Private ruling: Small business CGT concessions - active asset test
Date of advice: 8 September 2025
Published: 17 November 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did a capital gains tax (CGT) event occur upon you entering into a contract on X June 20XX for the disposal of the property? | A1: Yes. | Q2: If the answer to question 1 is yes, did a capital gain arise on disposal of the property? | A2: Yes. | Q3: Immediately before the CGT event, did you satisfy the net asset value test in section 152-15 of the ITAA 1997. | A3: Withdrawn. | Q4: At the time of the disposal, was the property an active asset in accordance with section 152-40 of the ITAA 1997? | A4: Yes. | Q5: If the answer to question 4 is yes, did the property satisfy the active asset test in section 152-35 of the ITAA 1997? | A5: Yes | Q6: If the answer to question 5 is yes, are you eligible for CGT concessionary treatment on the gain arising on disposal of the property under the small business 50% reduction provided for in Subdivision 152-C of the ITAA 1997? | A6: Withdrawn.

Relevant facts and circumstances: You are an Australian company limited by guarantee, and you do not have any share capital. You are the main industry body representing the interests of an industry in Australia. You are comprised of a membership body. These members pay you a monthly subscription fee (membership fees). The constitution sets out your objectives. In accordance with Clause X of the Constitution, you are not permitted to distribute any amount of income or property by way of bonus, dividend or otherwise to its members. In accordance with, and in pursuit of its objectives, you also derive income from other activities related to the industry. This income is treated as non-mutual income and is therefore assessable. On X June 20XX, you entered into a contract for sale of your property including the associated car parking space for a total sale price of $X. The property was originally purchased by you on X XX 20XX for less than the sale price.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 102-5(1) | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 152-40(1) | Income Tax Assessment Act 1997 subsection 152-40(4) | Income Tax Assessment Act 1997 subsection 152-35(2)

Reasons for decision: Summary: Under subsection 104-10(1) of the ITAA 1997 capital gains tax (CGT) event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs form you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owners of the asset but continue to be its beneficial owner. The time of the event is when you enter into the contract for the disposal or if there is no contract, when the change of ownership occurs. In this case, you entered into a contract to sell the property on X XX 20XX. CGT event A1 occurred at this time as you disposed of the property and a change of ownership occurred. You make a capital gain if the capital proceeds received from a CGT event exceed the cost base in accordance with subsection 102-5(1) of the ITAA 1997. In this case, you purchased the property for $X. You disposed of the property and received capital proceeds of $X. As the proceeds exceed the cost base of the property you made a capital gain. Withdrawn. A CGT asset is an active asset at a time if, at that time: You own the asset and it is used, or held ready for use, in the course of carrying on a business that is carried on by: • you; or • your affiliate; or • another entity that is connected with you Under subsection 152-40(4) of the ITAA 1997 lists a number of assets which cannot be active assets which includes an asset whose main use is to derive interest, an annuity, rent, royalties or foreign exchange gains. Carrying on a business The definition of 'business' under tax law includes 'a trade'. The terms 'business' and 'trade' are commonly used to refer to activities that are commercial in nature and intended to produce a profit. These activities are usually for a taxable purpose. However, the courts and tax law confirm that a mutual organisation may be carrying on a business (or trade) if various indicators, listed below, are present. Taxation Ruling TR 2019/1 Income Tax: when does a company carry on a business? (TR 2019/1) sets out the Commissioner's views on when a company is carrying on a business. This ruling applies only to companies incorporated under the Corporations Act 2001 , other than companies limited by guarantee. However, the compendium to the ruling (TR 2019/1EC) states that: 'It is accepted that companies limited by guarantee may carry on a business. However, the analysis will be different to that for limited and no liability companies based on their individual circumstances, and this is beyond the scope of this Ruling.' The question of whether a business is being carried on is a question of fact and degree to be determined on a case-by-case basis. The courts have developed a series of indicators to determine the matter, which are summarised in Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11). Although TR 97/11 specifically refers to primary production, the same principles apply to all businesses. Paragraph 13 of TR 97/11 list some indicators of carrying on a business which the courts have considered to be relevant include: • Whether the activity has a significant commercial purpose or character. • Whether the taxpayer has more than just an intention to engage in business. • Whether there is regularity and repetition of the activity. • Whether the activity is of the same kind, and carried on in a similar manner, to that ordinary trade in that line of business. • Whether the activity is planned, organised and carried on in a business-like manner such that it is directed at making a profit. • The size, scale and permanency of the activity, and • Whether the activity is better described as a hobby, a form of recreation, or sporting activity. Whether a business is being carried on depends on the impression gained from looking at all the indicators against the case facts and whether these indicators provide the operations with a commercial flavour. A mutual organisation's business can either be for a taxable purpose (producing assessable income) or non-taxable purpose (producing mutual receipts), or a combination of both. | Detailed Reasoning - Application to your circumstances: In this case, you operate on the basic premises of a NFP entity that it is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect, whilst operating and upon wind up. You pursue your objectives for the main purpose you were established, and your activities are carried on for both a taxable and non-taxable purpose. Based on the information provided, your activities demonstrate repetition and regularity. Further it is accepted there is significant size and scale to your activities. Therefore, the Commissioner accepts that your activities demonstrate that you are carrying on a business. As the property was used as an office space, it is accepted it has been used by you to carry on a business. Therefore, the property in an active asset. | Detailed Reasoning - Question 5: A CGT asset satisfies the active asset test if: 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 152-35(2) of the ITAA 1997, or 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 ½ years during the period specified in subsection 152-35(2) of the ITAA 1997. Under subsection 152-35(2) of the ITAA 1997 the period: • begins when you acquired the asset; and • ends at the earlier of: ˗ the CGT event; and ˗ if the relevant business ceased to be carried on in the 12 months before the time or any longer period that the Commissioner allows - the cessation of the business. | Detailed Reasoning - Application to your circumstances: In this case you purchased the property on X XX 20XX and it was sold on X XX 20XX. The property was owned for more than 15 years and was used in the course of carrying on a business, as office space, for the entire ownership period. Therefore, the property satisfies the active asset test. | Detailed Reasoning - Question 6: Withdrawn.