Private ruling: Active asset test
Published: June 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner allow, under subparagraph 152-35(b)(ii) of the Income tax Assessment Act 1997, a period longer than 12 months after the cessation of the business for the capital gains tax event to occur? | A1: No.

Relevant facts and circumstances: You are the sole director and owner of all of the ordinary shares in the company. You also own X of X income shares in the company. The other X income shares are held by your relative. Each ordinary share carries the right to one vote at general meetings and the right to participate in dividends and distribution of capital or capital gains or the proceeds of surplus assets on winding up. Each income share carries the right to one vote at general meetings and one vote at class meetings of income share holders and the right to participate in dividends and repayment of the company's capital on winding up of the company. The company ceased carrying on a business during the 2011-12 financial year. You intended to apply the 50% active asset reduction to any capital gain resulting from the cancellation of your shares. Tax advice given by your accountant indicated that the shares would only satisfy the active asset test if the CGT event (that is, the liquidation and resulting cancellation of shares) took place within 12 months of the cessation of the business. You were appointed liquidator of the company and have applied for the notification mentioned above. You expect the company to be deregistered within X months. During the year after the company ceased you had several personal issues.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 and | Income Tax Assessment Act 1997 subparagraph 152-35(b)(ii).

Reasons for decision: Summary: The active asset test is contained in section 152-35 of the 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 least 7.5 years during the test period. The test period: · begins when you acquired the asset, and · ends at the earlier of · the CGT event, and · when the business ceased, if the business in question ceased in the 12 months before the CGT event (under subparagraph 152-35(2)(b)(ii) of the ITAA 1997 the Commissioner can allow a longer period than 12 months). The asset does not need to be an active asset just before the CGT event. In this case, the business ceased operating during the 2011-12 financial year. The CGT event, that is the cancellation of the shares, did not occur within 12 months of the business ceasing. Therefore, the test period for the active asset test will end when the CGT event occurs, unless the Commissioner grants an extension of time. In determining if the discretion to allow a period longer than 12 months should be exercised, the Commissioner considers the following factors: · whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension; · whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension; · whether there is any unsettling of people, other than the Commissioner, or of established practices; · fairness to people in like positions and the wider public interest; · whether there is any mischief involved; and · the consequences of the decision. In considering whether to exercise his discretion, the Commissioner needs to be satisfied that there were circumstances beyond your control that prevented the CGT event from occurring within 12 months after the business ceased. You stated that the delay was due to various matters. While we acknowledge that some of these events were beyond your control, we do not accept that they prevented the CGT event from happening. You also indicated that you were given incorrect advice from your accountant. This alone is not considered an acceptable explanation for the delay. After considering both the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances do not warrant an extension of time. This is for the following reasons: · In your case it is difficult to say there is evidence of an acceptable explanation for the period of extension requested. You have not provided details of any circumstances beyond your control that prevented the cancellation of the shares. · To allow an extension of time in your case is likely to unsettle people for the reasons discussed above, that is, lack of evidence of an acceptable explanation. · While there is no suggestion of mischief in this case, it could not be considered fair to people in like positions to allow you an extension of time. Another application with similar circumstances would be denied. The Commissioner will not exercise the discretion under subparagraph 152-35(2)(b)(ii)of the ITAA 1997. Therefore, the test period for the active asset test will end when the CGT event occurs.