Private ruling: Capital gains tax – small business concessions – affiliate – passively held assets – active assets
Date of advice: 3 May 2019
Published: June 2019
Ruling period: Income year ending 30 June 2019 | Income year ending 30 June 2020
Date scheme commenced: 1 July 2018

Ruling: Q1: Is Person A considered your affiliate under section 328-130 of the Income Tax Assessment Act 1997 (ITAA 1997) during the ownership period of your ownership interest in the Property? | A1: Yes. Based on the information provided, it is the Commissioner’s view that Person A is your affiliate for the purpose of the application of capital gains tax small business concessions. | Q2: Do you satisfy the conditions under subsection 152-10(1A) of the ITAA 1997 in relation to your ownership interest in the Property? | A2: Yes. The Commissioner is satisfied that the use of the Property by the Partnership meets the conditions contained in subsection 152-10(1A) of the ITAA 1997. | Q3: Is your ownership interest in the Property an active asset? | A3: Yes. The Commissioner is satisfied that your ownership interest in the Property meets the conditions for it to be an active asset under sections 152-35 and 152-40 of the ITAA 1997.

Relevant facts and circumstances: Your relative, Person X, owned the Property. Your parents, Persons A and B operated a partnership, being Partnership X, in relation to their primary production operations on the Property in addition to the properties known as Property A and Property B. Person B (the Deceased) passed away after 20 September 1985 and their interest in Partnership X passed to a trust established in accordance with the Deceased’s will, being the Trust. Person A is the trustee of the Trust. The beneficiaries of the Trust are as follows: ● Primary beneficiaries – you and Person A in addition to your siblings, Persons C and D; and ● Eligible beneficiaries – the children and grandchildren of the above name Primary beneficiaries, related trusts and companies. Following the Deceased’s passing, Person A and the Trust operated a partnership, being the Partnership, as equal partners in relation to their primary production activities on a number of properties including the Property. There are no formal agreements between the Partnership and the owners of the properties. The Partnership pays rent for the use of Property C. However, no rent is paid by the Partnership for the use of the Property, and a number of the other properties, but it pays the rates, insurance and other outgoings in relation to the properties. Persons C and D have been working full-time in the Partnership’s business for a number of years. Person X passed away a number of years after Person B had passed away and in accordance with their will you, and your siblings were each bequeathed an equal ownership interest in the Property. There is no formal agreement between you and your siblings in relation to your ownership of the Property. There is no formal agreement between you, your siblings and the Partnership in relation to the Partnership’s use of the Property. You, Person B and your siblings attended quarterly meetings for a number of years when discussions were held about the general operations, capital purchases and the profit and loss forecasts of the operations. You took the minutes for the meetings. You ceased attending the meetings after you obtained full-time employment in a major city, and the meeting have now ceased. While you are not involved in the day-to-day operations, you are involved in discussions about major capital purchases, the financial affairs of the operations, and the acquisition of properties, such as Property C on whose purchase you had consulted on in addition to inspecting the property prior to it being purchased. You receive regular phone calls from Persons A and D in relation to issues being dealt with in relation to the activities. You visit the properties on a number of occasions each year, for less than ten days on each occasion due to your full-time employment. While on the properties you assist with the activities on the properties. You and your siblings have provided personal guarantees in relation to the financial facilities the Partnership has with a financial organisation. You and your family members are considering the restructuring of the farming operations to facilitate Person A’s retirement, which is anticipated to involve you and Person C transferring your interests in the Property to Person D. You will dispose of your ownership interest in the Property in the 20XX-XX income year and will make a capital gain on the disposal. The Partnership will be a small business entity in the 20XX-XX and 20XX-XX income years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 Section 152-105 | Income Tax Assessment Act 1997 Section 328-130