Asset-Test-QandA

Joshua Easton Tax

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Question about Asset Test

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We would like to get your opinion on the interpretation in relation to the active asset test.In particular, we want to confirm how the “>50{7dd96b7919860a2c3102c7386769c9f0afed9c42fc01bdf7b43f7ec55abe84c8} periodn that the property is used to carry on the business” is measured.n
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Please refer to the following scenario:n
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Active Asset Test requirements.n
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  1. Taxpayer acquired a property to carry on his business on 21/7/2005 [contract date]. Settlement date was 29/11/2005.

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  2. Taxpayer commenced trading / carrying on the business immediately.

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  3. Taxpayer ceased his business on 1/12/2011 but kept the property.

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  4. Taxpayer demolished the property and sold vacant land on 31/10/2017 [date of contract].

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  5. According to my understanding, the test period according to s152-30 is 4486 days being the time from acquisition 21/7/2005 to the date of the CGTn event 31/10/2017]?

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To work out whether the building qualifies for the SBE CGT concessions, the asset needs to be an active asset.If the entity owned the CGT asset forn less than 15 years, the CGT asset has to be an active asset for at least one-half of the test period and the entity uses the asset, or holds itn ready for use, in the course of carrying on a business.n
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What is the active asset period used in carrying on the taxpayer business?n
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  1. The days from 29/11/2005 (settlement date) to the date the taxpayer ceased business on 1/12/2011?Total active asset period is 2194 days. OR

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  2. The days from acquisition of the property 21/7/2005 (contract date) to date taxpayer ceased business on 1/12/2011? Total active asset period isn 2325 days.

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We would like your opinion and please provide reference or example (if applicable).n
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Answer

You have real problems with this one because we believe with the demolition of the building there has been a loss of character of an “active asset”.

This is the same when you sell vacant land after demolishing your family home (PPR exemption)n
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What is that you are selling?…… it is vacant land…. not an active asset or in the above case the PPR.n
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It is a real tax trap.n
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The legislation on the period for determining eligibility as an active asset is the “use” period – the contact dates are used for the calculation of anyn CGT liabilities.n
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This may not be the news you wanted to hear, and we would encourage to apply for a private ruling from the ATO as this is our initial interpretation fromn the limited facts given.n
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