purpose of the small business CGT concessions.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 May 20XX

Relevant facts and circumstances

You own self-storage units for short term and long-term storage under a rental agreement with the renter.

The Storage Units were purchased around a specified date and you have continued to develop and construct additional units to the site.

You provided us with details on your yearly income generated from the Storage Units.

Each customer must enter into a 'Standard Self Storage Agreement' (SSSA) to use a Storage Unit.

The executed SSSA has the following relevant provisions:

•         Cover page - The Storage Period (for the use of the Storage Unit) has a commencement ('from') and end ('to') date, which is automatically extended unless notice to terminate the SSSA is given by either the partnership or the customer;

•         Cover page - weekly/fortnightly/monthly payments, payable on the date of commencement, is to be made by the customer to the partnership for use of the Storage Unit (Storage Fee);

•         Cover page - The Storage Fee for the use of the Storage Unit must be paid in advance;

•         Clause 4(b) - The Cleaning Fee, as indicated on the front of the SSSA is payable at the partner's discretion;

•         Clause 4(c) - A Late Payment Fee, as indicated on the front of the SSSA becomes payable each time a payment is late;

•         Clause 6(a) - The partners may enter a Storage Unit where the Storage Fee (or any other amount owing and outstanding under the SSSA) is not paid within 42 days of the due date, retain any deposit that has been paid in respect of the Storage Unit and sell or dispose of any goods in the Storage Unit;

•         Clause 7 - if the partnership reasonably believes a defaulting Storer's Goods are either no saleable, fail to sell when offered for sale, or are not of sufficient value to warrant the expense of attempting to sell, the partners may dispose of all Goods in the Storer's Space by any means;

•         Clause 10(a) - the customer can only access the Storage Unit during the designated Access Hours;

•         Clause 10(b) - the customer is responsible for securing (locking) the Storage Unit and where this is not done, the partners may lock the Storage Unit and be reimbursed by the customer for this cost;

•         Clause 10 - imposes the following restrictions on what may be stored in the Storage Units:

o   (c) Must not store any goods that are hazardous, illegal, stolen, flammable, explosive, environmentally harmful, perishable, or that are a risk to the property of any person

o   (d) Must not store items which are irreplaceable, such as currency, jewellery, furs, deeds, paintings, curios, works or arts and items of personal sentimental value

o   (e) The Storage Unit will solely be used for storage and shall not carry on any business of other activity in the Space;

•         Clause 10(f) - nails, screws etc cannot be attached to the Storage Unit. There must not be any damage or alteration to the Storage Unit unless the consent of the owners is obtained. Where the damage or uncleanliness to the Storage Unit, the customer must rectify such damage or uncleanliness and the partners may withhold the deposit or charge additional fee/s to cover the costs of reimbursement;

•         Clause 10(g) - the customer cannot assign the SSSA;

•         Clause 11 - The partners have the right to refuse access to the Storage Unit where there is any money owing of any other demand or notice is outstanding;

•         Clause 12 - The partners may relocate the customer to another Storage Unit under certain circumstances

•         Clause 13 - The partners may dispose of the customer's goods where they have been damaged due to fire, floor or other event which renders the goods damaged or dangerous to the Storage premises or persons;

•         Clause 19 - Provided that 14 days notice is given, the partners may enter and inspect the Storage Unit;

•         Clause 23 - If the partners enter the Storage Facility for 'any reason' and there are no goods stored in the Storage Unit, the partners may terminate the SSSA without giving prior notice but will send a notice within 7 days to the customer.

You resided in a specified state from the time of the purchase of the Storage Unit until a specified year when you moved interstate.

You provided us with details of the duties that you undertook.

You appointed a local real estate agent for limited tasks and provided us with details on their duties.

Your net asset value is under $X million.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35