Private ruling: Small business concessions
Date of advice: 12 May 2016
Published: June 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Do you meet the basic conditions necessary to access the capital gains tax (CGT) concessions for small business on the sale of the assets? | A1: Yes.

Relevant facts and circumstances: You own a number of assets. They were purchased during the 20xx/xx financial year. In a previous private ruling issued, it was determined that the assets were active assets. Approximately nine years after the assets were acquired, there was a change in business conditions and the assets ceased being active assets. The assets will be sold in the near future and will therefore have been owned for approximately 14 years. The net value of the assets of you, your affiliates and connected entities is less than $6 million.

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 Section 152-40.

Reasons for decision: Summary: To qualify for the small business capital gains tax (CGT) concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions. A capital gain that you make may be reduced or disregarded under Division 152 of the Income Tax Assessment Act 1997 (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. Active asset test 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, or • an intangible asset that is inherently connected with a business carried on (whether alone or in partnership) by you, for example; goodwill. A capital gains tax (CGT) asset will satisfy 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 test period, 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 7½ years during the test period. The test period begins when you 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 - the cessation of the business. Maximum net asset value (MNAV) test Section 152-15 of the ITAA 1997 explains that you satisfy the MNAV test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000: (a) the net value of the CGT assets of yours; (b) the net value of the CGT assets of any entities connected with you; (c) the net value of the CGT assets of any affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)). Application to your situation In your case, you received a private ruling stating that the assets were used by you in the course of carrying on a business and were active assets. Therefore it is accepted that the assets were active assets until the use changed approximately nine years after the assets were acquired. As the assets have been active assets for nine out of 14 years, the active asset test is satisfied. You have advised that the value of the net assets of you, your affiliates and connected entities as being less than the $6 million MNAV threshold. Based on this information you have provided, you satisfy the MNAV test. Therefore, you have satisfied the basic conditions necessary to access the small business concessions.