Private ruling: CGT - small business concessions
Date of advice: 28 May 2026
Published: 10 August 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Can you apply the small business 50% active asset reduction to the sale of the property? | A1: Yes.

Relevant facts and circumstances: You purchased a property in 20YY. You sold the property in 20YY. The total size of the property is X square meters. The house occupies X square meters. There are X shed on the block that total X square meters. You operate a business via the Trust. The Trust had a turnover of less than $2 million in the 20YY-YY financial year. The Trust provides various services. The property was purchased to operate the business from as it was taking up too much space at your home. When the property was purchased, the Trust relocated all the business assets and to the new property. The Trust has a number of casual employees. The Trust does not pay for use of the property. The office was completed and used by the Trust until the property was sold. The Trust also uses all of the sheds. The Trust uses these areas to store business equipment. Details of the equipment and stock have been provided. The property was accessed nearly every workday during the ownership period to pickup tools and prepare for jobs. The remainder of the property was rented to an unrelated third party for a period of time. Approximately $X was spent on minor renovations which were funded through savings and earnings at the time. No loans were taken out to carry out the improvements. No structural changes were made to the building during the renovations. You have not renovated any properties in the past. Entities related to you have not conducted any renovations in the past. There is a residential tenancy agreement in place restricted access to the sheds. An amount of rent was payable each week. The tenants had access to the driveway and were able to park vehicles in front of the house and across the road. The Trust made a profit of in the 20YY-YY and 20YY-YY financial year. The Trust's turnover in the 20YY-YY and 20YY-YY was less than $2 million. In the 20YY-YY financial year the Trust distributed 50% of the income and capital to you and 50% to your spouse. The property was sold because you decided not to continue the business and started working fulltime elsewhere. Any remaining plant and equipment has been relocated to a shipping container in storage.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-205

Reasons for decision: Summary: The basic conditions are contained in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997). To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. The following are the basic conditions: (a) a CGT event happens in relation to a CGT asset of yours in an income year; (b) the event would have resulted in the gain; (c) at least one of the following applies: (i) you are a small business entity for the income year; (ii) you satisfy the maximum net asset value test; (iii) 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; (iv) the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year; (d) the CGT asset satisfies the active asset test (see section 152-35). Note that the small business 50% active asset reduction will apply if the basic conditions are satisfied. | Detailed Reasoning - Active asset test: 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 is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases. 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. | Detailed Reasoning - Connected with - control of a discretionary trust: An entity (the first entity) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its affiliates, or the first entity together with its affiliates. Under subsection 328-125(4) of the ITAA, an entity (the first entity) controls a discretionary trust for an income year if, for any of the 4 income years before that year: a) the trustee of the trust paid to, or applied for the benefit of: i. the first entity; or ii. any of the first entity's affiliates; or iii. the first entity and any of its affiliates; any of the income or capital of the trust b) the percentage (the control percentage) of the income or capital paid or applied is at least 40% of the total amount of income or capital paid or applied by the trustee for that year. | Detailed Reasoning - Main use to derive rent: Paragraph 152-40(4)(e) of the ITAA 1997 states that an asset whose main use in the course of carrying on the business is to derive rent cannot be an active asset unless the main use for deriving rent was only temporary. Taxation Determination TD 2006/78 discusses the circumstances in which premises used for mixed purposes can be active assets notwithstanding the exclusion in paragraph 152-40(4)(e) of the ITAA 1997. TD 2006/78 provides the following example: 15. Mick owns land on which there are a number of industrial sheds. He uses one shed (45% of the land by area) to conduct a motor cycle repair business. He leases the other sheds (55% of the land by area) to unrelated third parties. The income derived from the motor cycle repair business is 80% of the total income (business plus rentals) derived from the use of the land and buildings . 16. In determining if the main use of the land is to derive rent, it is appropriate to consider a range of factors. In this case, a substantial (although nevertheless not a majority) proportion by area of the land is used for business purposes. As well, the business proportion of the land derives the vast majority (80%) of the total income. In all the circumstances, the Tax Office considers the main use of the land in this case is not to derive rent and accordingly the land is not excluded from being an active asset by paragraph 152-40(4)(e) of the ITAA 1997 . | Detailed Reasoning - Application to your circumstances: In this case, you sold the property causing a CGT event to occur. You made a capital gain in relation to the disposal of the property. The property is used by the Trust in carrying on a business and the Trust is a CGT small business entity. You are connected with the trust based on the distributions you received in the 20YY-YY financial year. Given the property is used for mixed purposes, we need to consider whether the main use to derive rent exclusion applies. Based on the information provided, more than X% of the income derived from the property is from the business activities of the Trust in the 20YY-YY and 20YY-YY financial years. The area of the property used exclusively by the business includes the workshops and the office. This is approximately X% of the total area of the residence (not including the driveway/outdoor area). Prior to the office being used in the business, approximately X% of the total area of the residence was used for the business. Therefore, we accept that the main use to derive rent exclusion will not apply and the property will satisfy the active asset test. As the basic conditions have been satisfied, you are entitled to apply the 50% active asset reduction to reduce the capital gain made on the sale of the property.