Private ruling: Whether the entity is entitled to Capital Gains Tax Small Business Concessions
Date of advice: 30 June 2016
Published: August 2016
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the entity entitled to any small business Capital Gains Tax (CGT) concessions with respect to the property? | A1: No.

Relevant facts and circumstances: The entity purchased a property. The purpose of the purchase was to lease out the asset and produce rental income for the entity. The entity has only ever used the property to earn rental income from unrelated parties. The entity has no other interest in any other business activity.

Relevant legislative provisions: Section 152-10 of the Income Tax Assessment Act 1997 | Section 152-35 of the Income Tax Assessment Act 1997 | Section 152-40 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) provides for capital gains tax concessions to small business. The concessions are: • the small business 50% reduction • the small business retirement exemption • the small business roll-over relief; and • the small business 15-year exemption Subdivision 152-A of the ITAA 1997 sets out the basic conditions that an entity must satisfy before being entitled to any of the small business CGT concessions. One of the basic conditions is that the CGT asset satisfies the active asset test. Section 152-40 outlines the meaning of the term 'active asset'. Subsection 152-40(4) of the ITAA 1997 outlines CGT assets which cannot be active assets. Under this provision, an asset whose main use by you is to derive rent cannot be an active asset. This is the case even if the asset is used in the course of carrying on a business. In this case as the only use of the property has been to derive rent, the property is excluded from being an active asset under paragraph 152-40(4)(e) of the ITAA 1997 regardless of whether the activities constitute the carrying on of a business. As the property does not pass the active asset test the entity is not entitled to any of the small business CGT concessions.