Private ruling: CGT - small business concessions
Published: October 2013

Ruling: Q1: Are you and your spouse considered to be affiliates for the purpose of accessing the small business CGT concessions? | A1: No. | Q2: Is your property an active asset? | A2: Yes. Year ended 30 June 2014 1 July 2013

Relevant facts and circumstances: You carry on a business in your own name and derive consultancy income. You are also actively involved in a business conducted by a company. You own a property which you are planning on selling. This property is used by the company in the course of carrying on its business. You are 100% shareholder and sole director of the company. The company has used the property in the course of carrying on its business since 19XX. Your relative has control of a separate group of entities. You have no control over your relative's entities, nor are you an equity holder, director or trustee for any of the entities. You and your relative keep your business affairs independent of one another and have no control or influence in the management of the others businesses and investments. You and your relative entered into a financial agreement that was approved by the Court. You and your relative have maintained your financial interest completely separate from each other in accordance with the financial agreement. You or your connected entities do not use any properties owned by your relative or their connected entities. Your relative does not use any properties owned by you or one of your connected entities. Income Tax Assessment Act 1997 Division 152. Income Tax Assessment Act 1997 Section 152-10. Income Tax Assessment Act 1997 Section 152-35. Income Tax Assessment Act 1997 Section 328-130.


Reasons for decision: Detailed Reasoning - Basic Conditions: A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the following basic conditions are satisfied: · a CGT event happens in relation to a CGT asset of yours in an income year · the event would have resulted in a gain · the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and · at least one of the following applies; - you are a small business entity for the income year - you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997 - you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or - you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you. To determine whether you are a small business entity for the income year or if you satisfy the maximum net asset value test you need to determine if any business entities are your affiliates or are connected with you. In your case, you have determined who your connected entities are and want to address whether your relative is considered to be your affiliate. This will determine if you need to account for your relative and their connected entities when determining if you are a small business entity or you satisfy the maximum net asset value test. | Detailed Reasoning - Affiliate: An affiliate is, according to section 328-130 of the ITAA 1997, an individual or a company who acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company. A spouse or a child under the age of 18 years is not automatically an affiliate. Whether a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer is a question of fact dependent on all the circumstances of the particular case. No one factor will necessarily be determinative. Relevant factors that may support a finding that a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer include: · the existence of a close family relationship between the parties; · the lack of any formal agreement between the parties prescribing how the parties are to act in relation to each other; · the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements; and · the actions of the parties. In your case, although there is a close family relationship between you and your relative, you keep your business affairs independent of one another and have no control or influence in the management of the others businesses and investments. You and your relative act in accordance with a financial agreement set out by the Family Law Court and keep your financial interest completely separate. In taking into account the above considerations, you are not affiliated with your spouse. | Detailed Reasoning - Active Asset: The active asset test is contained in section 152-35 of the ITAA 1997. Where you have owned the asset for less than 15 years, the active asset test is satisfied if the asset was an active asset of yours for at least half of the test period detailed below. The test period: · begins when you acquired the asset, and · ends at the earlier of o the CGT event, and o when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows). A CGT asset is an active asset at a given time if, at that time you own it and it is used (or held ready for use) in the course of carrying on a business by you, a small business CGT affiliate of yours or an entity connected with you. In your case, you have owned the asset for less than 15 years and it has been used by your connected entity for the whole of the ownership period. Therefore, the property is considered to be an active asset under section 152-35 of the ITAA 1997.