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No. A company that carries on a business in a general sense as described in Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? but whose only activity is renting out an investment property cannot claim the capital gains tax (CGT) small business concessions in Division 152 of the Income Tax Assessment Act 1997 [1] in relation to that investment property. This is because an asset whose main use is to derive rent (unless such use was only temporary) is subject to an exclusion from those concessions [2] , even if it is used in the course of carrying on a business.

InveproCo is a company incorporated in Australia. InveproCo owns a commercial property, which it has rented to unrelated third parties at market rates on normal commercial terms since its inception. InveproCo provides no other services in relation to the property and conducts no other activities. InveproCo has produced a profit in each of the income years it has rented out the property. InveproCo is engaged in ongoing activities that have a purpose and prospect of profit, namely letting out the property.

In this situation, the company has derived rental income from the leasing of a property to an unrelated third party. Accordingly, the company carries on a business in a general sense described in TR 2019/1. However, the main (only) use of the property is to derive rent and it is therefore excluded from being an active asset under paragraph 152-40(4)(e) regardless of whether the activities constitute the carrying on of a business in a general sense. Therefore, the investment property would not satisfy the active asset test in section 152-35 and InveproCo would not meet the requirement in paragraph 152-10(1)(d) to be eligible for the CGT small business concessions in Division 152 in relation to the disposal of the investment property.

This Determination applies both before and after its date of issue. However, the Determination will 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 to 76 of Taxation Ruling TR 2006/10 Public Rulings).

For the CGT small business concessions to apply, one of the conditions that must be satisfied is that the relevant CGT asset satisfies the active asset test in section 152-35.

The active asset test requires the relevant CGT asset to be an active asset of yours for at least [3] : • half of the relevant period [4] , if you owned the asset for 15 years or less, or • 7.5 years during the relevant period.

A CGT asset is an active asset at a given time if, at that time, you own it and it is: • used (or held ready for use) in the course of carrying on a business by you, your affiliate or an entity connected with you [5] , or • an intangible asset that is inherently connected with a business that is carried on by you, your affiliate, or an entity connected with you. [6]

Certain assets are, however, specifically excluded from being active assets under subsection 152-40(4).

While a company may be considered to be carrying on a business under TR 2019/1 where its investment property is used to derive rent, the question of whether the investment property is an active asset under section 152-40 and satisfies the active asset test in section 152-35 is a separate consideration for the purposes of the CGT small business concessions in Division 152.

Paragraph 152-40(4)(e) excludes, among other things, assets whose main use is to derive rent (unless such use was only temporary). Such assets are excluded even if they are used in the course of carrying on a business.

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? provides examples of when the Commissioner considers property is for the main use of deriving rent.