Private ruling: Capital gains Tax – Small Business Concession - Active Asset - Cash in bank
Date of advice: 27 October 2017
Published: March 2018
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Whether the balances in the bank account are inherently connected in a specified period of the business carried on by the Company as contemplated in subparagraphs 152-40(3)(b)(ii) and (iii) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The Company was registered with ASIC. The business has been operating since its’ registration. The Company has several shareholders. The shareholders wish to dispose their respective shareholding in the Company and will look to access the Capital Gains Tax (CGT) small business concessions. The Company holds bank accounts. Limited transactions were carried out in these accounts for the period held by the company. The ATO has not been provided with all the relevant information to determine the market value of the Company’s assets.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 subparagraph 152-40(3)(b)(ii) | Income Tax Assessment Act 1997 subparagraph 152-40(3)(b)(iii) | Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997

Reasons for decision: Summary: Subdivision 152 sets out the conditions for eligibility to access the small business CGT concessions. One of the basic conditions that must be satisfied by a taxpayer to be eligible for CGT small business relief is that the asset giving rise to the capital gain, for which tax relief is being sought, passes the active asset test in section 152-35. The active asset test requires that the CGT asset be an active asset for at least half the period of its ownership. Active assets are defined in section 152-40. In the present case, the CGT small business concessions will be available to the shareholders where the shares in the Company meet the active asset test. The active asset test will be met where the shares are active assets for at least half the period from when the shares in the Company were first acquired by the shareholders until they are transferred; or for 7.5 years if the shares were held for more than 15 years. The shares in the Company will be active assets at any given time, where the total of the market values of the active assets of the Company, and the market value of any financial instruments and monies of the Company that are inherently connected with the business of the Company, are 80% or more than the market value of the total assets of the Company (“the 80% test”). The fact pattern relevant to the bank accounts in this case could not be said to have been inherently connected with the business carried on by the Company as contemplated in subparagraphs 152-40(3)(b)(ii) and (iii) during the relevant period.

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