ATO ID 2011/39: CGT small business concessions: maximum net asset value test - disregarded assets - asset being used solely for personal use and enjoyment by spouse and children
Date of decision: 3 May 2011
Year of income: Year ended 30 June 2011
Business line: Private Groups and High Wealth Individuals

Issue
Will the personal use of a holiday house by an individual's spouse and children under the age of 18 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
No. The personal use of a holiday house by an individual's spouse and children under the age of 18, in conjunction with the individual's personal use, will not by itself stop the holiday house from being an asset 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 which has never been leased out. For the entire period of ownership, the holiday house has been used solely for the personal use and enjoyment of the individual, their spouse and their children under the age of 18 (for occasional holidays but never as a main residence). Neither the individual's spouse nor their children carry on any business. 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
Summary: 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). For CGT events happening in the 2007-08 or later income years, the definition of 'affiliate' does not automatically include an individual's spouse or children under the age of 18. Further, if an individual does not carry on business, they can never be an 'affiliate' (subsection 328-130(1) of the ITAA 1997). As the individual's spouse and children are not affiliates of the individual, the question arises as to whether their personal use of the holiday house 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 the individual's spouse and children under the age of 18, in conjunction with the individual's personal use, is still nevertheless a part of the personal use and enjoyment of the holiday house by the individual. Such use will not therefore by itself stop the holiday house from being an asset used solely for the personal use and enjoyment of the individual. Accordingly, in the circumstances of this case, the holiday house is disregarded under subparagraph 152-20(2)(b)(i) of the ITAA 1997 in working out the net value of the individual's CGT assets.

Legislative references: Income Tax Assessment Act 1997 paragraph 152-10(1)(c) section 152-15 subparagraph 152-20(2)(b)(i) section 328-110
Subject references: Basic conditions for relief Capital gains CGT small business relief