Private ruling: Active asset
Date of advice: 12 June 2018
Published: August 2018
Ruling period: Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the storage facility an active asset? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 Detailed reasoning | The capital gains tax (CGT) provisions provide some small business relief in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997). Active asset test | As outlined in subdivision 152-A of the ITAA 1997, the CGT asset must satisfy the active asset test. | Under subsection 152-35(1) of the ITAA 1997, 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. | Subsection 152-40(1) of the ITAA 1997 provides that a CGT asset is an active asset at a time if it is used, or held ready for use, in the course of carrying on a business that is carried on by you, or your affiliate, or another entity that is connected with you. | 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 property is used as a storage facility to earn assessable income. | 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? provides guidance to assist in determining whether particular receipts constitute ‘rent' for the purpose of paragraph 152-40(4)(e) of the ITAA 1997. As highlighted at paragraph 23 of TD 2006/78, if 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. | Whether a payment is rent depends on the particular circumstances and facts of each case. Relevant factors to consider in determining whether rent is derived (in addition to whether the occupier has a right to exclusive possession) include the degree of control retained by the owner and the extent of any services provided by the owner. | Whilst TD 2006/78 focusses on the provision of accommodation services, example 2 in paragraphs 4-7 relates to a commercial storage facility. | Entity A’s arrangement indicate that the users of the storage facility do not have the right to exclusive possession but rather only the right to enter and use the facility for certain purposes. Entity A also provides additional services and products to clients if required. | The particular circumstances of Entity A are in line with example 2 of TD 2006/78. The tenant/landlord relationship does not exist between the parties and therefore the amounts received are not regarded as rent. Therefore, the exclusion in paragraph 152-40(4)(e) of the ITAA 1997 does not apply. | Furthermore, the active asset test is satisfied as Entity A has held and used the property in the business for the full period of ownership. | Other information | Please note, before claiming any of the small business CGT concessions, you need to ensure that all other basic tests and other relevant requirements of Division 152 of the ITAA 1997 are met.


Relevant facts: Entity A owns and operates a commercial storage facility. The property has been used by entity A in a storage facility business since purchase. | The facility consists of multiple storage lockers and other facilities. | Entity A provides short or long term secure storage. | The user has the right to its allocated zone for storage only. Entity A retains the right to reallocate each client, depending on their requirements at the time and relocate the stored materials to another location within the facility. | The client has no exclusive rights to any specific locker, but an agreement to a specific value of storage space for a monthly fee. | Entity A provides a number of additional services to clients of the facility.