Private ruling: Capital gains tax - active asset
Date of advice: 14 August 2025
Published: 20 October 2025
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the property satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. You have owned your share of the property for more than 15 years and the property has been used in your partnership short-termaccommodation business for a total of at least 7.5 years of your ownership period. As the property's main use was not to derive rent it does not fall within the exception in paragraph 152-40(4)(e) of the ITAA 1997.

Relevant facts and circumstances: Person A and person B acquired the property in the income year ending 20XX. Person A and person B, in equal partnership (the partnership) operate the short-term accommodation activity (the activity) from the property since the date of acquisition and will continue until the property is sold. The partnership has been registered for GST since 1 July 20XX. No formal business plan exists. The property consists of a main residence which is occupied by person A and person B and X one-bedroom and X two-bedroom fully furnished bungalows. The bungalows are available for booking primarily through multiple booking websites and are advertised online, occupants generally make bookings online or are taken directly by person A and person B over the phone or by email. A monthly subscription is paid to a booking manager, who will update vacancy status to all websites. The period of occupancy is commonly from X to X nights. All bungalows are fully furnished including full linen, kitchen equipment, tea and coffee and a light breakfast is provided. Accommodation and recreation facilities available include: • swimming pool • private wharf • barbeque area • wi-fi • air conditioning • tv • off street parking • shared laundry. A reception office is open and staffed from Xam to Xpm each day and provides services to occupants including: • check-in and check-out are primarily conducted at reception, but occupants have the option to complete a fast check-out if departing before reception is open • occupants can request information about local restaurants, facilities and entertainment • contains a brochure stand for local businesses • occupants can request reception to assist with arranging and booking activities and events. A council Motel sign has been paid for and installed on a neighbouring road to direct occupants to the property. The activity requires person A and person B to work X days per week and are available XX hours a day to attend urgent guest matters. Person A and person B own, maintain and manage the property and are responsible for providing services including: • general maintenance on the property and bungalows, including lawn mowing, gardening, pool cleaning and repairs to equipment and bungalows • if person A is unable to attend to repairs, they will organise the services of a qualified tradesperson • clean the bungalows after the departure of each occupant • replace linen, towels other consumables • organise for the collection of dirty linen and towels by a local laundry business for cleaning on a regular basis • provide on demand cleaning services upon occupant's request • organise and pay for annual pool and fire safety inspections • manage the payment of commercial rates charged by the council for the property and waste disposal • greet occupants at reception, issue keys, provide directions to their bungalow and provide information and instructions regarding their stay • attend to adjustments or cancellations to bookings after they are made • maintain all registrations and licences to operate the activity • maintain and prepared full and accurate financial statements and records on an annual basis. Under the conditions of the booking and occupancy terms and conditions, issued to the occupants during their stay it states: • clause X, the rules and regulations of the complex and any reasonable direction of the Owner or Manager must be complied with. The bungalows must be vacated if after receiving a warning, the guest fails to comply. • clause Z, the manager may inspect the bungalow at any time with reasonable notice and at any time without notice if the manager is of the opinion that there has been a breach in these conditions. • clause Y, if the occupancy ends or is terminated, the guest must immediately vacate the bungalow. the manager is authorised to do whatever is required to enforce the eviction of any guest and removal of guests' property. The activity produces significant income annually.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 subsection 152-40(4) | Income Tax Assessment Act 1997 paragraph 152-40(4)(e)