Private ruling: CGT small business concessions
Published: December 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you eligible to choose the small business rollover in relation to the disposal of the property? | A1: Yes

Relevant facts and circumstances: You acquired the property. You constructed a building on the property for use in the business of the trust. The property was not used for any other purpose. You entered into a contract for the sale of the property during the relevant financial year. You acquired new land (the replacement asset). You intend to construct a new building on the replacement asset land which will also be used in the trust's business. You have received distributions from the trust. You satisfy the maximum net asset value test, being that the total net value of your assets and the assets of your affiliates and connected entities was less than $6million just prior to the CGT event.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 Section 152-15 | Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Subdivision 152-E | Income Tax Assessment Act 1997 Section 328-125

Reasons for decision: Summary: The small business rollover contained in subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to defer all or part of a capital gain made from a CGT event happening to an active asset. To qualify for the small business rollover, you need to satisfy the basic conditions that apply to all the CGT small business concessions. | Detailed Reasoning - Basic Conditions: A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the following basic conditions are satisfied: · a CGT event happens in relation to a CGT asset of yours in an income year · the event would have resulted in a gain · the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997, and · at least one of the following applies; - you are a small business entity for the income year - you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997 - you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership, or - you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you. | Detailed Reasoning - Active asset test: The active asset test is contained in section 152-35 of the ITAA 1997. Where you have owned the asset for less than 15 years, the active asset test is satisfied if the asset was an active asset of yours for a total of at least half of the test period detailed below. The test period: · begins when you acquired the asset, and · ends at the earlier of o the CGT event, and o when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows). A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you. | Detailed Reasoning - Connected entity: An entity is connected with another entity if either entity controls the other entity, or if both entities are controlled by the same third entity (section 328-125 of the ITAA 1997). Direct control of a discretionary trust Control of a discretionary trust can be via a beneficiary or by an entity that controls the trustee. A beneficiary is taken to control a discretionary trust where, for any of the four income years before the year for which relief is sought for a CGT event: · the trustee paid to, or applied for the benefit of, the beneficiary or their affiliates, or both the beneficiary and any of its affiliates, any of the income or capital of the trust, and · the amounts paid or applied were at least 40% (the control percentage) of the total amount of income or capital paid or applied for that income year. In your case, as a result of the distributions you received, you are taken to have controlled the trust for the relevant period. Accordingly, for the purposes of determining if the property was an active asset, the trust is an entity that is connected with you for the relevant period. As the period that the property was used in the trust's business is more than half of the total ownership period, the active asset test contained in section 152-35 of the ITAA 1997 will be satisfied. | Detailed Reasoning - Application to your circumstances: We consider that you meet the basic conditions in relation to the disposal of the property due to the following: · a CGT event occurred when you disposed of the property · the event resulted in a capital gain · you meet the maximum net asset value test; and · as discussed above, the asset meets the active asset test. Accordingly, you can choose the small business rollover to defer all or part of the capital gain.