ATO ID 2009/33: CGT Small Business Concessions: maximum net asset value test - assets used solely for personal use and enjoyment - personal bank account
Date of decision: 29 April 2009
Year of income: Year ended 30 June 2008
Business line: Private Groups and High Wealth Individuals

Issue
Is an interest earning personal bank account of an individual disregarded in working out the net value of the CGT assets of the individual under subparagraph 152-20(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. An interest earning personal bank account is not being used solely for personal use and enjoyment, and accordingly is not disregarded in working out the net value of the CGT assets of the individual under subparagraph 152-20(2)(b)(i) of the ITAA 1997.

Facts
A company sells its business and makes a capital gain on the sale of an active asset. An individual owns 50% of the shares in the company, and is therefore connected with the company. The individual has significant funds in an interest earning personal bank account, which they use only for personal living expenses. They intend to use the funds only for private purposes in the future. To qualify for the small business CGT concessions, the company must satisfy the maximum net asset value test in section 152-15 of the ITAA 1997. To do this, the company must determine if the personal bank account is included in the net value of the CGT assets of the connected individual.

Reasons for decision
Summary: To determine if a taxpayer satisfies the maximum net asset value test, the net value of the CGT assets of the taxpayer and certain related entities must be calculated just before the relevant CGT event (section 152-15 of the ITAA 1997). As the individual is connected with the company (under paragraphs 328-125(1)(a) and 328-125(2)(b) of the ITAA 1997), the net value of the CGT assets of the individual is included in determining whether the company satisfies the maximum net asset value test. The amount standing to the credit of a bank account is a chose in action (a debt owed by the bank), and accordingly is a CGT asset under section 108-5 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, are disregarded (subparagraph 152-20(2)(b)(i) of the ITAA 1997). As the bank account is interest earning, it cannot be described as being used solely for personal use and enjoyment. It is used to produce income. The fact that the funds in the bank account are used only for personal living expenses does not affect this outcome. Accordingly, the individual's interest earning personal bank account is not disregarded in working out the net value of the CGT assets of the individual under subparagraph 152-20(2)(b)(i) of the ITAA 1997. It is included in determining whether the company satisfies the maximum net asset value test.

Legislative references: Income Tax Assessment Act 1997 section 108-5 section 152-15 subparagraph 152-20(2)(b)(i) paragraph 328-125(1)(a) paragraph 328-125(2)(b)
Subject references: Bank accounts CGT small business relief Connected entity Interest income