Private ruling: Income tax - small business capital gains tax concessions
Date of advice: 13 July 2020
Published: August 2020
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the Property an active asset of the Trust under section 152-35 of the Income Tax Assessment Act 1997 ? | A1: Yes. Based on the information provided, it is viewed that the Property was used by a Company connected with the Trust for their business activities. While the Property has been used to earn rental income for the Trust, the use of the Property by the Company is treated as the use of the Trust. Therefore, the Property is treated as an active asset of the Trust. | Q2: Can the Trust access the small business CGT concessions in relation to the sale of the Property? | A2: Yes. The Trust satisfies the maximum net asset value test and the Property is an active asset. The Commissioner is satisfied the Trust meets the basic conditions for relief under section 152-10 of the Income Tax Assessment Act 1997 . | Q3: Can A and B utilise the small business retirement exemption in relation to the sale of the Property? | A3: Yes. The Trust meets the basic conditions for the small business CGT concessions, A and B are significant individuals of the Trust, and the Trust will make a payment to A and B. Therefore, the Trust satisfies the requirements under section 152-305 and 152-325 of the Income Tax Assessment Act 1997 and can utilise the exemption to reduce the capital gain. Additional information The Trust must make the payments to A and B by the later of seven days after the Trust chooses to disregard the capital gain, or seven days after the Trust receives the capital proceeds from the CGT event. Failure to do so will mean the conditions have not been satisfied and the retirement exemption will not be available.

Relevant facts and circumstances: The Trust owns a property (the Property) approximately 300 meters away from the Company's address. The beneficiaries of the Trust are A and B. The Company rents the Property from the Trust for business related storage. Customers were brought to the Property every business day to look items stored at the Property. Employees went to the Property frequently to drop off and pick up items at the Property. There were no other activities undertaken at the Property. There was no private use of the Property. Trust sold the Property as vacant land. The capital gain will be distributed to A and B. A and B were both over 55 years old at the time of the CGT event. The net value of the assets of the Trust, A and B and their connected entities did not exceed $6 million at the time of selling the Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-15 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 section 152-50 | Income Tax Assessment Act 1997 section 152-55 | Income Tax Assessment Act 1997 section 152-305 | Income Tax Assessment Act 1997 section 152-325