Private ruling: CGT - concessions
Date of advice: 6 August 2025
Published: 20 October 2025
Ruling period: Year Ending 30 June 20XX
Date scheme commenced: July 20XX

Ruling: Q1: Does the Property, which is used for a storage facility (the Business), 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 purchased the Property in April 19XX. The Property is jointly held in your names. The Property has only been used for the purposes of the Business. The Business operates via the Trust. You serve as the sole trustees and appointers of this trust. You are also the sole beneficiaries. You receive rent from the Trust via a partnership. You act as the chairperson of the board and chief executive officer to the Business. Your child, who is the on-site manager, conducts the day-to-day operational decisions, customer interactions and the management of the facility. You and your child have collaboratively designed the systems and processes enforced. You have overseen the Business since the date you purchased the Property. You will continue to oversee the Business until it is sold along with the Property. Upon purchase, the Property already consisted of storage units. Subsequently, you made improvements to the Property, as well as constructing additional storage units. There are now X storage units of various sizes. The storage units have been hired out under the terms of the Self Standard Storage Agreement (the Agreement). The Business enforces the following protocols as stipulated by the Agreement: • The storers must upon signing the Agreement pay a key deposit of $X and an administration invoice fee of $X. They must also pay a cleaning fee of $X at the owners' discretion and a late payment fee of $X applied X days after the due date. • The storers have the right to access the hired-out space during access hours as posted by the owners. • The storers do not have the right to access the storage units outside of access hours as posted by the owners. As per the terms of the Agreement, access to the storage units is restricted between X.00am and X.00pm. • The storers must not store any goods that are hazardous, illegal, stolen, inflammable, explosive, environmentally harmful or perishable. They may not store any goods that are a risk to the Property of any person. • The storers will use the storage units solely for the purpose of storage and shall not carry on any business or other activity in the space. • The storers must maintain the storage units by ensuring they are clean and in a state of good repair or the cleaning fee may be deducted from their deposit. An additional cleaning fee may be required. • The storers must not attach nails, screws etc. to any part of the storage units or physically alter the storage units in any way without the owners' consent. In the event of damage to the storage units, the owners will be entitled to retain their deposits to the value of the repairs required. • The owners can refuse access to the storage units in certain circumstances. They may refuse access to the storage units where moneys are owing to them by the storers. This is regardless of a formal demand for payment of such moneys being made. • The owners have the right to enter the storage units under certain circumstances. The terms of the Agreement permit management access under defined circumstances, primarily for non-payment or security and safety concerns. The owners cannot enter the space without consent unless the storers breech the Agreement, in which case entry is permitted under contract provisions. They are required to provide appropriate notice. • The owners may enter the storage units, giving X days written notice, for inspection. • The owners may enter the storage units, without written notice, in the event of an emergency. This is where the Property, the environment or human life is in their opinion, threatened. The owners shall notify the storers as soon as practicable. • The owners are unable to assign the storers' rights under the Agreement to others. The storers' rights are not assignable to third parties unless mutually agreed in writing. Each agreement is personal to the storer. • The owners have the right to relocate the storers to another space under certain circumstances. While rarely exercised, the Agreement allows for unit relocation in exceptional cases. This includes maintenance or security concerns. This typically occurs in consultation with the storers. There is an on-site office. The storage units are advertised through the Business' website as well as other online listing services. The terms of the licences are on a month-to-month basis. This is in accordance with standard storage industry practices. Some storers hire the storage units for only a few months. Meanwhile, other storers hire the storage units longer, including X long-term storers, who have remained for over X years. The storers are free to terminate with notice. The storers are generally required to provide X months' notice prior to vacating a storage unit. You provide basic ancillary equipment such as limited shelving made available on an ad hoc basis. These services are not charged separately and are provided at the discretion of the on-site manager. There are no additional services provided. You have never sold any items to the storers. The Business provides security measures to the storers. This includes personal identification number (PIN) access. The PIN access is for the entire storage facility, with each storer being provided a separate PIN. Management obtains the ability to restrict PIN access in instances of non-payment and licences ending. The storers also provide their own padlocks, with the keys remaining solely to them. Despite this, the Business retains the ability to overlock a storage unit in the instance of non-payment. The Business also provides 24/7 video surveillance. There is no clause that specifically provides the storers the right to exclusive possession. You are intending to sell the Business along with the Property as part of your retirement strategy. You expect the sale to occur before X June 20XX.

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

Reasons for decision: Summary: You acquired the Property in April 19XX and it has been used in the course of carrying on a business for at least X years during the ownership period by an entity connected to you. We do not consider the exceptions in subsection 152-40(4)(e) of the ITAA 1997 have any application in the circumstances. Therefore, the Property will satisfy the meaning of an active asset in section 152-40 of the ITAA 1997 and will satisfy the active asset test in section 152-35 of the ITAA 1997. | Detailed Reasoning - Active asset test: Subsection 152-35(1) of the ITAA 1997 states 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 of ownership, 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 7.5 years. Section 152-40 of the ITAA 1997 provides the meaning of 'active asset'. A CGT asset will be an active asset at a time if, at that time, you own the asset and the asset was used or held ready for use by you, an affiliate of yours or by another entity that is connected to you while carrying on a business. | Detailed Reasoning - Entity connected to you: Subsection 328-125(1) of the ITAA 1997 states an entity connects to another entity if: a) either entity controls the other entity in a way as described in this section, or b) both entities are controlled in a way described in this section by the same third entity. Subsection 328-125(3) of the ITAA 1997 sets out what is meant by direct control of a discretionary trust. Paragraph 328-125(4)(b) of the ITAA 1997 relevantly states: An entity (the first entity ) controls a discretionary trust for an income year if, for any of the 4 income years before that year: (a) the trusteeof the trust paid to, or applied for the benefit of: (i) the first entity; or (ii) any of the first entity's affiliates; or (iii) the first entity and any of its affiliates; any of the income or capital of the trust; and (b) the percentage (the control percentage ) of the income or capital paid or applied is at least 40% of the total amount of income or capital paid or applied by the trustee for that year. Section 152-78 of the ITAA 1997 states that in instances where no income or capital is applied in a relevant income year, due to the trust incurring a tax loss or no net income, an entity is still deemed to control the trust if the trustee has nominated not more than 4 beneficiaries as being controllers of the trust for the relevant income year. | Detailed Reasoning - Carrying on a business: 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 TR 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. 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 of ordinary trade in that line of business, • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as 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. TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' from looking at all the indicators and whether these factors provide the operations with a 'commercial flavour'. | Detailed Reasoning - Assets whose main use is to derive rent: Importantly, subsection 152-40(4) of the ITAA 1997 provides an asset whose main use is to derive rent cannot be an active asset. Taxation Determination TD 2006/78 Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent? (TD 2006/78) explains that whether an asset's main use is to derive rent will depend on the circumstances of each case. A key factor in determining whether an occupant of premises is a lessee is whether the occupier has a right to exclusive possession ( Radaich v Smith (1959) 101 CLR 209; Tingari Village North Pty Ltd v Commissioner of Taxation [2010] AATA 233 at paragraphs 44-66, 2010 ATC 10-131, 78 ATR 693 and associated Decision Impact Statement 2008/4646 & 2008/4647). If, for example, premises are leased to a tenant under a lease agreement granting exclusive possession, the payments involved are likely to be rent and the premises not an active asset. On the other hand, if the arrangement allows the person only to enter and use the premises for certain purposes and does not amount to a lease granting exclusive possession, the payments involved are unlikely to be rent. Ultimately, these are questions of fact depending on all the circumstances involved. Relevant factors to consider in determining these questions (in addition to whether the occupier has the right to exclusive possession) include the degree of control retained by the owner and the extent of any services provided by the owner. | Detailed Reasoning - Application to your circumstances: In your case, you expect the CGT event to occur in the 20XX-XX income year. You each have received or will receive X% of the Trust's distributable income in the 20XX-XX and 20XX-XX income years. Therefore, you each have received or will receive more than X% of the Trust's distributable income in at least X of the X income years before the CGT event. Therefore, the Trust will be an entity that is connected to you. It is considered the Trust carries on a business of providing commercial storage space. The storage facility comprises X storage units which are typically available for a few months or more. The Business provides basic ancillary equipment such as limited shelving on an ad hoc basis. The Business enters into an agreement with the storers. The agreements provide in certain circumstances the Business can relocate the storers to another space or enter the space. The agreements also provide the storers cannot assign the rights under the agreements. The arrangements entered in this situation indicate the storers do not have the right to exclusive possession but rather only to enter and use the storage units for certain purposes. Most of the arrangements entered are short term and services are provided to the storers. Having regard to all the circumstances, we consider a tenant/landlord relationship does not exist between the parties and therefore the amounts received are not rent. You have owned the Property for more than X years and it has been an active asset of an entity connected to you for the entire period of your ownership. As such, the Property has satisfied the active asset test and the rental exclusions in subsection 152-40(4) of the ITAA 1997 do not apply.