Private ruling: Active asset test
Published: July 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Does the property satisfy the active asset test under section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You owned a property. The property was purchased more than 20 years ago. The property was always used in the business of Company A. You and Company A have the same owners. Company A's business ceased approximately X years ago when the business was sold. You sold the property approximately X after Company A's business ceased.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Section 152-40

Reasons for decision: Summary: The property satisfies the active asset test as you owned the property for more than 15 years and during the relevant period it was an active asset for more than 7 1/2 years. | Detailed Reasoning - Detailed reasoning: In order for a taxpayer to be eligible for the capital gains tax (CGT) small business concessions section 152-10 of the ITAA 1997 sets out four basic conditions that must be met. The fourth is that the relevant CGT asset must satisfy the active asset test. The meaning of active asset is stated in section 152-40 of the ITAA 1997. It provides, in part, that a CGT asset is an active asset if it is owned by you and is used or held ready for use by you, your affiliate, your spouse or child under 18 years, or an entity connected with you, in the course of carrying on a business. Subsection 152-35(1) of the ITAA 1997 was amended for events occurring after 30 June 2006. It now requires that a CGT asset will satisfy the active asset test where: · the taxpayer has owned the asset for 15 years or less and the asset was an active asset of the taxpayer for a total of at least half of the specified period, or · the taxpayer has owned the asset for more than 15 years and the asset was an active asset of the taxpayer for a total of at least 71/2 years during the specified period. For the purpose of this test, subsection 152-35(2) of the ITAA 1997 was also amended, and states that the specified period: · begins when the taxpayer 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 that time or any longer period that the Commissioner allows, the cessation of the business. This current legislation incorporates changes which provide that in satisfying the active asset test there is no longer a requirement for the relevant CGT asset be an active asset just before the CGT event. | Detailed Reasoning - Application to your circumstances: In your case, you purchased the property more than 20 years ago and Company A operated a business there until it ceased approximately X years ago. The property was sold approximately X after the business ceased. As Company A is an entity connected with you and used the property in its business from when the property was purchased until the business ceased, the active asset definition is satisfied for that period. In terms of the active asset test requirements, the property was an active asset from the date it was purchased until when the business ceased (approximately 20 years). As the property was owned for more than 15 years and was an active asset for more than 7 1/2 years in total, the property passes the active asset test. This is the case whether the 'specified period' is taken to end when the property was sold or when the business ceased. That is, in your circumstances it is not necessary to consider the discretion in paragraph 152-35(2)(b) of the ITAA 1997 as your property meets the active asset test whether or not the discretion is granted.

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