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Does the reference to 'the relevant business ceased to be carried on' in paragraph 152-35(a)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) include a reference to a business that is sold?

Yes. The reference to 'the relevant business ceased to be carried on' in paragraph 152-35(a)(ii) of the ITAA 1997 includes a reference to a business that is sold.

The taxpayer's spouse conducted a business from various locations from 1978. Over the years clients were drawn from a wide area. In 1983, the spouse purchased additional business operations and moved to where those operations were located.

The additional business operations acquired were not kept separate from the existing business. All the activities of the business were subject to the same integrated control and management. Only one set of books was maintained and one set of accounts prepared. The entire business was conducted under the one trading name.

From 1989 the business was conducted from a property owned by the taxpayer. On 30 June 1999 the taxpayer's spouse relocated the business from the taxpayer's property and from 1 July 1999 operated from premises in another location. The operations continued under the same trading name.

Prior to relocating, the taxpayer's spouse sold part of the business. From 1 July 1999 the taxpayer's property previously used in the spouse's business was used by the taxpayer to derive rent from the purchaser.

The taxpayer intends to sell the property with the proceeds from the sale to be used to acquire the premises in which the taxpayer's spouse is now carrying on the business. The taxpayer wishes to access the small business roll-over under Subdivision 152-E of the ITAA 1997.

For the small business capital gains tax (CGT) concessions to apply the active asset test in section 152-35 of the ITAA 1997 must be satisfied (paragraph 152-10(1)(d) of the ITAA 1997).

A requirement of the active asset test in paragraph 152-35(a) of the ITAA 1997 is that the CGT asset must be an active asset just before the earlier of the CGT event giving rise to the capital gain and, in certain circumstances, the cessation of the relevant business in which you used the asset.

The reference to 'the relevant business ceased to be carried on' in subparagraph 152-35(a)(ii) of the ITAA 1997 is not limited to a business that ends in the sense that no one continues to carry it on, and includes a reference to a business that has ceased to be carried on by a taxpayer because the taxpayer has sold that business.

A CGT asset may therefore satisfy the active asset test in paragraph 152-35(a) in the situation where the business is sold before the sale of the CGT asset.

Note: Although a sale of a business can constitute a cessation of the business in this particular case, only part of a business was sold and hence there is no cessation of a business. See ATO Interpretative Decision 2003/503.