Private ruling: CGT - small business concessions - active asset
Date of advice: 31 October 2025
Published: 15 December 2025
Ruling period: Year ending XX June 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Will the Property satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You purchased the Property in 20XX. The Property comprises of two industrial sheds. Shed 1 has been leased to unrelated third parties. Shed 2 is bigger than Shed 1 and has been used by a trust in a business. The Trust has been a connected entity of yours for your entire period of ownership of the Property. You provided a summary of the rents received by you from the unrelated third parties and from the Trust, as well as the business income of the Trust since you acquired the Property. The gross income derived by the Trust is greater than the rental income received from the unrelated third parties in all of the income years that you have owned the Property. You will make a capital gain when you transfer the Property to your self-managed super fund before XX June 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40

Reasons for decision: Detailed Reasoning - Active Asset: For a capital gains tax (CGT) asset to be an active asset for the purposes of Division 152 of the ITAA 1997, it must firstly satisfy one of the 'positive tests' in subsection 152-40(1) of the ITAA 1997, and then also not be excluded by one of the exceptions in subsection 152-40(4) of the ITAA 1997. A CGT asset is an active asset (subject to the exclusions) if it is owned and used or held ready for use in the course of carrying on a business that is carried on by you, your affiliate or another entity that is connected with you (paragraph 152-40(1)(a) of the ITAA 1997). However, an asset whose main use in the course of carrying on the business is to derive rent cannot be an active asset (unless that main use was only temporary) (paragraph 152-40(4)(e) of the ITAA 1997). That is, even if the asset is used in a business, it will not be an active asset if its main use is to derive rent. In determining the main use of an asset for the purposes of paragraph 152-40(4)(e) of the ITAA 1997, any use of the asset by a connected entity is treated as your use of the asset (paragraph 152-40(4A)(b) of the ITAA 1997). Therefore, an asset leased to a connected entity for use in the connected entity's business will not, by that reason alone, be excluded by paragraph 152-40(4)(e) of the ITAA 1997 from being an active asset. Whether an assets main use is to derive rent will depend on the particular circumstances surrounding the derivation of income (paragraph 22 of 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? (TD 2006/78)). If an asset is used partly for business and partly to derive rent at any given time, it is a question of fact dependent on all the circumstances as to whether the main use of the asset at that time is to derive rent. No one single factor is necessarily determinative, and consideration is given to a range of factors such as: • the comparative areas of use of the property (between deriving rent and other uses), and • the comparative levels of income derived from the different uses of the property. Example 5 in TD 2006/78, which considers mixed use of a property, provides: 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 motorcycle repair business. He leases the other sheds (55% of the land by area) to unrelated third parties. The income derived from the motorcycle repair business is 80% of the total income (business plus rentals) derived from the use of the land and buildings. 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. In your case: • the majority of the land area has been used in a business carried on by the Trust throughout your entire ownership period, and • the vast majority of the gross income derived in each of the income years that the Property has been used in the business carried on by the Trust has been considerably more than the rental income received from the unrelated third parties. We do not consider the main use of the Property to have been to derive rent in any of the income years it has been used in the business carried on by the Trust. Therefore, the Property has been an active asset throughout your ownership period. | Detailed Reasoning - Active Asset test: Relevantly, a CGT asset satisfies the active asset test if you have owned the asset for less than 15 years and the asset was an active asset of yours for a total of at least half the period of ownership (paragraph 152-35(1)(a) of the ITAA 1997). 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 (subsection 152-35(2) of the ITAA 1997). In your case, you have owned the property since 20XX and it has been used in a business carried on by an entity connected with you throughout your ownership period. As any use of the Property by a connected entity is treated as your use of the Property, it will have been an active asset of yours for a total of at least half the test period and will therefore satisfy the active asset test in section 152-35 of the ITAA 1997.