Private ruling: Capital gains tax - small business concessions - active asset reduction
Date of advice: 29 June 2017
Published: October 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you eligible to apply the small business Capital gains tax (CGT) 50 per cent active asset reduction concession in calculating your assessable capital gain? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 subdivision 152-C | 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 subdivision 152-D

Reasons for decision: Detailed Reasoning - Small business concessions: To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions. Subdivision 152-C of the ITAA 1997 applies the small business 50% active asset reduction provided the basic conditions are satisfied. A capital gain that you make may be reduced or disregarded under Division 152 of the 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. | Detailed Reasoning - Active asset test: 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 beings 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. Subsection 152-40(1) of the ITAA 1997 details 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. In this case we are satisfied that the basic conditions for the small business concessions have been satisfied. Therefore, the trust would have been entitled to apply the 50% active asset reduction.

Relevant facts: You are an Australian resident. | Your parent resided overseas and carried on a farming business. | Your parent passed away a number of years ago. | You are a beneficiary of the deceased estate. | The deceased estate comprised farming land and an interest in a trading partnership. | The property was valued at less than $2 million. | The partnership’s annual turnover has always been below $2 million. | You have been carrying on the farming business with the other beneficiaries from the deceased’s death. | The partnership paid for all inputs including seed, chemicals, contracting costs and retained proceeds from sale of crops. | You and the other partners have decided to sell a large portion of the farming land. | You ceased farming the land on in 2016. | The remaining land will be leased to a third party that continues to use it as a farm. | A portion of the proceeds has been paid in 2016 and 2017. The remaining payments will be made in over a number of years.