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Small business CGT concessions on the sale of an investment property?

Small business CGT concessions on investment property?

The ATO has issued a draft taxation determination reminding taxpayers that assets used by companies to mainly derive rent can’t access the small business CGT concessions.

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Raffi Tenenbaum

Partner, KPMG Enterprise

KPMG Australia

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The recent release of Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? (TR 2019/1) sets a very low threshold for when a company is considered to be carrying on a business. This may leave some thinking that if the company carries on a rental property business an investment property may be an active asset and the small business capital gains tax (SB CGT) concessions may be able to be accessed.

Perhaps pre-empting the possibility of an increase in the number of companies applying the SB CGT concessions, the Australian Taxation Office (ATO) concurrently released Draft Taxation Determination TD 2019/D4 (TD 2019/D4). This publication sets out the ATO’s view that a company carrying on a business in a general sense as described in TR 2019/1 will not be able to access the SB CGT concessions on the disposal of an investment property where its only activity was the rental of that property.  

Why can’t the SB CGT concessions apply to a capital gain realised on the disposal of a rental property?

One condition needing to be met to access the SB CGT concessions (which provides for various reductions, exemptions or rollovers to the capital gain) is for the asset to be an active asset. This requires the asset to be used in the course of carrying on a business. However, if the asset’s main use is to derive rent it is excluded from being an active asset (except where it is used by an affiliate or connected entity in which case its use by that entity is imputed to the asset owner).

TD 2019/D4 reminds taxpayers that an asset whose main use is to derive rent is excluded from being an active asset regardless of whether a business is being carried on. These are separate requirements needing to be met to access the SB CGT concessions.

 

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