ATO ID 2009/34: CGT Small Business Concessions: maximum net asset value test - assets used solely for personal use and enjoyment - vacant land
Date of decision: 29 April 2009
Year of income: Year ended 30 June 2008
Business line: Private Groups and High Wealth Individuals

Issue
Is vacant land owned by an individual on which they intend to construct in the future a dwelling for private use 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. Vacant land owned by an individual on which they intend to construct in the future a dwelling for private use 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
An individual owns all of the shares in a company which carries on a business. The individual also owns vacant land which is currently not being used for any purpose, but on which they intend to build a holiday house in the future for private use only. The individual disposed of the shares in the company and made a capital gain. To qualify for the small business CGT concessions, the individual must satisfy the maximum net asset value test in section 152-15 of the ITAA 1997. To do this, the individual must determine if the vacant land is included in the net value of the CGT assets of the 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). The vacant land is property, 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). Subparagraph 152-20(2)(b)(i) of the ITAA 1997 does not take into account the intended future use of an asset. In this case, the vacant land is not being used for any purpose. As subparagraph 152-20(2)(b)(i) of the ITAA 1997 does not have regard to the intended future use, it follows that the land is not being used solely for the personal use and enjoyment of the individual or the individual's affiliate. Accordingly, the vacant land 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 individual 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)
Subject references: Capital gains tax CGT small business relief Land