ATO ID 2002/862: Capital gains tax: active asset test: interest in property acquired at different times
Date of decision: 15 March 2002
Year of income: 30 June 2004
Business line: Private Groups and High Wealth Individuals

Issue
Is the active asset test in section 152-35 of the Income Tax Assessment Act 1997 ('ITAA 1997') applied separately to interests in land acquired at two different times?

Decision
Yes. Where a taxpayer acquires an interest in land at two different times each interest is a separate asset for the purposes of applying the active asset test in section 152-35 of the ITAA 1997.

Facts
The taxpayer acquired a half interest in a farming property 1 January 1990 (interest A) and acquired the other half interest fourteen months later in 1 March 1991 (interest B). The taxpayer commenced farming operations on the property immediately after acquiring interest B. After unsuccessfully trying to sell the property for some time, the taxpayer leased the property for three years from 1 June 1997 to 31 May 2000. At the conclusion of the lease the taxpayer once again began farming the property for a six month period.

Reasons for decision
Summary: In order to satisfy the active asset test, section 152-35 of the ITAA 1997 requires a CGT asset to be an active asset of a taxpayer: '(a) just before the earlier of: (i) the CGT event; and (ii) if the relevant business ceased to be carried on in the last 12 months or any longer period that the Commissioner allows - the cessation of the business; and Taxation Determination TD 2000/31 states that if a taxpayer owns an interest in a CGT asset and they acquire another interest in the asset, the interests remain separate CGT assets. Therefore, the two half interests in the farming property that the taxpayer acquired remain separate CGT assets throughout the period of ownership. The active asset test must be applied separately to each interest. Both interests in the property became the taxpayer's active assets immediately after the acquisition of interest B when the taxpayer commenced farming operations. The interests remained the taxpayer's active assets until the lease was entered into (75 months). The interests once again became active assets for the period immediately after the lease ended and before the sale (6 months). The total period the interests were used as active assets was 81 months. Interest A was owned for a total period of 131 months and interest B for 117 months. Interest A was active for approximately sixty per cent of the total period of ownership. Interest B was active for approximately seventy per cent of the total period of ownership. It is therefore considered that the both interests in the property will be the taxpayer's active assets for over half the period from their respective dates of acquisition to the time of the CGT event as required by paragraph 152-35(b) of the ITAA 1997. (The taxpayer owned both interests in the property for less than 15 years and therefore the consideration of subparagraph 152-35(b)(ii) of the ITAA 1997 is not relevant).

Legislative references: Income Tax Assessment Act 1997 section 152-35 paragraph 152-35(b) subparagraph 152-35(b)(ii) paragraph 152-40(1)(a)
Related public rulings and determinations: Taxation Determination TD 2000/31 | Taxation Determination TD 1999/78
Subject references: Capital gains tax CGT small business relief Active asset test CGT separate assets