Private ruling: CGT - small business concessions - active asset test
Date of advice: 20 August 2015
Published: August 2015
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Property satisfy the active asset test contained in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You have owned and operated a business through various entities. For a period of time you operated as a sole trader. You then incorporated the business into a company, (the Company). You have always been the sole shareholder and director of the company. You acquired the Property. The Property has always been a vacant block. A part of your business activities required you to extract materials from the Property. The materials you extracted were not invoiced separately to your clients, rather a single invoice for your overall services (including materials) was provided to each client. The Property was used for this purpose from the time of acquisition. During the periods when you were extracting materials from the Property, equipment used to extract the materials would remain at the Property rather than at your usual place of business. You ceased extracting materials from the Property during the 2011-12 year. In the last year of trading as a sole trader, your turnover was under $2million. The turnover of the Company in the 2013-14 financial year was under $2million. The net value of capital gains tax (CGT) assets of you and the Company was less than $6million at the time of the sale of the Property. The Property was disposed of in the 2013-14 financial year.

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

Reasons for decision: Summary: The active asset test is contained in section 152-35 of the 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 • the CGT event, and • 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 (section 152-40 of the ITAA 1997). We accept that the use of the Property to extract materials meets the requirements of section 152-40 of the ITAA 1997. The Property was used for that purpose for a period of more than 7.5 years. Accordingly, the Property meets the active asset test contained in section 152-35 of the ITAA 1997.