Private ruling: CGT - small business concessions
Date of advice: 24 April 2026
Published: 13 July 2026
Ruling period: 30 June 20XZ
Date scheme commenced: DDMM 20XZ

Ruling: Q1: Were the activities undertaken in relation to the Property, during the relevant period, sufficient to constitute the carrying on of a business for the purpose of Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Was the Property an 'active asset' for the purposes of section 152-40 of theITAA 1997 for the required period? | A2: No. | Q3: Did the Partnership satisfy the small business entity test under section 328-110 of the ITAA 1997 for the income year in which the CGT event occurred? | A3: Yes. | Q4: Do the taxpayers qualify for the CGT small business 15-year exemption under Subdivision 152-B of the ITAA 1997 in respect of the disposal of the Property? | A4: No. | Q5: Was the Property held continuously for at least 15 years prior to the CGT event for the purpose of paragraph 152-105(b) of the ITAA 1997? | A5: Yes, however the requirement in paragraph 152-105(a) of the ITAA 1997 is not met. | Q6: Were the taxpayers 'significant individuals' in the relevant entity for the purposes of section 152-55 of the ITAA 1997 at the time of the CGT event? | A6: Not applicable. | Q7: If the 15-year exemption does not apply, are the taxpayers eligible to choose the small business retirement exemption under Subdivision 152-D ITAA 1997? | A7: No.

Relevant facts and circumstances: Individuals A, B, C and D (taxpayers) are partners in a partnership (Partnership). Each partner in the Partnership contributed equal amounts in cash as initial capital. The Partnership was formed for the joint purchase and management of the Property. The partners in the Partnership acquired the Property on DDMM 20XU and have been the continuous legal and beneficial owners since acquisition. The Property has never been used for private or domestic purposes. The Property was sold on DDMM 20XZ, after more than 2X years of ownership. All the partners are aged between XX and XX years, and the disposal of the Property occurred in connection with their retirement. The Partnership carried on property leasing and management activities. It was operated with the intention of generating ongoing profits and has done so throughout the ownership period. The Partnership's revenue was generated through the active conduct of this business, which includes: • continuous tenant management • lease negotiation and administration • rent setting and market assessments • regular property maintenance and repairs • refurbishment and capital improvement programs • operational oversight and compliance management • hands-on skilled trade work performed by partners. The Property contains multiple income-producing tenancies: commercial premises and residential apartments. All tenancies were professionally managed, with formal written leases market-based rents regular rent reviews active oversight of tenant compliance and property standards. The tenancy mix was stable and income-producing for the entire period. Residential apartments have shared facilities that included a communal laundry and shared outdoor courtyard. Commercial premises share common drive-way lanes for customer access and until 20XX shared amenities. The commercial premises were leased to numerous entities throughout the period. For a period of less than 7 and a half years from DDMM 20XU to DDMM 20XW, Company A, a company majority owned by A, operated a business on the premises of the Property. The business was part of a group with other branches located at other locations. The branches operated as a coordinated commercial enterprise, sharing workflow, plant capacity, labour, and operational management. The branch operating from the Property formed a core part of this integrated business. Company A sold the business on DDMM 20XW to Company E which was owned by E, and is not an affiliate of, or an entity connected with A. The business continued to operate without interruption by the new owner under the same brand. The other branches were sold DDMM20XW allowing A to retire from the business and concentrate on the property management for the Property Company B, which was owned by B, also occupied part of the commercial floor space for a period of less than 7 and a half years from DDMM 20XU to DDMM 20XV. The day-to-day management of the business was undertaken solely by A. A was responsible for lease negotiations and renewals, rent setting and market assessments, financial reporting, BAS, tax compliance, and record-keeping oversight of maintenance, repairs, and capital works engagement and supervision of contractors and trades. Two of the partners, C and D, are experts in property restoration and were actively involved in most refurbishment and maintenance projects across the Property. Their work was regular, ongoing, and essential to maintaining commercial standards, ensuring tenant satisfaction, and preserving rental income. Details of property management activities, and refurbishment and improvements, have been provided. Renovations led to increased rental income for both residential and commercial properties. Examples have been provided. The Partnership's business consistently invested in maintenance of its properties, including regular repairs for commercial premises and maintenance activities for residential units such as plumbing, electrical work, and general repairs. Examples have been provided. For the 20XY income year and the 20XZ income year, none of the partners carried on businesses apart from the one carried on by the Partnership. There were no affiliates or connected entities. Based on the Statement of Financial Performance for the Partnership, its total income for the year ended 30 June 20XY was less $X.

Relevant legislative provisions: Income Tax Assessment Act 1997, Division 152 | Income Tax Assessment Act 1997, section 328-110

Reasons for decision: Summary: The activities undertaken in relation to the Property, during the relevant period, constitute the carrying on of a business for the purpose of Subdivision 152-A. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioners view of the factors used to determine if a taxpayer is in business for tax purposes. Its principles are not restricted to questions of whether a primary production business is being carried on. In the Commissioner's view, the factors that are considered important in determining the question of business activity are: • whether the activity has a significant commercial purpose or character • whether the taxpayer has more than just an intention to engage in business • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity • whether there is regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby, a form of recreation or sporting activity. In determining whether a taxpayer is carrying on a business, the indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impressions gained from looking at all the indicators and whether these indicators provide the operations with a commercial flavour. Taxation Ruling IT 2423 Withholding tax: whether rental income constitutes proceeds of business - permanent establishment - deduction for interest (IT 2423) reinforces that scale and active involvement are key factors in determining whether rental income constitutes proceeds of a business. Having regard to the relevant factors, the Commissioner considers the activities undertaken in relation to the Property during the relevant period, constitute the carrying on of a business. This is demonstrated by: • the significant size and scale of the rental property activities • the time spent on the activities • the partners' extensive personal involvement in the activities, and • the business-like manner in which the activities are planned, organised and carried on. Consequently, the activities undertaken in relation to the Property during the relevant period, constitute the carrying on of a business for the purpose of Subdivision 152-A. | Summary: The Property is not an active asset for the purposes of section 152-40 for the required period, as it is excluded by paragraph 152-40(4)(e) because its main use was to derive rent. | Detailed Reasoning - Detailed reasoning: Division 152 provides CGT relief for small business entities if the specified conditions for relief are satisfied. Under section 152-10, a capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain: a) A CGT event happens in relation to a CGT asset of yours in an income year; b) the event would (apart from this Division) have resulted in the gain; c) at least one of the following applies: i) you are a CGT 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 CGT 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). Failing to meet these basic conditions means the taxpayer cannot access to any of the small business CGT concessions. In considering the active asset test, one of the basic conditions for CGT relief for small business entities, it is necessary to consider whether the Property meets the definition of an active asset under section 154-40. Subsection 152-40(1) states that a CGT asset is an active asset at a time if, at that time: (a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you; or (b) if the asset is an intangible asset - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you. In this case the CGT asset is the Property, which the partners in the Partnership used in the course of carrying on a business of the leasing and management of both the commercial premises and residential units. This satisfies subsection 152-40(1). However, paragraph 152-40(4)(e) states that certain CGT assets cannot be active assets, including: an asset whose main use by you is to derive interest, an annuity, rent, royalties or foreign exchange gains unless: (i) the asset is an intangible asset and has been substantially developed, altered or improved by you so that its market value has been substantially enhanced; or (ii) its main use for deriving rent was only temporary. The Property cannot be an active asset if its main use by the partners in the Partnership is to derive rent, this is the case even if the asset was used in carrying on a business. Subsection 152-40(4A) provides that for the purposes of paragraph 152-40(4)(e), any use by an affiliate, or an entity connected with a partner in the Partnership is treated as business use by that partner. However, any use by an entity that is neither an affiliate of, nor an entity connected with a partner in the Partnership will not be considered when establishing whether the Property's main use is to derive rent. Company A, an entity connected with A, used part of the commercial premises of the Property to operate a business from DDMM 20XU to DDMM 20XX. On DDMM 20XX Company E used that commercial premises to continue to operate the business, but as that entity was neither an affiliate of, nor an entity connected with A that use cannot be attributed to A based on subsection 152-40(4A). Company C, which was owned by C, also occupied part of the commercial floor space from DDMM 20XU to DDMM 20XW. Whether an asset's main use is to derive rent depends on the circumstances of each case. A key factor in determining whether an occupant of premises is a lessee paying rent is whether they have a right to exclusive possession. Other relevant factors to consider in regard to exclusive possession include the degree of control retained by the owner and the extent of any services provided by the owner. For example, if premises are leased to a tenant under a lease agreement granting exclusive possession, the payments involved are likely to be rent. On the other hand, if the arrangement allows the person only to enter and use the premises for certain purposes and does not amount to a lease granting exclusive possession, the payments involved are not likely to be rent. Taxation Determination TD 2006/78 Income tax: capital gains: are there any circumstances in which the premises used in a business of providing accommodation for reward may satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 notwithstanding the exclusion in paragraph 152-40(4)(e) of the Income Tax Assessment Act 1997 for assets whose main use is to derive rent? explains: 22. Whether an asset's main use is to derive rent will depend on the particular circumstances of each case. The term 'rent' has been described as follows: • the amount payable by a tenant to a landlord for the use of the leased premises (C.H. Bailey Ltd v. Memorial Enterprises Ltd [1974] 1 All ER 1003 at 1010, United Scientific Holdings Ltd v. Burnley Borough Council [1977] 2 All ER 62 at 76, 86, 93, 99); • a tenant's periodical payment to an owner or landlord for the use of land or premises (The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne); and • recompense paid by the tenant to the landlord for the exclusive possession of corporeal hereditaments. ....... The modern conception of rent is a payment which a tenant is bound by contract to make to his landlord for the use of the property let (Halsbury's Laws of England 4th Edition Reissue, Butterworths, London 1994, Vol 27(1) 'Landlord and Tenant', paragraph 212). 23. A key factor therefore in determining whether an occupant of premises is a lessee is whether the occupier has a right to exclusive possession ( Radaich v. Smith (1959) 101 CLR 209; Tingari Village North Pty Ltd v. Commissioner of Taxation [2010] AATA 233 at paragraphs 44-46, 2010 ATC 10-131, 78 ATR 693 and associated Decision Impact Statement 2008/4646 & 2008/4647). If, for example, premises are leased to a tenant under a lease agreement granting exclusive possession, the payments involved are likely to be rent and the premises not an active asset. On the other hand, if the arrangement allows the person only to enter and use the premises for certain purposes and does not amount to a lease granting exclusive possession, the payments involved are unlikely to be rent. The following example is provided in paragraphs 2 and 3 of TD 2006/78: Commercial Property Co owns 5 commercial rental properties. The properties have been leased for several years under formal lease agreements to various commercial tenants which have used them for office and warehouse purposes. The terms of the leases have ranged from 1 year to 3 years with a 3 year option and provide for exclusive possession. The company has not engaged a real estate agent to act on its behalf and manages the leasing of the properties itself. In this situation, the company has derived rental income from the leasing of a number of properties. Accordingly, the main (only) use of the properties is to derive rent and they are therefore excluded from being active assets under paragraph 152-40(4)(e) of the ITAA 1997 regardless of whether the activities constitute the carrying on of a business. The issue of whether a taxpayer's rental properties can be active assets when they are carrying on a business of letting rental properties was considered in Jakjoy Pty Ltd and Federal Commissioner of Taxation [2013] AATA 526, (Jakjoy). The AAT confirmed that an asset whose main use by the taxpayer is to derive rent cannot be an 'active asset' despite its use in a taxpayer's business: 51. It is the Tribunal's view that it is clear on the face of the words used in s 152-40(4)(e) of the ITAA 1997 that an asset whose main use by the taxpayer is to derive rent cannot be an " active asset ". That is, there is nothing ambiguous about the meaning of the words appearing in this provision. Based on the facts and evidence before the Tribunal, the main use of the Properties by Jakjoy is to derive rent. As such, the Properties are excluded from being (i.e. "cannot be") "active assets" (under s 152-40(1)(a) of the ITAA 1997) by s 152-40(4)(e) of the ITAA 1997. ... 54. Although it is common ground that Jakjoy is carrying on a business of renting properties it does not automatically follow, based on a clear reading of the text in s 152-40, that the properties Jakjoy uses in carrying on its business are "active assets". Indeed, those properties are expressly excluded from being "active assets" by the exception in s 152-40(4)(e). Whether one agrees or disagrees with this outcome from a policy perspective is not a matter for the Tribunal in performing its review functions. In carrying on the business, the partners in the Partnership derived rent from leasing the commercial spaces and the residential units. All tenancies, including those with entities connected with A and C, were based on formal written leases, and the tenancy mix was stable and income-producing for the entire period. Consequently, the Property is not an active asset under section 152-40 as it is excluded by paragraph 152-40(4)(e), because its main use by the partners in the Partnership was to derive rent. | Summary: The Partnership satisfied the small business entity test under section 328-110 for the income year in which the CGT event occurred. | Detailed Reasoning - Detailed reasoning: For the purposes of Subdivision 328-C the Partnership is the relevant entity. Paragraph 4 of Taxation Determination TD 2022/7 Income tax: aggregated turnover - application of the 'connected with' concept to partnerships, foreign hybrids and non-entity joint ventures , explains that Subdivision 328-C applies to a 'partnership' as though it were an entity separate to its partners. Subsection 328-110(1) provides that: You are a small business entity for an income year (the current year) if: (a) you carry on a business in the current year; and (b) one or both of the following applies: (i) you carried on a business in the income year (the previous year) before the current year and your * aggregated turnover for the previous year was less than $ 10 million; (ii) your aggregated turnover for the current year is likely to be less than $ 10 million. The 'aggregated turnover' for an income year is the sum of the relevant annual turnovers. The relevant annual turnovers are the Partnership's for the income year plus the annual turnover of any connected or affiliated entities of the Partnership during the income year. An entity's 'annual turnover' for an income year is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business. 'Ordinary income' is defined in section 6-5 as income according to ordinary concepts. An entity's annual turnover therefore includes all income according to ordinary concepts derived in the ordinary course of carrying on a business. In the years ended 30 June 20XY and 20XZ, the partners in the Partnership did not carry on a business apart from that carried out in the Partnership and the Partnership had no entities connected with it and no affiliates. Consequently, the Partnership's aggregated turnover for the 2024 income year is below $10million, therefore it is a small business entity under section 328-110. | Detailed Reasoning - Question 4: Under Subdivision 152-B, a CGT small business entity can disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met, starting with the basic conditions in Subdivision 152-A. One of the basic conditions in subsection 152-10(1) is the active asset test in section 152-35. The Property is not an active asset for the purposes of section 152-40, and it does not meet the active asset test in section 152-35, therefore the basic conditions are not satisfied and any capital gain on the sale of the Property cannot be disregarded under Subdivision 152-B. | Detailed Reasoning - Question 5: Although the Property was held continuously for at least 15 years prior to the CGT event in accordance with paragraph 152-105(b), the requirement in paragraph 152-105(a) is not met as the basic conditions in Subdivision 152-A are not satisfied for the capital gain. | Detailed Reasoning - Question 6: Section 152-55 states that: An individual is a significant individual in a company or trust at a time if, at that time, the individual has a small business participation percentage in the company or trust of at least 20%. This section is not relevant, as section 152-110 only applies to capital gains arising from CGT events to CGT assets held by companies or trusts. | Detailed Reasoning - Question 7: In order for an individual to choose to disregard all or part of a capital gain underSubdivision 152-D, the basic conditions in Subdivision 152-A must be satisfied for the gain. As explained previously, the basic conditions in Subdivision 152-A are not satisfied, therefore the small business retirement exemption in Subdivision 152-D is not available to the taxpayers.

Reasons for decision: This is to explain how we reached our decision. This is not part of the private ruling. | All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated.