Private ruling: Small business concessions
Date of advice: 5 September 2025
Published: 20 October 2025
Ruling period: Income tax year ending 30 June 20XX | Income tax year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you carrying on a business in common with a view of profit (and consequently a partnership under the Income Tax Assessment Act 1997 (ITAA 1997)) in the 20XX and 20XX income years, for the purposes of the testing in subparagraph 152-10(1)(c)(iii) of the ITAA 1997? | A1: Yes. | Q2: Do the buildings satisfy the active asset test in section 152-35 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: You conduct a commercial leasing enterprise which is registered for GST as a partnership (the Partnership). The Buildings You purchased Property A and Property B (the Buildings) as joint tenants, funded from joint borrowings, in March 19XX, with settlement occurring in August 19XX. The Buildings were constructed in 18XX and are adjoining. Each building is constructed boundary-to-boundary and fully occupies its property title. Each Property is multi-level and includes a basement with Property B also containing a mezzanine. The Buildings are heritage listed. Background and History You commenced trading as Business A, a retail XX business in a general law partnership in the 19XX income year. This business traded from an address initially and then from Property A since XXX 19XX. In XX 19XX you purchased an established XX XX Business B which initially traded from Property A and then from the Buildings since X XXX 19XX. You used space throughout the Buildings for activities related to your X retail XX businesses for various periods. You have provided detail about the use of the Buildings against income received whilst you were carrying on Business A up until sale of the business. Rental activities At acquisition, the X year-old Buildings were in a state of disrepair, due to neglect and factory use. Following the sale of Business A, you directed your activities towards leasing the entirety of the Buildings to increase rental returns and maintain profitability. You employed your partnership profits and resources, including knowledge, skills and labour to substantially improve and repair the Buildings and maintain them for leasing. The Buildings have been used to exclusively derive rent since XXX 20XX. You have provided detail about the Buildings current tenancies and you have advised there are currently X vacancies. The leasing agreements incorporate rent adjustment clauses (to increase rental income and maximise profits) and jointly name you as co-lessors of the Buildings. For rental receipts, you maintain separate business bank accounts. The Partnership's average annual rental income (from 20XX to 20XX income years) was $XXXX. For the 20XX income year, the gross rental income from the Buildings was $XXXX. The Partnership's aggregated turnover from rental activities in the income years ending 30 June 20XX and 20XX was less than $2 million and is expected to be less than $2 million in the 20XX income year. The Partnership's activities have generated profits every year since 19XX, except for X year. The net income or loss each year is shared equally between you. Management of the Buildings You have stated you expend time on a weekly basis managing the Buildings, your tenants and other related matters. You have stated that Person A can work up to XX hours per week dealing with matters related to the maintenance and administration of the Buildings and the management of the tenancies. Some days demand substantial on-site work and other days consist of office work. Person A's activities include: • taking prospective tenants through the Buildings, negotiating lease terms, preparing straightforward leasing agreements (using standard state commercial tenancies lease and creating special conditions for these leases); • tenants identify Person A as the first point of contact regarding maintenance, lease arrangements and property issues; • advertising spaces available for lease in the Buildings without the help of a Property Manager; • undertaking the bulk of administrative, bookkeeping, record keeping tasks and managing all expenses, invoices and notices; • arranges and oversees, or undertakes regular inspections and treatments of the Buildings; • undertakes repairs and maintenance tasks and paying for repairs, maintenance, licensing fees, wage and employment incidentals and insurances; • engage tradespeople with whom they have built professional relationships to help maintain the Buildings. Person A will personally triage these repairs and maintenance to ensure best outcome and least interference with tenants; • spending a minimum of XX hours a week undertaking activities including cleaning, gardening, security, managing access for tradespeople and tenants, overseeing repairs and maintaining common areas. Person B can work up to XX hours per week dealing with administrative matters such as: • market research relating to building management and tenancy matters (including reviewing comparable properties market rent); • dealing with governance and legislative compliance matters; • management of tenancies; • developing solutions to deal with property-related matters (including property specific maintenance and repairs). You manage your accounts and BAS lodgments through accounting software. You employ an administrative assistant for X day a week. You engage a commercial cleaning service for weekly cleaning of common areas within the Buildings. You have engaged a professional accountant/advisor since 19XX to prepare partnership returns and financial statements. You engage a Property Manager to assist with the management of tenants. Its primary purposes are to act as a rent collector and follow up on missed payments, provide an outgoings audit for the X street-level hospitality tenancies and provide additional help in finding tenants. The Property Manager does not have exclusive leasing rights for the Buildings and they do not assist with the management of all tenancies. The Property Manager does not show all prospective tenants through the Buildings. The Property Manager services are helpful but not always reliable due to the complexities of the Buildings. You engage a solicitor occasionally in respect of property law related matters. The solicitor will: • draft new leases for major retail and commercial tenants; • assist with licensing; • draft lease extensions; • assist with registering leases; and • provide general legal advice. In the 20XX income year, you have stated that you have no employment outside of your activities in relation to the Buildings and rely on the commercial rent proceeds derived from this enterprise. You have stated there are no borrowings against the Buildings. Your liabilities are approximately $XXXX (comprising principally tenants bonds). You maintain a line of credit through an overdraft facility. Proposed sale You are both over XX and intend to sell the Buildings in connection with your retirement. You propose to sell the Buildings, associated commercial leases and business assets in the 20XX income year or early in the 20XX income year. This sale will result in a capital gain for you. Based on a selling agent's opinion provided to you, the market value of the Buildings and the associated lease agreements is currently at $XXXX. You have provided further additional information including a history of the derivation of rental income of the Buildings. Presuming the assets of your leasing enterprise sells for $XXXX, the combined net value of the CGT assets will be $XXXX million just before the CGT event.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 152-10(1) | Income Tax Assessment Act 1997 subsection 152-10(1A) | Income Tax Assessment Act 1997 subsection 152-10(1AA) | Income Tax Assessment Act 1997 subsection 995-1(1) | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-40(4)

Reasons for decision: Summary: You are carrying on a business in common with a view of a profit in terms of the commercial leasing enterprise so as to satisfy the testing of a business for the purposes of subparagraph 152-10(1)(c)(iii) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: To qualify for any of the CGT small business concessions, an entity must satisfy several conditions that are common to all the concessions, known as the basic conditions. The basic conditions are contained in Subdivision 152-A of the ITAA 1997. | Detailed Reasoning - Basic conditions: Subsection 152-10(1) of the ITAA 1997 states a capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the basic conditions are satisfied for the gain: (a) CGT event happens in relation to a CGT asset of yours in an income year; (b) the event would (apart from this Division) have resulted in the gain; (c) at least one of the following applies: i. you are a CGT small business entity for the income year; ii. you satisfy the maximum net asset value test; iii. you are a partner in a partnership that is a CGT small business entity for the income year and the CGT asset is an interest in the asset of the partnership; iv. the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year; (d) the CGT asset satisfies the active asset test under section 152-35 of the ITAA 1997. | Detailed Reasoning - Carrying on a business: 'Business' is defined under subsection 995-1(1) of the ITAA 1997 as being any profession, trade, employment, vocation or calling, but does not include occupation as an employee. The Commissioner considers various indicators to determine whether a business is being carried on which are set out under Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11). Paragraph 13 of TR 97/11 states the following indicators are relevant: • whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators; • whether the taxpayer has more than just an intention to engage in business; • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; • whether there is repetition and regularity of the activity; • whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; • whether the activity is planned, organised and carried on in a businesslike 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 a sporting activity. No one indicator is decisive, and the indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impressions gained from looking at all the indicators, and whether these factors provide the activities a commercial flavour. The weighing to be given to each indicator will vary from case to case (paragraphs 15 and 16 of TR 97/11). In FC of T v. McDonald (1987) 15 FCR 17; 18 ATR 957; 87 ATC 4541, the taxpayer and his wife owned two properties, one of which was let on a short-term basis to holiday makers, and both of which were subsequently let through letting agents. The Federal Court considered that for a business to be carried on by owners of property, one would expect that they would be involved in providing services in addition to the process of letting the property (as with a boarding house), not merely receiving payments for the tenant's occupation of the property. It was considered that this was not a case of the active joint participation of parties in a business activity. The receipt of income from the lease of an asset does not of itself amount to the carrying on of a business, but instead would generally be the passive receipt of income from property. In Allen v Federal Commissioner of Taxation [2021] AATA 2768 it was held the applicant was carrying on the business of short-term accommodation involving nine properties. The taxpayer had the purpose of maximising net rent, the capital invested was considerable, and they spent a significant amount of time managing their income-producing real estate assets, especially once they ceased employment. The activities offered were significant in nature and included the personal involvement of the taxpayer in planting and maintenance of gardens, cleaning, property repairs and maintenance and preparation and attendance to legal disputes, amongst other activities. It was found that these activities were more than that of a passive investor. In 11 CTBR (OS) Case 24 , the majority of members of the Board of Review said it is obvious that some measure of supervision and management must ordinarily be exercised by a property owner who lets offices and if that does not amount to the carrying on of a business, the fact that he employs others to assist him, either in the letting of the properties or in the preparation of the accounts relating to his rents and outgoings, will not make any difference. Rental property as investment or business on the ATO website at QC page 66425 states: Your income from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business, as such activities are generally considered a form of investment rather than a business. As the owner of rental properties, some factors that show you are carrying on a business of letting rental properties are the: • significant size and scale of the rental property activities • significant number of hours spent on the activities • extensive personal involvement in the activities • business-like manner in which the activities are planned, organised and carried on | Detailed Reasoning - Example 2: Mr and Mrs Smith own several rental properties either as joint tenants or equal tenants in common. They own 8 houses and 3 apartment blocks. Each block comprises 6 residential units. So, they own a total of 26 rental properties. The Smiths actively manage all of the properties. They devote a significant amount of time to these activities - an average of 25 hours per week. They undertake all financial planning and decision-making in relation to the properties. They interview all prospective tenants and conduct all of the rent collections. They carry out property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done. The Smiths are carrying on a rental property business. This is indicated by the following factors: • the significant size and scale of the rental property activities • the number of hours they spend on the activities • their extensive personal involvement in the activities • the business-like manner in which the activities are planned, organised and carried on. | Detailed Reasoning - Application to your circumstances: On the facts here and on balance, the Commissioner takes the view that the activities being undertaken are that of a business carried on in common with a view to a profit and therefore that there is a partnership within the meaning of the testing in subparagraph 152-10(1)(c)(iii) of the ITAA 1997. We have considered the facts and circumstances of your case against the indicators in paragraph 8 of TR 97/11. There are a significant number of tenancies that are actively managed in a way not typically associated with a mere passive holding. Person A spends up to XX hours a week on these activities and Person B spends up to XX hours a week. A third party employee is also engaged to assist Person A for X day a week. Services such as cleaning, gardening and security are also provided or arranged. Advertising spaces are also sold and managed which is an activity and a source of income distinct from the tenancies. These are factors which sets the activities here apart from what would be concluded to be a mere passive holding of an investment. | Summary: You have owned the CGT asset (the Buildings) for more than 15 years and the asset was an active asset of yours for more than 7.5 years during the period of ownership. Therefore, the Buildings satisfies the active asset test in section 152-35 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: The active asset test is contained in section 152-35 of the ITAA 1997. The test is satisfied where an asset is owned for more than 15 years, and the asset was an active asset for a total of at least 7.5 years in the test period. The test period begins when the asset was acquired and ends at the CGT event. Under subsection 152-40(1) of the ITAA 1997, a CGT asset is an active asset if it is owned and used, or held ready for use, by you, your affiliate, or another entity that is connected with you in the course of carrying on a business that is carried on, whether alone or in partnership. The testing in paragraph 152-40(1)(a) of the ITAA 1997 is satisfied for each income year in which the CGT asset is used in carrying on of a business over the course of that income year. Under paragraph 152-40(4)(e) of the ITAA 1997 an asset cannot be an active asset for an income year in which its main use is to derive rent. | Detailed Reasoning - Application to your circumstances: On the facts here, the CGT asset (the Buildings) were used from XX XXX 19XX to XX XXX 20XX for a retail trading business. This is for a period of more than 7.5 years. The Buildings were acquired on XX March 19XX and are to be sold in the 20XX or 20XX income years. This is for a period of more than 15 years. Therefore, the Buildings have been held for more than 15 years and have been an active asset for at least 7.5 years in that period. The 'active asset test' in section 152-35 of the ITAA 1997 is accordingly satisfied.