Private ruling: Active asset test
Date of advice: 18 December 2015
Published: February 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Does the property satisfy the active asset test? | A1: Yes. | Q2: Is the property considered to be business real property? | A2: Withdrawn.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You own a property that is over 100 acres. You have owned the property for longer than 15 years. The principal place of residence occupies less than two hectares. X acres are utilised as a specified business operated by the partnership. The remainder of the property is used in a primary production business (the business). The specified business is available to the public on a needs basis. The material from the specified business is extracted by the public using their own machinery and trucks as well as by the partnership to a small degree. The specified business has been operating for X years and it is estimated that the specified business will continue for another X years. When the specified business ceases, the excavated site will be transformed into a water dam for use by the farming business. Income from the specified business is received on a per tonne basis. Income from the partnership income tax returns includes both the primary production income and income from the material from the specified business.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-35.

Reasons for decision: Summary: The active asset test is contained in section 152-35 of the Income Tax Assessment Act 1997 (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. As you have owned the property for more than 15 years, the property will need to have been active for at least 7.5 years during this period. 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. You run a primary production business on the property in partnership with your spouse. The majority of the land has been used in the business since you purchased the property. The specified business has been operating for X years and you believe the specified business will be exhausted in the next few years. In your case the land has been an active asset for more than 7.5 years. Therefore it will pass the active asset test under section 152-35 of the ITAA 1997. The application for private ruling included a question as to whether there would be any CGT payable on the transfer of the personal possessions. It was agreed that this question be withdrawn. | Detailed Reasoning - Further issues for you to consider: This ruling has not considered your eligibility for the small business concessions. You should ensure that you satisfy the basic conditions and the other conditions relevant for each concession. More information is available in the publication Advanced guide to capital gains tax concessions for small business (NAT 3359), which is available on our website www.ato.gov.au.