Taxation Determination TD 2006/65
Date of effect: 15 November 2006




Examples: Example 1: 2. Ben owns all the shares in Holding Co which, in turn, owns all the shares in Operating Co (both are resident companies ). The only assets of Holding Co are the shares in Operating Co and all of Operating Co's assets are active assets . 3. As Operating Co satisfies the 80 % test, the shares owned by Holding Co in Operating Co are active assets. As those shares are the only assets owned by Holding Co, Holding Co also satisfies the 80 % test and therefore the shares owned by Ben in Holding Co are also active assets . Note 1 4. The small business concessions may apply if Ben sold his shares in Holding Co. Further, Operating Co has a significant individual (Ben) and the additional basic condition in paragraph 152-10(2)(b) of the ITAA 1997 is satisfied. Therefore, if Holding Co sold its shares in Operating Co and made a capital gain, the concessions may apply if other conditions are satisfied . | Example 2: 5. Bill owns all the units in a unit trust (UT1 ). UT1 owns all the units in another unit trust (UT2 ). UT2 owns all the shares in a private company (C1 ). All of UT2's other assets are active assets. The market value of the C1 shares is 15 % of the market value of all the assets owned by UT2 . 6. C1 owns an active asset, the market value of which is 50 % of the market value of all C1's assets. All entities are Australian residents . 7. The operation of the ' 80 % test' is set out in the following table : 8. The shares in C1 are not active assets of UT2 because C1 does not satisfy the ' 80 % test'. The market value of C1's active assets is only 50 % of the market value of all its assets . 9. The units in UT2 are active assets of UT1 because UT2 satisfies the ' 80 % test'. Although UT2's shares in C1 are not active assets, the market value of UT2's active assets is 85 % of the market value of all its assets . 10. The units in UT1 are active assets of Bill because UT1 satisfies the ' 80 % test'. All of UT1's assets, being the units in UT2, are active assets . Note 2 11. The small business concessions may apply if Bill sold his units in UT1. Further, UT2 has a significant individual (Bill) and the additional basic condition in paragraph 152-10(2)(b) of the ITAA 1997 is satisfied. Therefore, if UT1 sold its units in UT2 and made a capital gain, the concessions may apply if other conditions are satisfied. . Date of effect 12. This Determination applies to years commencing both before and after its date of issue. However, the Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 15 November 2006 Explanation 13. The '80% test' is a numerical calculation that determines whether a company or trust owns sufficient active assets to allow active asset status to effectively flow through to the underlying interests. 14. Under the '80% test' a share in a company or an interest in a trust is an active asset at a given time if: 15. If an entity owns a share in a company or interest in a trust that is an active asset because the company or trust satisfies the '80% test', the share or interest is included in that entity's '80% test' calculation to determine if the underlying interests in the entity are themselves active assets. 16. As the active asset test requires a CGT asset to be an active asset for at least half a particular period (generally the ownership period), the '80% test' must also be satisfied for that same period for a share in a company or interest in a trust to satisfy the active asset test. Note 3 17. As noted in the Treasurer's Press Release No. 38 of 2006 (9 May 2006), the Board of Taxation's report on its Post-Implementation Review of the small business CGT concessions contains a number of administrative recommendations. This Taxation Determination is part of the Commissioner's response to Recommendation 7.3 of the Board's report. Previously issued in draft form as TD 2006/D25

Appendix: 13. The '80% test' is a numerical calculation that determines whether a company or trust owns sufficient active assets to allow active asset status to effectively flow through to the underlying interests. 14. Under the '80% test' a share in a company or an interest in a trust is an active asset at a given time if: 15. If an entity owns a share in a company or interest in a trust that is an active asset because the company or trust satisfies the '80% test', the share or interest is included in that entity's '80% test' calculation to determine if the underlying interests in the entity are themselves active assets. 16. As the active asset test requires a CGT asset to be an active asset for at least half a particular period (generally the ownership period), the '80% test' must also be satisfied for that same period for a share in a company or interest in a trust to satisfy the active asset test. | Note 3: 17. As noted in the Treasurer's Press Release No. 38 of 2006 (9 May 2006), the Board of Taxation's report on its Post-Implementation Review of the small business CGT concessions contains a number of administrative recommendations. This Taxation Determination is part of the Commissioner's response to Recommendation 7.3 of the Board's report. Previously issued in draft form as TD 2006/D25


[Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] | 1. Yes. A share in a company or an interest in a trust can qualify as an active asset under subsection 152-40(3) of the Income Tax Assessment Act 1997 (ITAA 1997) if the company or trust owns interests in another entity that satisfies the '80% test' in paragraph 152-40(3)(b) of the ITAA 1997. The '80% test' operates successively at each level in a chain of entities to determine the active asset status of the underlying interests.


Related rulings: TR 2006/10
Legislative references: ITAA 1997 152-40(3) ITAA 1997 152-40(3)(b) TAA 1953
Subject references: active asset active asset test basic condition for relief capital gains tax CGT events CGT small business relief
Other references: Treasurer's Press Release No. 38 of 2006 (9 May 2006)