ATO ID 2002/629: CGT - small business concessions - active asset - just before the CGT event
Date of decision: 17 April 2002
Year of income: Year ended 30 June 2000
Business line: Private Groups and High Wealth Individuals

Issue
Was the taxpayer's farm an active asset 'just before the CGT event', as required by paragraph 152-35(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes, the taxpayer's farm was an active asset 'just before the CGT event' as required by paragraph 152-35(a) of the ITAA 1997.

Facts
The taxpayer acquired breeding stock and a farm on which to conduct a livestock breeding business. The taxpayer made improvements to the property after it was acquired to better carry on that business. The taxpayer appointed a farm manager to look after the business. However, the manager did not provide satisfactory care for the stock and was subsequently dismissed. The stock were moved to another property for rehabilitation. Plans were made to move the stock back to the property when they had fully recovered. The farmhouse was leased on a short term basis. The lease did not extend to the remaining area of the farm. The taxpayer continued to improve the property in preparation for the stock's return. However, the taxpayer began to suffer various health problems and was unable to work. The plans to move the stock back to the property were delayed. The taxpayer's worsening health situation lead to a decision to sell the property and purchase a smaller and better equipped farm. The taxpayer sold the property and made a capital gain. The proceeds from the sale were used to acquire a replacement farm. The stock were gradually relocated to the new property. The breeding business continues to operate from the new property.

Reasons for decision
Summary: One of the requirements of the active asset test in paragraph 152-35(a) of the ITAA 1997 is that the definition of active asset (section 152-40 of the ITAA 1997) be satisfied 'just before the CGT event' (in cases where there hasn't been a cessation of business). To satisfy the definition of active asset in section 152-40 of the ITAA 1997 the asset must be used or held ready for use in the course of carrying on a business. Even though the farm was not used in the course of carrying on the taxpayer's business for a certain period of time, their intention and activities of continually improving the farm in preparation for the stock's return clearly indicate that the farm was held ready for use during that period. There was never a cessation of business in this case or an intention to abandon the business due to the taxpayer's or stock's health conditions. Although the taxpayer had formed an intention to carry on the business on another property if the farm could be sold, it is accepted that just before the time the contract for sale was made that the farm was held ready for use in the taxpayer's business. Consequently, the requirement in paragraph 152-35(a) of the ITAA 1997 has been satisfied in this case.

Legislative references: Income Tax Assessment Act 1997 Paragraph 152-35(a) Section 152-40
Subject references: Capital gains tax Active Asset test