CGT: Small business concessions - Extension of time for active asset test

Will the Commissioner allow under subparagraph 152-35(a)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) a period longer than 12 months after the cessation of a business within which the taxpayer can dispose of an asset and still satisfy the active asset test in section 152-35 of the ITAA 1997?

No. The Commissioner will not exercise the discretion under subparagraph 152-35(a)(ii) of the ITAA 1997 to allow a period longer than 12 months within which the taxpayer can dispose of the asset and still satisfy the active asset test in section 152-35 of the ITAA 1997.

The taxpayer operated a business on land which the taxpayer owned. The taxpayer sold the business in August 2000 but retained the land. The purchaser of the business verbally expressed an interest in purchasing the land if funds became available. The taxpayer did not enter into any written contract or agreement with the purchaser of the business for the sale of the land. Instead, the taxpayer entered into a 3 year lease of the land with the purchaser of the business with an option for another 3 years. The land was also not listed for sale with any real estate agent nor was it advertised for sale.

In June 2002, 22 months after the cessation of the business, the taxpayer lodged an application requesting the Commissioner to allow a period longer than 12 months from the cessation of the business in which to sell the land, and still satisfy the active asset test under subparagraph 152-35(a)(ii) of the ITAA 1997.

The financial capacity of the purchaser of the business later improved and a sale agreement for the land was entered into in September 2002.

A requirement of the active asset test in paragraph 152-35(a) of the ITAA 1997 is that the CGT asset was an active asset just before the earlier of the CGT event and the cessation of the business, if the business ceased and the CGT event happens within 12 months (or any longer period that the Commissioner allows) of the business ceasing.

As a sale of the land has not occurred within 12 months of the cessation of the business the active asset test will only be satisfied if the Commissioner allows a longer period under subparagraph 152-35(a)(ii) of the ITAA 1997.

In determining if the discretion to allow a period longer than 12 months would be exercised, the Commissioner has considered the following factors: • whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension; • whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension; • whether there is any unsettling of people, other than the Commissioner, or of established practices; • fairness to people in like positions and the wider public interest; • whether there is any mischief involved; and • the consequences of the decision.

No real attempts were made by the taxpayer to sell the land. The land was not advertised for sale or listed with any real estate agent. Instead, the taxpayer entered into a 3 years lease with the purchaser of the business with an option for another 3 years. Although the purchaser of the business verbally expressed an interest in purchasing the land at some point there was no obligation on either party to proceed. The taxpayer retained absolute control as to the manner in which the land could be disposed.

After considering the relevant factors against the taxpayer's circumstances, in particular, the lack of attempts to sell the land and the fact that the delay in selling the land was not caused by factors beyond the control of the taxpayer, the Commissioner will not exercise the discretion under subparagraph 152-35(a)(ii) of the ITAA 1997 to extend the period within which the taxpayer can dispose of the land and still satisfy the active asset test in section 152-35 of the ITAA 1997.