Private ruling: CGT Small business concessions - active asset
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Was the property an active asset while being used to operate the business? | A1: Yes | Q2: Will an extension of time be granted in relation to the active asset test? | A2: Not applicable - see reasons for decision

Relevant facts and circumstances: The company purchased an office building during the relevant income year. The company operated a business out of a portion of the building (X% of the floor area). The remaining Y% of the floor area was leased to an unrelated party for the entire period of ownership. For the 200Z to 20WW years the income generated by the business operating out of the building vastly exceeded the rental income derived from the building. In 20WW the company sold the business and leased the office space to the new business owners for a period of months as a part of the hand-over arrangements. After this period, the property was placed on the market. However, no suitable buyers were found. The property will now be sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Paragraph 152-40(4)(e)

Reasons for decision: Summary: The active asset test is contained in section 152-35 of the Income Tax Assessment Act 1997 (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 at least 7.5 years during the test period. The test period: · begins when you acquired the asset, and · ends at the earlier of o the CGT event, and o when the business ceased, if the business in question ceased in the 12 months before the CGT event (or such longer time as the Commissioner allows). 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, your affiliate, your spouse or child, or an entity connected with you. Paragraph 152-40(4)(e) of the ITAA 1997 states, however, that an asset whose main use in the course of carrying on the business is to derive rent can not be an active asset unless the main use for deriving rent was only temporary. This exclusion generally does not apply to a CGT asset leased to an affiliate or connected entity. The company used over half of the office space floor area in the business that it carried on. The percentage of income that was derived from these business activities was also considerably higher than the rental income that was received from unrelated parties. It is therefore accepted that the main use of the property was for business use and the exclusion in paragraph 152-40(4)(e) of the ITAA 1997 will not apply in this case. Accordingly, the property will be an active asset for the period that the business was being carried on. If the asset is sold within the ruling period, it will have been an active asset for more than half of the period that the company owned it and will pass the active asset test under section 152-35 of the ITAA 1997. Accordingly, there is no need for the Commissioner to exercise his discretion in relation to the active asset extension of time request.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.