Private ruling: Small business concessions - Active Asset test
Published: March 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Does the property satisfy the active asset test? | A1: Yes.

Relevant facts and circumstances: You purchased a property in 20XX. The property was a commercial shop premises at the front and a residence and at rear. You renovated the property and operated a store from the shop premises. You ceased trading in 20XX. The residence at the rear of the property was leased to a third party for small period of time while you operated the store. Outside of this time, the residence was either vacant or used by family or friends. Later that year you entered into an agreement to lease out the shop, all the shop fittings and equipment along with the residence at the back. The leasees traded for X months and vacated after their business failed. You sold the property in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-35 and | Income Tax Assessment Act 1997 Subsection 152-40(4).

Reasons for decision: Summary: The active asset test is contained in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997). The active asset test is satisfied 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 test period detailed below, 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 7.5 years during the test period. The test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases. 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. Paragraph 152-40(4)(e) of the ITAA 1997 states, however, that an asset whose main use in the course of carrying on the business is to derive rent cannot be an active asset unless the main use for deriving rent was only temporary. In your case, you owned the commercial premises for almost X years. You operated a store from the premises for X years, and then leased the premises for a further X months. The residence at the rear of the property was rented for X months and outside of that, the residence has only been used for personal use. Based on this, it is accepted that the main use of your commercial premises was not to derive rent and was therefore, an active asset. As the asset has been active for more than half of the ownership period, it will satisfy the active asset test.