Private ruling: CGT - active asset
Date of advice: 5 December 2025
Published: 27 January 2026
Ruling period: Year ended 30 June 20XY
Date scheme commenced: 20XY

Ruling: Q1: Is the land an active asset for at least the first 7½ years of the ownership period within the meaning of sections 152-35 and 152-40 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: The Taxpayer acquired the Land in 20XU. The Taxpayer purchased the Land with the intention of carrying out the development of a residential park, also known as a manufactured home park. The Taxpayer is intending to dispose of the Land and the business conducted on the Land. Prior to the purchase, the Land had been used to carry on a caravan park business. Upon taking possession, the Taxpayer closed the caravan park business. The tenants were required to vacate, and the Taxpayer disposed of the existing cabins and caravans. The Taxpayer committed the Land to the construction and development of a residential park. The Taxpayer carried out activities including ground works, road construction, installation of amenities for the supply of electricity, water, gas and wastewater management, landscaping, drainage improvement, digging a water retention basin, fire safety compliance measures, lighting, signage and fencing, as well as the construction of buildings and recreation areas for the common use of residents. These improved facilities comprise the newly built community room, courtyard with BBQ amenities, shed in the southwest corner, gardens, footpaths and pre-existing swimming pool. The Taxpayer has also provided ongoing maintenance, upkeep and management of the residential park, in line with the standards required by the relevant State Regulations. This includes services of maintaining the communal gardens and pool, occasional cleaning of the communal room, and the removal of bins and hard rubbish, as well as the purchase of tea and coffee for residents to use in the communal room. The Taxpayer's original intention for the development had been to construct and sell X Unregistrable Movable Dwellings, referred to here as units, within the meaning of the Regulations. Due to requirements imposed by the relevant authorities, the plan was reduced in scope to Y units. The construction of the units was carried out by the Taxpayer in two ways. For some, the Taxpayer themselves built the units and sold them. For other units, a third-party builder was engaged to build and sell the units, with the Taxpayer receiving commission payments from the builder. The Taxpayer and the third-party builder commenced building the units in 20XV. The units were generally built to order. All the units were built on site, except for four which were constructed elsewhere and then brought to the Land. During the construction phase, the unfinished parts of the development were fenced off for safety reasons. Fencing was moved as construction progressed. The pace of the development was hampered by factors outside of the Taxpayer's control. More specifically, the timeframe for development was prolonged by constrained access to credit and depressed sales activity associated with the global financial crisis (GFC), as well as reduced buyer appetite in the wake of significant flooding of a nearby river in two separate years. Seven years from when the Taxpayer had purchased the Land, a report and valuation was prepared in respect of the Land for a bank for mortgage interest rate purposes. In the report, the Taxpayer is referred to at that point in time as a 'developer/applicant' and 'developer'. The report refers to 'development and growth' and 'whilst development continues', anticipating at least X more years of ongoing works. Construction of the last of the units was completed in 20XW. A Rental Statement at a similar time indicates that the Taxpayer's development activities were still an ongoing project at that date, with substantial work remaining. Satellite imagery from a date just after 7 ½ years from purchase of the Land evidences the physical progress of the Taxpayer's development of the Land. It shows 36% of the Land was covered by units which had been sold and were deriving site fees. The remaining 55% of the Land comprised land upon which units had not yet been constructed and sold, and 9% of the Land comprised the communal garden, BBQ area, pool and community room. The Taxpayer derived income from sale of the units and commission from sales, as well as from site fees in respect of the land upon which each of the units are located. Since commencement of trading, income from the unit sales and commission on unit sales has always been recognised by the Taxpayer on revenue account, like the site fees, instead of being treated as the sale of a capital item. Details of income from site fees and from the sale of units and commission on the units has been provided for the income years from purchase up to the 20XX year. Details of expenditure on advertising have been provided.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40

Reasons for decision: Summary: All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated. The continuous receipt of site fees indicates that the Land was being used throughout the relevant period to derive rent, which is consistent with carrying on a business of operating a residential park. Having considered various factors, it cannot be established that there was a total of at least 7½ years during which the main use of the Land was not to derive rent. The Land is not an active asset in accordance with section 152-40 and the requirements of the active asset test in section 152-35 have not been met. | Detailed Reasoning - Detailed reasoning: Section 152-35 provides that: (1) A CGT asset satisfies the active asset test if: (a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period specified in subsection (2); or (b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the period specified in subsection (2). (2) The period: (a) begins when you acquired the asset; and (b) ends at the earlier of (i) the *CGT event; and (ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business. The Land was purchased in 20XU. The period referred to in subsection 152-35(2) will be more than 15 years, so the asset had to have been an active asset for a total of 7½ years within that period. Subsection 152-40(1) states that a CGT asset is an active asset at a time if, at that time: (a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you; or (b) if the asset is an intangible asset - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you. However, paragraph 152-40(4)(e) states that certain CGT assets cannot be active assets, including: an asset whose main use by you is to derive interest, an annuity, rent, royalties or foreign exchange gains unless: (i) the asset is an intangible asset and has been substantially developed, altered or improved by you so that its market value has been substantially enhanced; or (ii) its main use for deriving rent was only temporary. For the purposes of paragraph 152-40(4)(e) in determining the main use of an asset, in accordance with subsection 152-40(4A): (a) disregard any personal use or enjoyment of the asset by you; and (b) treat any use by your affiliate, or an entity that is connected with you, as your use. The Land is owned by the Taxpayer, and it has been used in carrying on a business of operating a residential park, which included various activities required to establish the residential park on the Land. There is no dispute that the sites fees paid by residents of the residential park are in the nature of rent. It is the Taxpayer's use of the Land that we need to consider in order to determine whether the Land is an active asset in accordance with section 152-40. The Taxpayer has used the Land to derive rent until now. If there was a total of at least 7½ years during which the main use of the Land by the Taxpayer was not to derive rent, it will not be excluded from being an active asset for that period, and the Land will meet the requirements of the active asset test. The mixed use of a CGT asset for the purposes of the active asset test is discussed in Taxation Determination TD 2006/78 Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent? Paragraph 26 of TD 2006/78 provides some guidance on how main use might be determined where there is mixed use: If an asset is used partly for business and partly to derive rent at any given time, it will be a question of fact dependent on all the circumstances as to whether the main use of the asset at that time is to derive rent. No one single factor will necessarily be determinative, and resolving the matter is likely to involve a consideration of a range of factors such as: • the comparative areas of use of the premises (between deriving rent and other uses); and • the comparative levels of income derived from the different uses of the asset. As at a date that is a little over 7½ years since the Land was purchased: • 36% of the Land was covered by units which had been sold and were deriving site fees (a display unit is not included in this 36% figure) • 9% of the Land comprised the communal garden, BBQ area, pool and community room, and • the remaining 55% of the Land comprised Land upon which units had not yet been constructed and sold. Although no resident has exclusive possession of the common areas, the provision of these areas does have a connection with the derivation of rent. In the decision from Tingari Village North Pty Ltd v. Commissioner of Taxation [2010] AATA 233 (Tingari case), the following is noted about the provision of various common facilities for use by the tenants: 43. None of these benefits are identified in the tenancy agreements or at all as legally enforceable incidents of the right to occupy a site. Their primary purpose obviously is to attract more potential residents to come and reside at the park. The provision of common areas may be seen as both essential for the business of attracting unit sales and integral to the use of the Land to derive rent by attracting potential residents. The Taxpayer carried out activities including ground works, road construction, installation of amenities for the supply of electricity, water, gas and wastewater management, landscaping, drainage improvement, digging a water retention basin, fire safety compliance measures, lighting, signage and fencing, as well as the construction of buildings and recreation areas for the common use of residents. Many of these activities would have been required before any residents could reside in the residential park. They appear to be consistent with enhancing the land to attract and retain residences rather than being part of a property development business. Both the Taxpayer and a third-party builder constructed units on site from the 20XV income year until the 20XW income year. The third-party builder was engaged to build and sell units, with the Taxpayer receiving commission on their sale. The third-party builder used the Land, in the physical sense, in the course of building and selling these units. This raises questions about the extent to which the Taxpayer actively engaged in the construction and sale activity, compared to facilitating third-party activity. There is insufficient evidence to establish that the construction and sale activities formed part of a development business apart from the operation of the residential park. In comparing the levels of income derived from the different uses of the asset to determine main use, the comparison needs to be done on a year-by-year basis. The legislation provides that an asset will be an active asset at a time if, at that time the Taxpayer owned the asset, and it was used in the course of carrying on a business, but it will not be an active asset if its main use by the Taxpayer at that time was to derive rent. In the period from when the Land was acquired up to the 20XX income year, there were only six income years in which income from site fees was less than 50% of total income for that year. The income comparison information indicates that the Taxpayer's income from unit sales was intermittent. The first unit sale related to units from the existing caravan park. The first sale of newly constructed units by the Taxpayer fluctuated and was zero in some years, which is attributed to the GFC and flooding events. Notably, the Taxpayer received commission income annually for numerous years from the construction and unit sales undertaken by a third-party builder, including periods affected by the GFC and flooding events. Conversely, from the year the Land was purchased onwards, the Taxpayer consistently received site fees, which increased over time and continued through to 20XX, including periods affected by the GFC and flooding events. The comparative use of the Land and the comparative levels of income from different uses of the Land does not establish that for a total of at least 7½ years the main use of the Land was not to derive rent. The continuous receipt of site fees for the income years 20XU to 20XX indicates that the Land was being used throughout the relevant period to derive rent, which is consistent with carrying on a business of operating a residential park. Having considered various factors, it cannot be established that there was a total of at least 7 ½ years during which the main use of the Land was not to derive rent. The Land is not an active asset in accordance with section 152-40 and the requirements of the active asset test in section 152-35 have not been met.

This is to explain how we reached our decision. This is not part of the private ruling.