ATO Interpretative Decision
ATO ID 2011/41
Income Tax
CGT small business concessions: maximum net asset value test - disregarded assets - asset being used solely for personal use and enjoyment - income producing useFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will the personal use by others of an individual's holiday house for which rent is paid mean that the holiday house is not an asset being used solely for the personal use and enjoyment of the individual, such that the holiday house is not disregarded under subparagraph 152-20(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) in working out the net value of the individual's CGT assets?
Decision
Yes. The personal use by others of an individual's holiday house for which rent is paid means that the holiday house is not an asset being used solely for the personal use and enjoyment of the individual under subparagraph 152-20(2)(b)(i) of the ITAA 1997.
Facts
An individual taxpayer makes a capital gain from the sale of a business asset in the 2010-11 income year. The individual also owns a holiday house. For most of the period of ownership, the holiday house has been used for the personal use and enjoyment of the individual (for occasional holidays but never as a main residence). Occasionally however, the holiday house has been used by others (none of which are the individual's affiliates). In these circumstances, at least on some occasions, rent is paid to the individual.
The individual is not a small business entity within the meaning of section 328-110 of the ITAA 1997 at any time.
For the purpose of determining whether they qualify for the small business CGT concessions, the individual must determine the net value of their CGT assets and in particular, whether the value of the holiday house is included in the calculation.
Reasons for Decision
To qualify for the small business CGT concessions, a taxpayer must generally satisfy either the maximum net asset value test or, for CGT events happening in the 2007-08 or later income years, be a small business entity ($2 million turnover test) (paragraph 152-10(1)(c) of the ITAA 1997).
A taxpayer satisfies the maximum net asset value test if, just before the CGT event, the net value of their CGT assets and of certain related entities does not exceed a threshold (section 152-15 of the ITAA 1997).
In working out the net value of the CGT assets of an individual, assets being used solely for the personal use and enjoyment of the individual, or the individual's affiliate (except a dwelling, or an ownership interest in a dwelling, that is the individual's main residence, including any relevant adjacent land) are disregarded (subparagraph 152-20(2)(b)(i) of the ITAA 1997).
The question arises as to whether the personal use of the holiday house by others for which rent is paid means that the holiday house is not being used solely for the personal use and enjoyment of the individual.
It is considered that the personal use of the holiday house by others for which rent is paid means that the holiday house is not being used solely for the personal use and enjoyment of the individual. The income producing nature of the arrangement is inconsistent with the concept of personal use and enjoyment. As the test is a sole use test, the holiday house is not being used solely for the personal use and enjoyment of the individual even if there is only occasional use of the holiday house by others during the ownership period for which rent is paid.
Accordingly, in the circumstances of this case, the holiday house is not disregarded under subparagraph 152-20(2)(b)(i) of the ITAA 1997 in working out the net value of the individual's CGT assets.
Date of decision: 20 May 2011Year of income: Year ended 30 June 2011
Legislative References:
Income Tax Assessment Act 1997
paragraph 152-10(1)(c)
section 152-15
subparagraph 152-20(2)(b)(i)
section 328-110
Keywords
Basic conditions for relief
Capital gains
CGT small business relief
Maximum net asset value test
Date reviewed: 21 February 2018
ISSN: 1445 - 2782