Private ruling: Small business CGT concessions
Date of advice: 29 September 2025
Published: 17 November 2025
Ruling period: Year Ending 30 June 20XX
Date scheme commenced: July 20XX

Ruling: Q1: Does the Property satisfy the active asset test as per section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Is the Trust entitled to the small business 50% active asset reduction under Subdivision 152-C of the ITAA 1997 with respect to the sale of the Property? | A2: Yes.

Relevant facts and circumstances: A company as Trustee for the Trust purchased the Property. They purchased the Property as an investment property in XX 20XX for the amount of $X. The Trust's main business activity is accommodation services. It has 3 unit holders. They are Unit Holder 1, Unit Holder 2 and Unit Holder 3. There was initially a fourth unit holder who decided to leave the venture. Unit Holder 1 is a resident to the region. They are a self-employed business owner. They undertake their employment activity for X to X hours a week depending on the season and staff vacancies. Unit Holder 2 and Unit Holder 3 each undertake an employment activity for X hours a week. Reports from the local council on future growth were reviewed, as well as data from Airbnb. This research indicated there was a demand for short-term accommodation in the region at the price point being considered. Research was also conducted through online platforms. Owning a local shop, Unit Holder 1 had also noticed the growth in tourism and subsequent growth in demand for accommodation in the region. The owners also realised the international travel ban during the COVID-19 pandemic would encourage further domestic tourism. They did not account for the domestic lockdowns during the COVID-19 pandemic or rising interest rates. The owners decided to purchase the Property to share the investment risk, pool capital and contribute to operating the activity of providing accommodation services. The owners considered multiple properties in the region. They were particularly attracted to this property because of the expansion opportunities that were available on the Property. Following possession, the Trust has been using the Property for providing hotel type accommodation to guests. There is no business plan. The Trust, its Trustee and its unit holders have not been involved with further properties in which similar activities are carried out on. The Property includes 4 accommodation options. Accommodation bookings can be made for Option 1, Option 2, Option 3 or Option 4. Bookings can be made for 1 or more of these options. Guests can book the entire retreat; however, such a situation is yet to have occurred. There can be more than 1 booking at a time from unrelated parties. The retreat manages bookings and manages guest queries and communications. Bookings are actively managed through multiple sources including a bespoke website, Airbnb and other platforms. Approximately X% of bookings are made via Airbnb. The booking platforms include dynamic pricing. Some types of bookings cannot be made via certain platforms. These types of bookings can be made via direct contact with the retreat. Early check-in and late check-out options are provided. Marketing and social media are actively managed. A Seniors card discount is offered. The retreat provides bathroom amenities for the use of guests. It provides kitchen amenities. It also provides milk and wine. It also provides food and water if the guests are isolated due to local flooding. The retreat provides heating and cooling amenities. It provides safety amenities. It provides entertainment amenities. It provides outdoor amenities. The retreat cleans the buildings on the Property. They conduct additional cleaning if the guests bring pets and by request if they stay long-term. Enhanced cleaning protocols are offered. This includes changes in bedsheets, pillowcases and quilt covers for every booking. The retreat provides onsite waste disposal. The retreat provides access to the water supply for Option 4 guests. The unit holders spend an average of X hours per week on booking and marketing management in relation to the retreat. They spend an average of X hours on grounds maintenance and repairs. They spend an average of X hours on additional deep cleaning that cannot be tended to by contract cleaners. They spend an average of X hours on accounting. They, particularly Unit Holder 1, also tend to emergencies. The contract cleaners conduct a turnover clean after each booking. Each time, there is X cleaners who work for X hours. As required, there are also more detailed cleans at times. There is no lease or licence agreement. The guests abide to the retreat's terms and conditions as specified on the bespoke website. The retreat enforces the following protocols as stipulated by their terms and conditions: • In the case where the Government advises individuals are not permitted to travel if they are not COVID-19 vaccinated, such guests are not permitted to stay at the retreat. • Guests are not to start any type of fire with their own equipment. • Pre-approval is required for infants, toddlers and children as guests. • There are locked cupboards, storerooms and sheds. • Pre-approval is also required when guests bring pets. • Guests are not permitted to play with any of the connections for music, entertainment and sound equipment. • When necessary, the retreat can cancel bookings. • When necessary, the retreat can make alterations to bookings. • The pool may be closed during winter. The retreat's terms and conditions do not explicitly state the guests have the right to exclusive possession. The Airbnb guests must also abide to the Airbnb Terms of Service for Australian Users. In circumstances where there may be a contradiction between the retreat's terms and conditions and Airbnb's terms and conditions, the retreat's terms and conditions take priority. The guests are also required to seek permission when exceeding the number of people or pets they have advised will stay upon booking. They are also required to seek permission when providing access to third-party individuals, as well as third-party services providers they may employ for weddings and other activities. The guests are given codes to access their areas. Entries and exits to the retreat are monitored by cameras. When booked, the owners may access the areas for emergency maintenance, as well as to provide additional cleaning services to long-term guests. In doing so, the owners make a pre-arrangement with the guests to access their areas. They coordinate these pre-arrangements with the contract cleaners. The owners have not used the Property for private use. There is also the Xm2 shed on the Property which there is no licence for guests to occupy. The owners may access this storage shed while undertaking general maintenance. Following the purchase of the Property, the Trust has taken steps to expand the retreat. This includes arranging for plans to be drafted to convert the Xm2 shed on the Property to be a further accommodation building for guests. This was discussed with council. Due to the exit of the fourth unit holder, as well as high interest rates, there was a lack of financing to support this renovation and it was postponed. The Trust has also explored the option of constructing additional cabins on the Property, including approvals required through council. They also considered opening and developing further accommodation options. The Trust is registered for goods and services tax (GST) and collects GST from all accommodation bookings. The Trust is taking steps to sell the establishment and the Property. The Trust is hoping to sell the Property for approximately $X. The Trust anticipates triggering a capital gains tax (CGT) event with respect to the establishment and/or the Property in the 20XX-XX taxation year. If the Property is sold for the price the Trust is hoping for, it is anticipating a capital gain of approximately $X. The cost base in the capital gain will be approximately $X. The Trust has an aggregate turnover of less than $X million. The net value of the CGT assets of the Trust, any entities connected with the Trust and any affiliates or entities connected with affiliates of the Trust, does not exceed $X 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 subsection 152-40(1) | Income Tax Assessment Act 1997 paragraph 152-40(4)(e) | Income Tax Assessment Act 1997 subdivision 152-C | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: The Trust is carrying on a business of providing short-term accommodation. The Trust acquired the Property in xx 20XX and it has been used in the course of carrying on its business of providing short-term accommodation for at least half the ownership period. The Property is not excluded from being an active asset under paragraph 152-40(4)(e) of the ITAA 1997. Therefore, the Property will satisfy the meaning of an active asset in section 152-40 of the ITAA 1997 and will satisfy the active asset test in section 152-35 of the ITAA 1997. | Detailed Reasoning - Active asset test: Section 152-35 of the ITAA 1997 and section 152-40 of the ITAA 1997 discusses the active asset test and the meaning of an active asset respectively. As per section 152-35 of the ITAA 1997, the active asset test is satisfied if: a) the taxpayer has owned the relevant asset for 15 years or less and the asset was an active asset of theirs for a total of at least half of the test period below, or b) the taxpayer has owned the relevant asset for more than 15 years and the asset was an active asset of theirs for a total of at least 7.5 years during the test period below. The test period is from when the asset is acquired until when the CGT event occurs. If the business ceases within the 12 months before the CGT event (or such longer time if the Commissioner allows), the relevant period is from acquisition until the business ceases. Section 152-40 of the ITAA 1997 sets out the meaning of the term 'active asset'. In relation to an asset directly held by a taxpayer, subsection 152-40(1) of the ITAA 1997 provides a CGT asset is an active asset, at a time, if, at that time: • the taxpayer owns the asset (whether the asset is tangible or intangible), and • the asset is used or held ready for use while carrying on a business that is carried on (whether alone or in partnership) by the taxpayer. Importantly, subsection 152-40(4) of the ITAA 1997 lists CGT assets that cannot be active assets. Under paragraph 152-40(4)(e) of the ITAA 1997, an asset whose main use is to derive rent cannot be an active asset unless the main use for deriving rent was only temporary. In this case, the main use of the Property has remained the same throughout the ownership period. Therefore, the Property is considered an active asset during this period, provided the Property has been used in carrying on a business during this period and the Property has not persisted a main use to derive rent. | Detailed Reasoning - Carrying on a business: The definition of 'business' in section 995-1 of the ITAA 1997 simply states what activities may be included in a business. It does not provide any guidance for determining whether the nature, extent and manner of undertaking those activities amount to the carrying on of a business. For this purpose, it is necessary to turn to case law. The question of whether a business is being carried on is a question of fact and degree. It is determined on a year-to-year basis. If a taxpayer's activities do not amount to the carrying on of a business in one income year, this will not prevent them from doing so in a later income year. Similarly, when the extent of an activity falls below what is required for that activity to be commercially viable, the activity may no longer constitute the carrying on of a business. Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11) provides a guide to the indicators the courts have held to be relevant in determining whether a taxpayer is carrying on a business. Although TR 97/11 specifically refers to primary production, the same principles apply to all businesses. The indicators considered relevant are: • whether the activity has a significant commercial purpose or character (this indicator comprises many aspects of the other indicators), • whether the taxpayer has more than just an intention to engage in business, • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity, • whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business, • whether there is repetition and regularity of the activity, • whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit, • the size, scale and permanency of the activity, and • whether the activity is better described as a hoppy, a form of recreation or a sporting activity. No one indicator is decisive. The question of whether an activity amounts to the carrying on of a business is a question of fact and degree. It may also change from year to year. Whether a business is being carried on depends on the large or general impression gained ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551). This impression is gained from looking at all the indicators and whether these factors provide the operations with a commercial flavour ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). The weighting to be given to each indicator may vary from case to case. On balance, the Trust's activity gives the impression of a short-term accommodation business being carried on. Therefore, the Property has been used by the Trust while carrying on their business of short-term accommodation. The Trust's activity is of a commercial nature when considered in the context of providing short-term accommodation with 1 minimal occupancy property. Despite appearing at a small scale, the activity persists elements of repetition and regularity. Furthermore, the Trust obtained an intention to increase the scale of the activity and considered constructing an additional building offering accommodation. Therefore, the Trust obtained an intention to increase the number of occupancies in the activity. This indicates the Trust carried on the activity under the speculation its scale could be increased to be more consistent with other entities providing short-term accommodation on a commercial basis. | Detailed Reasoning - Assets whose main use is to derive rent: 'Rent' has been described as: • the amount payable by a tenant to a landlord for the use of the leased premises ( C.H. Bailey Ltd v. Memorial Enterprises Ltd [1974] 1 All ER 1003 at 1010, United Scientific Holdings Ltd v. Burnley Borough Council [1977] 2 All ER 62 at 76, 86, 93, 99), • a tenant's periodical payment to an owner or landlord for the use of land or premises ( The Australian Oxford Dictionary , 1999, Oxford University Press, Melbourne), and • recompense paid by the tenant to the landlord for the exclusive possession of corporeal hereditaments. ....... The modern conception of rent is a payment which a tenant is bound by contract to make to his landlord for the use of the property let (Halsbury's Laws of England 4th Edition Reissue, Butterworths, London 1994, Vol 27(1) 'Landlord and Tenant', paragraph 212). Paragraph 22 of Taxation Determination TD 2006/78 Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent? (TD 2006/78) explains that whether an asset's main use is to derive rent will depend on the circumstances of each case. A key factor in determining whether an occupant of premises is a lessee is whether the occupier has a right to exclusive possession ( Radaich v Smith ( 1959) 101 CLR 209; Tingari Village North Pty Ltd v Commissioner of Taxation [2010] AATA 233 at paragraphs 44-66, 2010 ATC 10-131, 78 ATR 693 and associated Decision Impact Statement 2008/4646 & 2008/4647). If, for example, premises are leased to a tenant under a lease agreement granting exclusive possession, the payments involved are likely to be rent and the premises not an active asset. On the other hand, if the arrangement allows the person only to enter and use the premises for certain purposes and does not amount to a lease granting exclusive possession, the payments involved are unlikely to be rent. Relevant factors to consider in determining whether rent is derived include: • whether the occupier has a right to exclusive possession, • the degree of control retained by the owner, and • the extent of any services provided by the owner such as room cleaning, provision of meals, supply of linen and shared amenities ( Allen v. Aller (1966) 1 NSWR 572; Appah v. Parncliffe Investments Ltd [1964] 1 All ER 838 and Marchant v. Charters [1977] 3 All ER 918). Payments are generally not rent if the following factors exist: • no notice is required to quit the rooms, • there are rules requiring visitors to leave the premises by a certain time, • the owner/manager retains the right to enter the accommodation, • the owner pays for all utilities (gas, electricity, water), • the owner provides services and facilities to guests such as room cleaning and general maintenance, linen and towels and common areas such as a TV/lounge room, kitchen, bathrooms, laundry and a recreation area, • the average length of stay is relatively short, • the owner/manager retains a significant degree of control over the premises, through being on the premises most of the time, and • the arrangements entered indicate that those staying in the accommodation do not have the right to exclusive possession of a room, but rather only a right to occupy the room. In example 4 from TD 2006/78, Linda owns a complex of six holiday apartments. The apartments are advertised collectively as a motel and are booked for periods ranging from 1 night to 1 month. The majority of bookings are from 1 to 7 nights. Linda is responsible for bookings, checking guests in and out and cleaning the apartments. She also provides clean linen and meal facilities to guests. Linda does not enter into any lease agreements with guests staying at the apartments. In the above example, the apartments are operated similar to a motel. The guests do not have exclusive possession of the apartment they are staying in but rather only a right to occupy the apartment on certain conditions. The usual length of stay by guests is very short-term and room cleaning, linen and meals are also provided to guests. These facts indicate that the relationship between Linda and the guests is not that of landlord/tenant under a lease agreement. Accordingly, the income derived is not 'rent'. If Linda's activities amount to the carrying on of a business, the paragraph 152-40(4)(e) of the ITAA 1997 exclusion would not apply and the apartments would be active assets under section 152-40 of the ITAA 1997. In Carson & Anor v FC of T [2008] AATA 156 ( Carson ), the Administrative Appeals Tribunal (AAT) considered this issue in relation to holiday rentals. The AAT stated: In this matter, the subject asset is one unit, presumably within a group of residential units. Occupants generally stay for one or two weeks. Crockery, cutlery and linen are included but cleaning is done only after the occupants depart. I have no doubt that the occupants regard themselves as having "rented" the unit for the period of their stay and during that stay have exclusive possession. Unsurprisingly, no formal lease agreement is signed but this does not mean that there is no landlord/tenant relationship. On the facts provided, I am of the opinion that the main use of the subject property is to derive rent and, therefore, it is excluded from being an active asset under s 152-40(4) of the Act... The AAT ruled that the main use of the property was to derive rent and therefore, it was excluded from being an active asset. A key factor noted from TD 2006/78 in determining whether paragraph 152-40(4)(e) of the ITAA 1997 applied was whether the occupier obtained the right to exclusive possession or only a licence to occupy. Although no formal agreement was signed, there was a landlord/tenant relationship. The issue of whether Airbnb agreements constituted a lease or a licence and whether the Airbnb guests obtained the right to exclusive possession was considered in Swan v Uecker [2016] VSC 313 ( Swan v Uecker ). The Supreme Court (the Court) held the use of words 'guest' and 'licence' in the Airbnb agreement did not prevent the arrangement from being characterised as a lease. The Court held that self-serving subjective statements could not be used to escape the legal consequences of one relationship by professing that it is another. The Court held that it was not bound by such labels and it could look at the surrounding circumstances to determine the substance (as opposed to the form) of the arrangement. Justice Croft held that the effect of the agreement, fully analysed, was that the Airbnb guests enjoyed the right to exclusive possession. While the Airbnb terms and conditions repeatedly used the word licence, Justice Croft stressed the well-established principle that the substance of an agreement prevails over its form. They held the effect of the agreement, fully analysed, was that the Airbnb guests enjoyed a right of exclusive possession: I am of the opinion that the Airbnb Agreement for occupation of the whole of the Apartment is properly to be characterised as a lease... Although every case will turn on its facts, the Court's decision clearly establishes a general principle that a short-term accommodation can be a lease, despite how the parties describe themselves. Therefore, an arrangement that could be labelled as a license, rather than a lease, may still constitute a lease based on specific entailments within the arrangement. Although the Trust's situation was different to Carson and Swan v Uecker , the principles established in these cases are still relevant. In this case, the Trust has been carrying on activities in relation to accommodation since purchase of the Property. The retreat currently consists of 4 accommodation options. The retreat can be contrasted from that of a long-term rental accommodation in that the accommodation is more akin to a bed and breakfast or hotel/motel type situation where the guests check in for a short period of time. The retreat provides guest services. The retreat conducts the cleaning of the Property; however, when booked, the owners only obtain access to the areas to provide cleaning services for long-term guests. It provides coffee, tea, milk and wine. However, it only provides food and water when guests are isolated due to local flooding. This has only occurred once. Airbnb's terms and conditions indicate there is a lease arrangement. Guests booking under this platform would expect to have exclusive possession of the booked areas during their stay. Despite this, the retreat's terms and conditions are in the nature of a licence agreement and these terms and conditions take priority over Airbnb's terms and conditions. It is acknowledged the Property was not used for private purposes. There is no lease agreements signed and guests abide to terms and conditions on the retreat's website. The guests do not have exclusive possession of the areas they are staying. The Property is separate and not connected to other properties owned by the Trust. The owners have access to the Property while guests are present. Bookings can also be made for multiple guests at a time. Although guests can book the entire property, this has never been the case. Therefore, guests have never obtained access to the whole property during their stay. The occupancy is like that of a lodger or a hotel/motel guest as in example 4 from TD 2006/78. The possession of the Property by the occupants is viewed as not having a resemblance to what would be expected in relation to tenants of residential accommodation generally, being exclusive occupancy. Taking into consideration all the relevant factors, it is considered the overall arrangement of the Trust's short-term accommodation is not considered to be that of a landlord/tenant relationship. The guests only have a right to occupy the areas they are staying on certain circumstances. As a result, it is determined that deriving rent was not the main use of the Property. During this period the services provided to guests are beyond that of a mere tenant-landlord relationship. Accordingly, the Property will not be excluded from being an active asset during the test period. | Detailed Reasoning - Conclusion: The Trust has owned the Property for less than 15 years and it has been active asset of theirs for the entire period of its ownership. As such, the Property has satisfied the active asset test and the rental exclusion in subsection 152-40(4)(e) of the ITAA 1997 does not apply. | Summary: The trust satisfies all the basic conditions for the small business concessions in relation to the disposal of the property. This includes the active asset test. Accordingly, it is entitled to apply the small business 50% active asset reduction. | Detailed Reasoning - Detailed reasoning: To qualify for the small business capital gains tax (CGT) concessions, a taxpayer must satisfy several conditions that are common to all concessions. These are called the basic conditions. These conditions are contained in section 152-10 of the ITAA 1997. As per subsection 152-10(1) of the ITAA 1997, these conditions are: a) a CGT event happens in relation to a CGT asset in an income year, b) the event would have resulted in the gain, c) at least 1 of the following applies: i. the taxpayer is a CGT small business entity for the income year, ii. the taxpayer satisfies the maximum net asset value test in section 152-15 of the ITAA 1997, iii. the taxpayer is a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership, or iv. the conditions in subsection 152-10(1A) of the ITAA 1997 or subsection 152-10(1B) of the ITAA 1997 are satisfied in relation to the CGT asset in the income year. d) the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997. All 4 of the basic conditions must be satisfied An entity is a CGT small business entity if it carries on a business and its aggregated turnover is less than $2 million. Each concession also has further requirements the taxpayer must satisfy for the concession to apply. This is except for the small business 50% active asset reduction which applies if the basic conditions are satisfied. The rules covering the small business 50% active asset reduction are contained in Subdivision 152-C of the ITAA 1997. In this case, it is accepted the Trust meets the basic conditions due to the following: • the Trust intends to dispose of the Property, triggering a CGT event A1, • the event will result in a gain, • the Trust carries on a business and its aggregated turnover is less than $2 million, and • we consider the asset meets the active asset test.