Capital gains tax: CGT discount and small business concessions - disposal of active asset by non-resident

Can the CGT discount in Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) and the small business concessions in Division 152 of the ITAA 1997 apply to a capital gain made on the disposal of an active asset by a non-resident?

Yes. Provided all the requirements in Division 115 and Division 152 of the ITAA 1997 are satisfied, non-residents are entitled to apply both the CGT discount and the small business concessions to a capital gain made on the disposal of an active asset that has the necessary connection with Australia.

The taxpayer (a non-resident) acquired a block of land in Australia after 21 September 1999. The taxpayer used the land in business that they carried on here.

The taxpayer disposed of the land two years later.

The taxpayer made a capital gain on the disposal of the land and wanted to apply the CGT discount in Division 115 of the ITAA 1997 and the small business concessions in Division 152 of the ITAA 1997 to reduce their capital gain.

A non-resident makes a capital gain or loss only if a CGT event happens to a CGT asset that has the necessary connection with Australia (section 136-10 of the ITAA 1997). The categories of CGT assets having the necessary connection with Australia are specified in section 136-25 of the ITAA 1997.

As the land is located in Australia, it has the necessary connection with Australia. On disposal of the land CGT event A1 happens and the non-resident may make a capital gain or loss.

Section 115-5 of the ITAA 1997 provides that a capital gain is a discount capital gain if all the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 are met. There is no requirement in Division 115 of the ITAA 1997 that the taxpayer be a resident of Australia.

In order to qualify for the small business concessions, all of the basic conditions in Subdivision 152-A of the ITAA 1997 must be satisfied. One of the basic conditions specified in Subdivision 152-A of the ITAA 1997 is that the CGT asset must be an active asset. An active asset is defined in section 152-40 of the ITAA 1997. Paragraph 152-40(1)(a) provides that: (1) a CGT asset is an active asset if,... [at a particular time], you own it and: (a) use it, or hold it ready for use, in the course of carrying on a business.

If the active asset is a share it must be one in an Australian resident company or if it is a trust interest it must be one in a resident trust for CGT purposes: subsection 152-40(3) of the ITAA 1997. There is no requirement that the owner of the asset be a resident of Australia to qualify for the small business CGT concessions.

Therefore, providing all of the requirements in Division 115 and Division 152 of the ITAA 1997 are satisfied, the non-resident taxpayer may apply both the CGT discount and the small business CGT concessions to reduce the capital gain made on the disposal of the land.