Private ruling: Small business active asset test
Date of advice: 4 June 2018
Published: August 2018
Ruling period: 1 July 2014 to 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Did the Asset satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 at the time of the CGT event? | A1: No.

Relevant facts and circumstances: Company A purchased the Asset in January 2015 and sold the Asset in February 2018 for a gain. The main use of the Asset by Company A was to derive rent.

Relevant legislative provisions: Section 152-35 of the Income Tax Assessment Act 1997.

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated. Section 152-35 states: (1) 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 1 / 2 years during the period specified in subsection (2). (2) The period: (a) begins when you *acquired the asset; and (b) ends at the earlier of: (i) the *CGT event; and (ii) 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. An ‘active asset’ is defined in section 152-40. However, certain CGT assets cannot be active assets even if they are used in the course of carrying on a business. Relevantly, subsection 152-40(4)(e) excludes assets whose main use is to derive rent (unless such use was only temporary). The main use of the Asset by Company A was to derive rent and subsection 152-40(4)(e) excludes the Asset from being an active asset. Accordingly, the Asset will fail to meet the active asset test under section 152-35.