Private ruling: Small business concessions
Date of advice: 15 May 2026
Published: 3 August 2026
Date scheme commenced: When the Property was acquired

Ruling: Q1: Did the Property become a post-CGT asset on 30 June 1991 under section 160ZZS of the Income Tax Assessment Act 1936 (the predecessor to Division 149 of the Income Tax Assessment Act 1997 )? | A1: Yes. | Q2: Is the Property an active asset in accordance with section 152-40 of the Income Tax Assessment Act 1997 ? | A2: Yes. | Q3: Does the Property satisfy the active asset test under subsection 152-35(1) of the Income Tax Assessment Act 1997 ? | A3: Yes. This private ruling applies for the following period: Year ended 30 June 20XX The scheme commenced on: When the Property was acquired

Relevant facts and circumstances: 1. The Trustee for the Trust owned real property at the address (the Property). 2. Individual A was married to Individual B. Individuals C, D and E are their children (the Family). 3. The Trustee acquired the Property before 20 September 1985. 4. The Property was sold in the ruling period. The Trust 5. The Trust is a unit trust that was settled before 20 September 1985. The deed settling the Trust has been lost. However, the Trust has always been administered consistent with it being a unit trust. Income of the Trust has been distributed to unit holders in proportion to their unit holdings. 6. The Trustee of the Trust has always been Company A. 7. Company A has never traded and has only acted as trustee for the Trust. 8. The initial percentage unit holding in the Trust as at the date of settlement was: • Individual A -X%: • Individual C - X% • Trustee for a trust established for Individual - X% • Individual E - X% 9. Under the terms of the Trust established for Individual D, the trust fund was held absolutely for the individual. Individual D was entitled to all of the income of the trust fund. Upon attaining the age of 18 years, Individual D could call for the trustee to transfer the trust fund to them. 10. On date XX, Individual C passed away intestate and their interest in the Trust passed to their parents in equal shares (being their next of kin). The members of the Trust agreed that Individual B be admitted as a unit holder as to a X interest and that Individual A's interest in the Trust be increased by X. As a result, the percentage unit holdings in the Trust became: • Individual A - X%: • Individual B - X% • The Trust for Individual D - X% • Individual E - X% 11. On date YY, the Trustee for Individual D (Individual D having attained the age of majority) and Individual E sold their units to Individual A and B. As a result, the unit holdings in the Trust became: • Individual A - X% • Individual B - X% 12. On date YYY, Individual B passed away and their interest passed to Individual A as beneficiary under Individual B's estate. As a result, 100% of the units were owned by Individual A. The Property 13. The total land area of the Property is X acres. 14. There is a house and surrounding cleared yard which totals X acres (X hectares). The house and surrounding area is not separately fenced. The aforementioned area was cleared for use in conjunction with the residence. The house has never been used to derive income. 15. At the time the Property was purchased the Family was residing at another nearby location. The family home on the Property was built over a period and the Family eventually moved to the family home on the Property a few years later. 16. The house remained the family home of Individual A until the Property was sold. 17. A shed and surrounding land was used for the business of a partnership constituted by Individual A and B (the Partnership) and by a related company called Company B. The main shed measured X metres by X metres. 18. The remaining usable land (that was not used as the private residence and the shed and surrounding work area) was a buffer zone due to the noise made by engines and machines used in the businesses (described later in these facts). 19. The Property had business signage at the front gate. The Property was entered from the road with the shed being located near the front gate. A private road on the southern boundary of the property was used to access the private residence. 20. Approximately X acres (X hectares) of the Property was unusable. The Partnership and later sole trader business 21. The Partnership operated a business. 22. The Partnership commenced before the Property was purchased. The Partnership operated from this time until Individual B passed away. The partners were entitled to the net income and the capital of the Partnership in equal shares. 23. After Individual B passed away the business was operated by Individual A as a sole trader until 20XX. 24. All three of the children were involved in the business as employees at some stage of its operations. The Partnership initially traded as 'Individual B' and then when their children left school and became involved in the business (but not ownership), the business traded as 'Individual B and children'. A non-family employee was also employed in the business. When Individual B died, Individual A continued the business with the help of their children until the business ceased in 20XX. 25. When the Property was purchased, the Partnership began using the Property for the business, immediately building a shed on the eastern side of the Property. 26. The business involved manufacturing parts, repairs and maintenance on plant and equipment and operating machinery used in a particular type of business. The shed on the Property was used to manufacture parts, carry out repairs and maintenance on plant and equipment and build machinery. 27. Individual B and their children had relevant skills and/or qualifications to carry out this business. 28. The business income was mainly derived from subcontracting to another business. The employees conducted offsite work for this business on the other business's property which was located on the eastern side of the Property. Machinery used in the operations required constant maintenance. The shed on the Property was constantly being used in the business because of the machinery it housed for building, repairs and maintenance. 29. Rent was paid to the Trust for the use of the Property. Company B 30. Company B was also incorporated before 20 September 1985. 31. The Family acquired Company B in 19XX and commenced trading. 32. The only shares on issue in Company B were ordinary shares with equal rights. 33. Company B was owned by the Family members in the following percentages (rounded up): • Individual A - X% • Individual B - X% • Individual C - X% • Individual D - X% • Individual E - X% 34. On Individual C's passing, their shares in the company were divided equally between their parents (as the next of kin). The shareholding percentages (rounded up) became: • Individual A - X% • Individual B - X% • Individual D - X% • Individual E - X% 35. When Individual B passed away, their shares were inherited by Individual A and held from this time until the company was deregistered. Individual A then held X% of the shareholding in Company B. 36. Company B owned machinery that operated on the adjoining site. This machinery was built by Company B and provided to the nearby business for use in their operations. 37. As detailed earlier in the facts, the Partnership undertook maintenance work on machinery used in the nearby business. Company B and the Partnership shared the same shed and surrounding area. It was a flexible arrangement between the two entities. 38. Company B's equipment maintenance was carried out in the shed area on the Property, either inside the shed or beside the shed as the need for maintenance arose. Replacement parts were constantly being built in the shed as the heavy wear and tear on the machinery demanded constant maintenance and repairs. It was family members that provided the labour for this maintenance, being either Individual B or their children No one outside the family was employed in Company B. 39. Administration of the company was also performed in the shed at the Property. 40. Company B paid rent to the Trust for the use of the land. 41. After Individual B passed away the machine was sold and the business ceased and the Company was deregistered. Further issues for you to consider We have limited our private ruling to the questions raised in your application. This ruling has not considered the other basic eligibility conditions which must be satisfied in order to apply the small business CGT concessions, in particular paragraph 152-10(1)(c) of the Income Tax Assessment Act 1997 . More information is available on our website www.ato.gov.au by searching keywords 'concessions for small business' or Quick Code 'QC 22655'.


Reasons for decision: Summary: Yes. | Detailed Reasoning - Detailed reasoning: Division 149 - When an asset stops being a pre-CGT asset 1. Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997), applicable to assessments for the 1999 and later income years, contains the current rules which govern when an asset acquired before 20 September 1985 stops being a 'pre-CGT asset'. Section 149-10 provides: A CGT asset that an entity owns is a pre-CGT asset if, and only if: (a) the entity last acquired the asset before 20 September 1985; and (b) the entity was not, immediately before the start of the 1998-99 income year, taken under: (i) former subsection 160ZZS(1) of the Income Tax Assessment Act 1936 ; or (ii) Subdivision C of Division 20 of former Part IIIA of that Act; to have acquired the asset on or after 20 September 1985; and (c) the asset has not stopped being a pre-CGT asset of the entity because of this Division. 2. Relevantly, as stated in subsection 149-10(1)(b) of the ITAA 1997, for a CGT asset of an entity to remain a pre-CGT asset the entity cannot have been taken to have acquired the asset before 20 September 1985 under former subsection 160ZZS(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Therefore, the former provisions of section 160ZZS must be considered for the period up to the start of the 19XX-19XX income year. | Detailed Reasoning - Former section 160ZZS of the ITAA 1936: 3. Former section 160ZZS [1] in Division 20 of former Part IIIA of the ITAA 1936, which applied before the commencement of the 1999 income year, contained rules which governed when an asset acquired before 20 September 1985 stopped being a 'pre-CGT asset'. Section 160ZZS was amended over the period from its introduction until it was repealed. It relevantly provided as follows: | Detailed Reasoning - 160ZZS(1) [Deemed acquisition after 19 September 1985]: For the purposes of the application of this Part in relation to a taxpayer, an asset acquired by the taxpayer on or before 19 September 1985 shall be deemed to have been acquired by the taxpayer after that date unless the Commissioner is satisfied, or considers it reasonable to assume, that, at all times after that date when the asset was held by the taxpayer, majority underlying interests in the asset were held by natural persons who, immediately before 20 September 1985, held majority underlying interests in the asset. | Detailed Reasoning - 160ZZS(1A) [Time when change in majority underlying interests occurred]: If subsection (1) applies so as to deem an asset to have been acquired by a taxpayer after 19 September 1985: (a) the time when the taxpayer is taken, for the purposes of this Part, to have acquired the asset is the time when the natural persons who, immediately before 20 September 1985, held majority underlying interests in the asset ceased, or first ceased, to hold those interests; and (b) the taxpayer is taken to have acquired the asset for a consideration equal to the market value of the asset as at the time mentioned in paragraph (a). ... (3) In this section, 'majority underlying interests' and 'underlying interest', in relation to an asset, have the same meanings as those expressions have in relation to property in Subdivision G of Division 3 of Part III. 4. Former section 82KZC of the ITAA 1936 in Subdivision G of Division 3 of Part III provided: majority underlying interests, in relation to property, means more than one-half of - (a) the beneficial interests held by natural persons (whether directly or through one or more interposed companies, partnerships or trusts) in the property; and (b) the beneficial interests held by natural persons (whether directly or through one or more interposed companies, partnerships or trusts) in any income that may be derived from the property. 5. In 1997, the terms majority underlying interest and underlying interest were defined in subsection 160ZZRR(1) [2] of the ITAA 1997 as follows: majority underlying interests, in relation to an asset, means more than one-half of: (a) the beneficial interests that natural persons hold (whether directly or indirectly) in the asset; and (b) the beneficial interests that natural persons hold (whether directly or indirectly) in any income that may be derived from the asset. ... underlying interest, in relation to an asset, means a beneficial interest that a natural person holds (whether directly or indirectly) in the asset or in any income that may be derived from the asset. 6. Further, indirect beneficial interests in the asset or income that may be derived from the asset were defined in sections 160ZZRT and 160ZZRS of the ITAA 1997, as follows: 160ZZRS INDIRECT BENEFICIAL INTEREST IN ASSET A natural person is taken to hold an indirect beneficial interest in an asset of an entity (other than another natural person) for the purposes of this Division where: (a) if the entity were to distribute any of its capital; and (b) in the case where another entity or other entities are interposed between the first-mentioned entity and the person - if the capital were then distributed by the other entity or successively distributed by each of the other entities; the person would have the right to receive any of the capital for the person's own benefit. 160ZZRT INDIRECT BENEFICIAL INTEREST IN INCOME DERIVED FROM ASSET A natural person is taken to hold an indirect beneficial interest in income that may be derived from an asset of an entity (other than another natural person) for the purposes of this Division where: (a) if the entity were to pay a dividend or otherwise distribute any of its income; and (b) in the case where another entity or other entities are interposed between the first-mentioned entity and the person - if the dividend or income were then paid or distributed by the other entity or successively paid or distributed by each of the other entities; the person would have the right to receive any of the dividend or income for the person's own benefit. 7. Subsection 160ZZS(2) of the ITAA 1936 (later replaced by section 160ZZRU of the ITAA 1936 which was in substantially the same terms [3] ) provided that: For the purposes of this section, where, by reason of the death of a person, a natural person acquires a percentage (in this subsection referred to as the "acquired percentage") of the underlying interests in an asset, the natural person shall be deemed to have held (in addition to any other part of the total underlying interests that the person held or is deemed to have held), at any time when the deceased person held a percentage (in this subsection referred to as the "deceased person's percentage") of the total underlying interests in the property, a percentage of the total underlying interests in the property equal to the acquired percentage, or the deceased person's percentage at that time, whichever is the less. 8. The explanatory memorandum to the Income Tax Assessment Amendment (Capital Gains) Bill 1986 stated: Sub-section 160ZZS(2) restricts the operation of sub-section (1) so that a change in the beneficial ownership of an asset on account of death will not be regarded as a change in ownership. An underlying interest in an asset held by the deceased at any time is deemed to have been held at the time by the person acquiring the underlying interest by reason of the death. The provision is expressed in terms of percentages of total underlying interests to ensure that it applies where the deceased has held different kinds of beneficial interests in the asset at different times (for example, a shareholder in a company that had owned the asset and who became the legal owner after acquiring the asset from the company). | Detailed Reasoning - Division 149: 9. Subsection 149-30(1) of the ITAA 1997 provides: The asset stops being a pre-CGT asset at the earliest time when majority underlying interests in the asset were not had by ultimate owners who had majority underlying interests in the asset immediately before 20 September 1985. 10. Subsection 149-30(1A) of the ITAA 1997 provides that Part 3-1 and Part 3-3 apply to the CGT asset as if the entity had acquired it at the earliest time. 11. Subsection 149-30(2) of the ITAA 1997 states: If the Commissioner is satisfied, or thinks it reasonable to assume, that at all times on and after 20 September 1985 and before a particular time majority underlying interests in the asset were had by ultimate owners who had majority underlying interests in the asset immediately before that day, subsections (1) and (1A) apply as if that were in fact the case. 12. An 'ultimate owner' is defined in subsection 149-15(3) of the ITAA 1997 relevantly to include an individual. Companies that can distribute to their members are not ultimate owners. 13. The other relevant definitions in subsection 149-15 of the ITAA 1997 are: 149-15(1) Majority underlying interests in a CGT asset consist of: (a) more than 50% of the beneficial interests that ultimate owners have (whether directly or indirectly) in the asset; and (b) more than 50% of the beneficial interests that ultimate owners have (whether directly or indirectly) in any ordinary income that may be derived from the asset. 149-15(2) An underlying interest in a CGT asset is a beneficial interest that an ultimate owner has (whether directly or indirectly) in the asset or in any ordinary income that may be derived from the asset. 149-15(4) An ultimate owner indirectly has a beneficial interest in a CGT asset of another entity (that is not an ultimate owner) if he, she or it would receive for his, her or its own benefit any of the capital of the other entity if: (a) the other entity were to distribute any of its capital; and (b) the capital were then successively distributed by each entity interposed between the other entity and the ultimate owner. 149-15(5) An ultimate owner indirectly has a beneficial interest in ordinary income that may be derived from a CGT asset of another entity (that is not an ultimate owner) if he, she or it would receive for his, her or its own benefit any of a dividend or income if: (a) the other entity were to pay that dividend, or otherwise distribute that income; and (b) the dividend or income were then successively paid or distributed by each entity interposed between the other entity and the ultimate owner. 14. Subsection 149-30(3) of the ITAA 1997 provides circumstances when a new owner is taken to stand in the shoes of a former owner: Subsection (4) affects how the majority underlying interests in the asset are worked out if an ultimate owner (the new owner ) has acquired a percentage (the acquired percentage ) of the underlying interests in the asset because of an event described in column 2 of an item in the table. The former owner is the entity described in column 3 of that item. | Detailed Reasoning - The former owner is:: 1 CGT event A1 or B1 if there is a roll-over under Subdivision 126-A (about marriage or relationship breakdowns) for the event the entity that, immediately before the event happened, owned the CGT asset to which the event relates 2 the death of a person that person 15. Subsection 149-30(4) of the ITAA 1997 provides: This section applies as if the new owner had (in addition to any other underlying interests), at any time when the former owner had a percentage (the former owner's percentage ) of the underlying interests in the asset, a percentage of the underlying interests in the asset equal to the acquired percentage, or the former owner's percentage at that time, whichever is the less. 16. In summary, the term 'majority underlying interests', based on which section 149-30 of the ITAA 1997 (and its predecessor, section 160ZZS of the ITAA 1936) operate, are concerned with the measurement of underlying interests in relation to the assets concerned. Underlying interests in a CGT asset is a beneficial interest that an ultimate owner has (whether directly or indirectly) in the asset or in any ordinary income that may be derived from the asset (s. 149-15(2)). 17. Taxation Ruling IT 2530 considers the calculation of changes in majority underlying interests. IT 2530 states at paragraph 10: 10. If natural persons who immediately before 20 September 1985 held more than one half of the underlying interests in an asset continue to hold more than one half of the underlying interests at all times on and after that date, there will be no change in the majority underlying interests in the asset for the purposes of section 160ZZS. In these circumstances a change in the proportions in which the natural persons held interests in the asset would not have a bearing on the application of section 160ZZS. The following example illustrates this point: Immediately before 20 September 1985 underlying interests in an asset of a company were owned by four natural persons in the following proportions - A - 90% B - 5% C - 3% D - 2%. Following a change in the shareholding of the company after 20 September 1985, the underlying interests in the asset were owned by natural persons in the following proportions - A - 1% B - 2% C - 48% D - 0% E - 49%. The natural persons who owned underlying interests both immediately before 20 September 1985 and after the change in ownership were A, B and C. Immediately before 20 September 1985 A, B and C between them owned more than one half of the underlying interests (i.e., 98%). After the change A, B and C between them still owned more than one half of the underlying interests (i.e., 51%). Accordingly, more than one half of the underlying interests in the company's asset continued to be held by the same persons. Section 160ZZS would therefore not apply to deem the asset acquired by the company before 20 September 1985 to have been acquired on or after that date. | Detailed Reasoning - Application to your circumstances: 18. As a result of Individual C passing away, the unit holdings in the Trust changed. Individual C's units, conferring a X% interest in the income and assets of the Trust, passed under the laws of intestacy to their next of kin, their parents in equal shares. By virtue of subsection 160ZZS(2) of the ITAA 1936, applicable at that time, Individuals A and B were deemed to have held (in addition to any other part of the total underlying interests that they held in the Trust), at any time when Individual C held their units, the percentage interest in the Trust acquired by virtue of inheriting Individual C's units. This means Individual A was deemed to have always held X% of the underlying interests in the Trust and Individual B is deemed to have always held X% of the interests in the Trust. Therefore, the change in unitholders as a result of Individual C's death did not cause a change in majority underlying interests in the Trust as the unitholders who held (or are deemed to have held) underlying interests in the Trust are unchanged. Together, the four unitholders continue to hold majority underlying interests in the income and assets of the Trust. 19. However, when the Trustee of Individual D and Individual E transferred their units in the Trust to Individual A and Individual B, majority underlying interests in the Trust were no longer held by the natural persons who held those interests immediately before 20 September 1985. Individual A and Individual B together did not hold (or were not deemed to have held) at 20 September 1985, more than X% of the underlying interests in the Trust. Their underlying interests were only (in total) X%. 20. Therefore, the Property stopped being a pre-CGT asset (and thus, became a post-CGT asset) at the time of the sale of the units from the Trust for Individual D and Individual E to Individuals A and B (transfer time). This is the earliest time when majority underlying interests in the Property were not had by ultimate owners who had majority underlying interests in the Property immediately before 20 September 1985. 21. The time when the Trust is taken to have acquired the Property for CGT purposes is the time when majority underlying interests in the asset ceased to be held at the transfer time. The Property is taken to have been acquired for a consideration equal to the market value of the Property at that time. | Detailed Reasoning - Question 2: Is the Property an active asset in accordance with section 152-40 of the ITAA 1997? | Detailed Reasoning - Question 3: Does the Property satisfy the active asset test under subsection 152-35(1) of the ITAA 1997? | Summary: The Property has been used in the course of the business activities of an entity connected to the Trust for more than 7.5 years in the ownership period of more than 15 years. The Property is an active asset of the Trust under section 152-40 of the ITAA 1997 and satisfies the active asset test in section 152-35(1) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: All references in the detailed reasoning below are to the ITAA 1997 unless otherwise specified. | Detailed Reasoning - Basic conditions for relief: 22. Section 152-10 provides the basic conditions that need to be met to apply the small business CGT concessions. 23. Subsection 152-10(1) states that a capital gain that you make may be reduced or disregarded if the following basic conditions are satisfied: (a) a CGT event happens in relation to a CGT asset of yours in an income year; (b) the event would have resulted in a gain; (c) at least one of the following applies: (i) you are a small business entity for the income year; (ii) you satisfy the maximum net asset value test; (iii) 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; (iv) 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 (passively held assets as outlined in subsections 152-10(1A) and 152-10(1B) of the ITAA 1997); (d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. | Detailed Reasoning - Active asset test: 24. Subsection 152-35(1) states that a CGT asset satisfies 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 period specified in subsection (2); 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 7.5 years during the period specified in subsection (2). 25. Subsection 152-35(2) relevantly provides that the 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 or any longer period that the Commissioner allows - the cessation of the business. 26. Section 152-40 provides the meaning of 'active asset'. Relevantly, a CGT asset is an active asset at a time if, at that time, you own the asset and the asset was used or held ready for use in the course of carrying on a business that is carried on by you, your affiliate or by another entity that is 'connected with' you. 27. Paragraph 152-40(4)(e) excludes, among other things not presently relevant, assets whose main use is to derive rent (unless such use was only temporary). Such assets are excluded even if they are used in the course of carrying on a business of renting the assets. 28. However, subsection 152-40(4A) provides that any use of the asset by a connected entity or an affiliate of the taxpayer is treated as the taxpayer's use of the asset for the purposes of paragraph 152-40(4)(e). This means if the connected entity uses the asset to carry on its business the asset can still qualify as the taxpayer's active asset even if rent is charged to the connected entity for its use: Taxation Determination TD 2006/63 Income tax: capital gains: is a CGT asset that is leased by a taxpayer to a connected entity for use in the connected entity's business an active asset under section 152-40 of the Income Tax Assessment Act 1997 ?. | Detailed Reasoning - Connected entities: 29. The meaning of connected with an entity is contained in section 328-125. 30. Subsection 328-125(1) states that an entity is connected with another entity if: (a) either entity controls the other entity in a way described in this section; or (b) both entities are controlled in a way described in this section by the same entity. 31. Subsection 328-125(2) states that an entity (the first entity) controls another entity if the first entity, its affiliates, or the first entity together with its affiliates: (a) except if the other entity is a discretionary trust - own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of: (i) any distribution of income by the other entity; or (ii) if the other entity is a partnership - the net income of the partnership; or (iii) any distribution of capital by the other entity; or (b) if the other entity is a company - own, or have the right to acquire the ownership of, equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the controlpercentage) that is at least 40% of the voting power in the company. | Detailed Reasoning - Affiliates: 32. The meaning of 'affiliate' is set out in section 328-130: 328-130(1) An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company. 328-130(2) However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share. Note: For small business relief purposes, a spouse or a child under 18 years may also be an affiliate under section 152-47. 33. Trusts, partnerships and superannuation funds cannot be affiliates. However, a trust, partnership or superannuation fund may have an affiliate who is an individual or company. 34. The 'affiliate' test must be assessed on an entity-by-entity basis. This means that it is possible for one entity (the first entity) to be an affiliate of another entity (the second entity) even though the second entity is not itself an affiliate of the first entity. 35. Subsection 328-130(1) makes it explicit that the 'affiliate' definition is only to be considered 'in relation to the affairs of the business' of the relevant individual or company. Therefore, an individual or company that does not carry on their own business cannot be an 'affiliate' for the purposes of section 328-130. 36. Neither a spouse nor a child is automatically an individual's affiliate. 37. However, section 152-47 headed 'Spouses or children taken to be affiliates for certain passively held CGT assets' provides that the section will apply if: (a) one entity (the asset owner) owns a CGT asset (whether the asset is tangible or intangible); and (b) either: (i) the asset is used, or held ready for use, in the course of carrying on a business in an income year by another entity (the business entity); or (ii) the asset is inherently connected with a business that is carried on in an income year by another entity (the business entity ); and (c) the business entity is not (apart from this section) an affiliate of, or connected with, the asset owner. 38. Subsection 152-47(2) provides that, for the purposes of Subdivision 152-A, in determining whether the business entity is an affiliate of, or is connected with, the asset owner, take the following to be affiliates of an individual: (a) a spouse of the individual; (b) a child of the individual, being a child who is under 18 years. 39. If an entity is an affiliate or connected with another entity as a result of subsection 152-47(2), then the spouse or child mentioned in that subsection is taken to be an affiliate for the purposes of 328-110 and 328-125 to the extent that they relate to Subdivision 152-A. 40. Subsection 152-47(2) applies for the purposes of reducing or disregarding, under Division 152, any capital gain from any CGT asset but applies only while a spouse remains a spouse and a child remains a child under 18 years: subsection 152-47(4). 41. The Explanatory Memorandum to the Tax Laws Amendment (2009 Measures No. 2) Bill 2009 (the EM), that introduced 152-47, explains: 2.33 The amendments repeal subsection 152-40(1A) and insert a rule that treats an individual's spouse or child (under 18 years of age) as an affiliate of the individual for the purposes of determining whether the individual or an entity in which the individual has an interest, or is a beneficiary of, is eligible for the small business CGT concessions where one entity owns a CGT asset and: • that asset is used, or held ready for use, in the course of carrying on a business by another entity; or • is inherently connected with a business carried on by another entity. [Schedule 2, items 11 and 14, subsections 152-47(1) and (2)] 2.34 The rule applies only if the 'business' entity is not otherwise an affiliate of, or connected with, the asset-owning entity. This means that if the business entity is an affiliate of the asset-owning entity as a result of applying section 328-130 of the ITAA 1997, an individual's spouse or child (under 18 years of age) would not be treated as an affiliate of the individual. Similarly, if the business entity is already connected with the asset-owning entity via section 328-125 of the ITAA 1997, an individual's spouse or child (under 18 years of age) would not be treated as an affiliate of the individual. [ Schedule 2, item 14, paragraph 152-47(1 )( c )] 2.35 The rule is applied in two stages. The first stage treats an individual's spouse or child (under 18 years of age) as their affiliate, for the purposes of Subdivision 152-A of the ITAA 1997, when determining whether the entity that uses the CGT asset, or holds it ready for use, in its business is an affiliate of, or is connected with, the entity that owns the CGT asset. [ Schedule 2, item 14, subsection 152-47(2 )] 2.36 If the conditions of the first stage are met, the second stage will apply to treat the spouse or child (as the case may be) as an affiliate of the individual for the purposes of Subdivision 152-A of the ITAA 1997 and for the purposes of sections 328-110 to 328-125 of the ITAA 1997 to the extent that these sections relate to Subdivision 152-A. For example, if by the application of the first stage of the rule, the entity is taken to be an affiliate of, or an entity connected with, the entity that owns the asset, the asset is an active asset (subparagraph 152-40(1)(a)(ii) in its proposed new form, or new subparagraph 152-40(1)(a)(iii), or paragraph 152-40(1)(b) in its proposed new form). [ Schedule 2, item 14, subsection 152-47(3 )] 2.37 The new affiliate rule affects access to the small business CGT concessions via the maximum net asset value test in addition to the small business entity test. Compared to the old rule (subsection 152-40(1A) of the ITAA 1997), the new rule increases access to the concessions by treating an individual's spouse or child (under 18 years of age) as their affiliate in a wider range of situations. 2.38 However, for the purposes of the maximum net asset value test, the new rule also reduces access to the concessions by potentially bringing in more affiliates and more entities that are connected with the asset-owning entity than the old rule. | Detailed Reasoning - Asset used in the course of carrying on a business: 42. An asset does not need to be used exclusively in the course of carrying on a business: Eichmann v Federal Commissioner of Taxation (2020) FCAFC 155 (Eichmann). 43. The 7.5 year rule means that once an asset has been an active asset for the required period, it will retain its character as an active asset regardless of how long it is owned or how it is used during the remainder of the ownership period. 44. In Eichmann , the taxpayer, whose connected entity (a family trust) carried on a business of building, bricklaying and paving, purchased land next door to his family home and the trust used it to store work tools, equipment and materials. The land had sheds, high walls and a gate to secure the property. Work vehicles and trailers were parked on the property, and tools and items were collected from there on a daily basis. The Full Federal Court held that the secure storage of the tools and materials of the business on a daily basis was very much part of the course of the carrying on of that business. In so holding the court unanimously overturned the decision of Derrington J (2019 ATC 20-728; [2019] FCA 2155) and the view that, in order for an asset to be used "in" the course of carrying on a business; it was necessary for the use to have a direct functional relevance to the carrying on of the normal day-to-day activities of the business that were directed to the gaining or production of assessable income. 45. As highlighted in Eichmann , subsection 152-40(1) requires the asset to be used 'in the course of carrying on a business,' encompassing, necessarily, a fairly wide range of activities. 46. The issue of whether land was 'used in the course of carrying on a business,' for the purpose of section 152-40, is a question of fact and degree: Eichmann [at 41]. The relevant gain, which is sought to be reduced or disregarded, is a gain arising from the disposal of the whole of the land: Rus v FC of T 2018 ATC 10-478 (Rus). 47. In Rus where only a small portion of land was used in carrying on a business, the land was held not to be an active asset. The taxpayer and her husband purchased a 16-hectare property in June 1997. A small part of the land (1.6 hectares) contained two houses and a shed. One house was the couple's main residence while the other was the main residence of the couple's two adult children (who did not pay rent). 48. From the property the couple carried on a plastering/housing construction business. Only the shed and a home office in the couple's main residence was used in the running of the business, however, the majority of the business activities were conducted off site. 49. On review, the AAT confirmed the Commissioner's decision that having regard to the nature of the CGT asset, the nature of the company's business, and the relationship between the CGT asset and that business, it could not be said that the CGT asset was used in the course of carrying on the company's business, therefore the property was not an active asset. | Detailed Reasoning - Summary of active asset test: 50. In summary, for a CGT asset that has been held for 15 years to satisfy the active asset test, the asset must have been used or been held ready for use in the course of carrying on a business carried on by the taxpayer, their affiliate or by another entity that is 'connected with' the taxpayer for at least 7.5 years. | Detailed Reasoning - Application to your circumstances: 51. The Trust owned the Property for more than 15 years but did not carry on a business. Therefore, the Property needs to have been used (or been held ready for use) in the course of the carrying on of a business by an affiliate of the Trust or another entity connected with the Trust for at least 7.5 years. | Detailed Reasoning - The Trust's connected entities and affiliates: 52. Although the trust deed has been lost, based on the information provided, units in the trust carry a proportionate right to the income and capital of the Trust. Therefore, the Trust is not considered a discretionary trust as referred to in section 328-125. 53. Section 152-47(1) may apply to the Trust because the Property owned by the Trust was used in the course of carrying on a business by the Partnership and later by Individual A as a sole trader, and by Company B. Section 152-47(1) will apply when, apart from subsection 152-47(1), the other entity would not be an affiliate of, or connected with, the Trust. | Detailed Reasoning - Was the Partnership connected with the Trust?: 54. From the time the Trust was settled until Individual C passed away, the Trust was not controlled, within the meaning of 328-125(2), by any one individual or entity as each unitholder held 25% of the units in the Trust carrying with it the right to 25% of the income and capital of the Trust. 55. When Individual C passed away their units passed to their parents (next of kin). From the time that the units passed to Individual A and Individual B they together were entitled to 50% of the income and capital of the Trust. 56. Apart from 152-47(1), the Partnership would not be an affiliate of, or connected with the Trust from this time, because neither Individual A nor Individual B alone would control the Trust within the meaning of 328-125(2). 57. However, for the purposes of determining if the Partnership is connected with the Trust, spouses are taken to be affiliates of an individual under section 152-47(2). 58. Individual A and B each control the Partnership as they are each entitled to X% of the income and capital of the Partnership: subsection 328-125(2). 59. Further, from the time that the units passed from Individual C's estate to Individual A and B, Individual A together with their spouse Individual B (their affiliate under subsection 152-47(2)) control the Trust, together having a right to X% of the income and capital of the Trust. 60. Therefore, from the time that the units passed from Individual C's estate to Individuals A and B, the Partnership was a connected entity of the Trust as the Partnership and the Trust were controlled by the same third entity: subsection 328-125(1)(a). 61. When the Trustee of the trust for Individual D and Individual E sold their units to Individuals A and B, Individual A in their own right controlled the Trust holding at least X% of the units in the Trust (X% of the units in the Trust). Therefore, the Partnership was a connected entity of the Trust without the application of section 152-47 because the Partnership and the Trust were controlled by Individual A. 62. The Partnership ceased when Individual B passed away, and therefore, from this time the Partnership was no longer a connected entity of the Trust. 63. Therefore, the partnership was a connected entity with the Trust from the time that Individual C passed until Individual B passed away. Although we cannot determine the exact length of this period, it was less than X years. | Detailed Reasoning - Was Individual A a connected entity of the Trust?: 64. When Individual B passed away, Individual A controlled the Trust owning X% of the units in the Trust. 65. From Individual B's passing until the business ceased (approximately X years), Individual A ran the business as a sold trader. 66. During this time, Individual A was connected with the Trust under subsection 328-125(1)(a), as they controlled the Trust in the way described in 328-125(2). This was for a period of approximately X years. | Detailed Reasoning - Was Company B a connected entity of the Trust?: 67. As a result of Individual C passing, their units in the Trust passed to Individuals A and B. From the time that the units passed from Individual C's estate to Individuals A and B, they together were entitled to X% of the income and capital of the Trust and controlled the Trust in the way described by 328-125(2), by application of 152-47. 68. When the Trustee of the trust for Individual D and Individual E sold their units to Individual A and B, Individual A in their own right controlled the Trust. From this time, Individual A held at least X% of the units in the Trust. 69. From the time that the shares in Company B passed from Individual C's estate to Individual A and B, Individual A in their own right controlled Company B g in the way described by 328-125(2), holding X% of the shares. 70. The business carried on by Company B ceased after Individual B passed away and was deregistered. 71. Therefore, during the time from when the shares and units passed from Individual C's estate to Individual A and B and the time that the business carried on by Company B ceased, Company B was a connected entity of the Trust by application of subsection 328-125(1)(b), both entities being controlled by the same third entity at this time. | Detailed Reasoning - Was the asset used in the course of carrying on a business?: 72. We accept that the Property was used in the course of carrying on a business by the Partnership and following the cessation of the Partnership, by Individual A as a sold trader. 73. We accept that the Partnership and later Individual A carried on a business primarily deriving income from contracting services to another business. We accept that during the time that the business was conducted, the shed and surrounding area of land on the Property was used in the course of carrying out that business being used on a regular basis for activities including the manufacture of parts, repairs and maintenance on plant and equipment and housing machinery used in business activities conducted in the course of contracting of services. 74. We accept that Company B carried on a business of building machines. We accept that during the time that this business was conducted, the shed and surrounding area of land on the Property was used in the course of carrying on that business. 75. We consider that the circumstances in this case are distinguishable from Rus , where the Tribunal held that only a small portion of land was used in the carrying on of a business. 76. Having regard to the nature of the Property, the nature of the businesses conducted by the Partnership and later as sole trader by Individual A and finally Company B, and the relationship between the Property and businesses, we are satisfied that the Property was used in the course of carrying on a business by a connected entity of the Trust. 77. The Trust derived rent from the Property from the entities carrying on the businesses. However, for the purposes of determining the main use of an asset under paragraph 152-40(4)(e), subsection 152-40(4A) treats any use by an entity connected with the asset owner, as their own. Therefore, the main use of the Property was not to derive rent. 78. We note that Company B could only have been an entity connected with the Trust for a period of likely less than X years. The Partnership also could only have been connected with the Trust for a period of less than X years. However, Individual A continued the Partnership's business after the Partnership dissolved as a sole trader for another X years (from 19XX to 20XX). Therefore, in total, the Property was used by an entity connected with the Trust in carrying on a business for at least 7.5 years during the ownership period. 79. We are satisfied that the Property was used in the course of carrying on a business by a connected entity of the Trust for the required period of at least 7.5 years. The Property was an active asset under section 152-40 for at least 7.5 years and satisfies the active asset test under section 152-35 of the ITAA 1997. [1] Subsections 160ZZS was introduced by section 19 of the Income Tax Assessment Amendment (Capital Gains) Act 1986 (No. 52 of 1986). Subsections 160ZZ(1A) was introduced by Part II, section 50 of the Taxation Laws Amendment Act (No. 2) 1992 (No. 80 of 1992). Subsection 160ZZS(1A) applied to disposals made after 19 September 1985 (see section 67(3) of the Taxation Laws Amendment Act (No. 2) 1992 . [2] Subdivision A of Division 20 of Part IIIA, containing 160ZZRR, 160ZZRS and 160ZZRT was inserted by the Taxation Laws Amendment Act (No. 1) 1997 (122 of 1997) the original subsection 160ZZS(3) was repealed. The amendments commenced on 20 January 1997. The amendments restructured Division 20 of Part IIIA of the Act to provide clear provisions to deal with public entities and non-public entities. Paragraph 6.13 of the explanatory memorandum for the Taxation Laws Amendment Bill (No. 1) 1997 stated: 'The amendments do not affect the way the current rules in section 160ZZS apply to non-public entities. As part of the reorganisation of the Division, however, a number of current provisions have been repealed and replaced by new provisions.' [3] See Footnote 5

Question 1: Did the Property become a post-CGT asset on 30 June 1991 under section 160ZZS of the Income Tax Assessment Act 1936 (the predecessor provision to Division 149 of the Income Tax Assessment Act 1997 )