Private ruling: Small business capital gains tax concessions - active asset test
Date of advice: 18 March 2018
Published: July 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the property an active asset of the company? | A1: Yes

Relevant facts and circumstances: The company commenced construction of five industrial units in 199X, construction was completed in June 200X. The company’s intention was to hold one unit as a base for the day to day operations of the company. Upon completion of the construction, four of the units were marketed for sale or lease, with all units eventually being sold. Unit 1 of the complex was retained by the company and used as a base for management of business operations. Unit 1 has an upper and lower level. From July 200X to May 200X Unit 1 was used exclusively by the company as an operational base. From May 200X to March 200X the upper level was used by the company and the ground floor was leased to an unrelated entity. From April 200X to November 201X Unit 1 was fully leased to an unrelated entity as the base of operations of the company was moved to another city. Unit 1 was sold in November 201X.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 paragraph 152-40(1)(a) | Income Tax Assessment Act 1997 paragraph 152-40(4)(e)

Reasons for decision: Summary: Paragraph 152-40(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gains tax (CGT) asset is an active asset at a given time if it is owned and used (or held ready for use) in the course of carrying on a business. Section 152-35 of the ITAA 1997 states: (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 7 1/2 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. However, paragraph 152-40(4)(e) of the ITAA 1997 excludes assets from being considered as active assets if their main use in the course of carrying on a business is to derive rent, unless this use was only temporary. Unit 1 was owned by the company for more than 15 years. Unit 1 was used solely by the company as a base of operations for 11 months or 5.95%, of the time the unit was owned. The upper floor of Unit 1 was used by the company as a base of operations for a further 7 years and 10 months or 50.81% of the time. Unit 1 was rented fully to an unrelated party for 6 years and 8 months or 43.24% of the time. The main use of the property was as a base of business operations for 8 years and 9 months. Unit 1 was an active asset in your business for more than 7 ½ years, and the main use of the unit was not to derive rent. Therefore Unit 1 was an active asset of the company.