Private ruling: CGT – maximum net asset value test
Date of advice: 2 July 2018
Published: September 2018
Ruling period: Year ended 30 June 20xx | Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will your interest in the property be disregarded under subparagraphs 152-20(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) in working out the net value of your CGT assets under section 152-20 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: You operate a specialist practice as a sole proprietor. You are not a small business entity. You are contemplating selling your business and in doing so expect to make a capital gain. As you are not a small business entity, in order to claim any small business CGT concessions you must satisfy the maximum net asset value test in section 152-15 of the ITAA 1997, just before the CGT event. The property is not your main residence. You own the property jointly with your spouse. This property has never been rented or used to produce assessable income. It is used for personal use when attending social events and when working late at your specialist practice. The property has always been used and continues to be used for the personal use and enjoyment of you and your spouse.

Relevant legislative provisions: Section 152-15 of the Income Tax Assessment Act 1997 | Section 152-20 of the Income Tax Assessment Act 1997 | Paragraph 152-20(2)(b) of the Income Tax Assessment Act 1997 | Subparagraph 152-20(2)(b)(i) of the Income Tax Assessment Act 1997

Reasons for decision: Summary: A basic condition for small business relief in Division 152 of the ITAA 1997 is that the maximum net asset value test in section 152-15 of the ITAA 1997 is satisfied. Under this test, the net value of the CGT assets of a taxpayer and certain related entities must not exceed $6 million ‘just before the CGT event’ that gives rise to the capital gain for which relief is sought. Subsection 152-20(1) of the ITAA 1997 explains what is meant by the term “net value of the CGT assets” of an entity. This term is used in working out whether an entity satisfies the maximum net asset value test in section 152-15. Subsection 152-20(2) of the ITAA 1997 provides the assets to be disregarded in working out the net value of the CGT assets of an entity. Paragraph 152-20(2)(b) of the ITAA 1997 states that if the entity is an individual they may disregard certain assets. Subparagraph 152-20(2)(b)(i) of the ITAA 1997 explains that assets being used for the personal use and enjoyment of the individual or the individual’s affiliate, are disregarded in working out the net value of the CGT assets of an entity. The property has never been rented or used to produce assessable income during the entire ownership period. The asset is considered to be an asset used solely for the personal use and enjoyment of the individual, or the individual’s affiliate. Accordingly, in the circumstances, the property is not required to be included in working out the net value of the CGT assets under section 152-20 of the ITAA 1997.