Private ruling: Small business concessions and active asset test
Date of advice: 11 July 2018
Published: September 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is a CGT asset used to promote the taxpayer’s business of carrying cars an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Does the CGT asset satisfy the active asset test under section 152-35 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: 1. The taxpayer runs a business in the motor vehicle industry. 2. The taxpayer acquired the CGT asset in the year ending 30 June 2016 and sold it in the year ending 30 June 2018. 3. During the period when the taxpayer was the registered owner of the CGT asset, the types of its business activities have not changed. There was no inactivity or temporary ceasing of the taxpayer’s business activities during the period. 4. The taxpayer used the CGT asset to promote its business during the period of ownership. The CGT asset was displayed with the taxpayer’s business at various events for promotional purposes. 5. During the period of ownership, the CGT asset was on display at the taxpayer’s business premises when it was not used for promotional purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 152-10(1) | Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Section 152-40

Reasons for decision: Detailed Reasoning - Active asset definition: Under subsection 152-40(1) of the ITAA 1997, a CGT asset is an active asset at a time if, at that time, it is owned by the taxpayer and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by the taxpayer, or the taxpayer’s affiliate, or another entity that is connected to the taxpayer. During the period the taxpayer was the registered owner of the CGT asset, it used the CGT asset to promote its business through displaying it at various events; and when it was not being used for promotional activities, it was displayed at the taxpayer’s business premises held ready for use in the course of carrying the business. Therefore, the CGT asset was an active asset during the period of ownership under section 152-40 of the ITAA 1997. | Detailed Reasoning - Active asset test: ● Under section 152-35 of the ITAA 1997, a CGT asset satisfies the active asset test if: ● The taxpayer has owned the asset for 15 years or less and the asset was an active asset of the taxpayer’s for a total of at least half of the test period detailed below; or ● The taxpayer has owned the asset for more than 15 years and the asset was an active asset of the taxpayer’s for a total of at least 7 ½ years during the test period. Under subsection 152-35(2) of the ITAA 1997, the test 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 test period of the CGT asset was less than 15 years. Since the CGT asset satisfies the definition of an active asset during the period of ownership under section 152-40 as established in Question 1, it satisfies the active asset test under section 152-35 of the ITAA 1997 as the taxpayer has owned the asset for 15 years or less and the asset was an active asset for a total of at least half of the test period. | Detailed Reasoning - Further issues for you to consider: This ruling has not fully considered your eligibility for the small business CGT concessions. You should ensure that you satisfy the relevant conditions for the concessions under subsection 152-10(1).