CGT Concessions: Using an Asset in a Business for the Required Time

A recent decision of the tax tribunal has highlighted the requirement that in order to use the CGT small business concessions for a capital gain made on an asset used in a business, the asset must have been used, or held ready for use, in that business for the required time. 

And this required time is for half the period that the asset was owned, or if you owned it for 15 years or more then it must have been so used for at least 7 ½ years.

And, importantly, this includes the period that it was held ready for use in that business.

In that tribunal case, the taxpayer inherited farmland which he never used for farming (but instead left it vacant and then later let his brothers use it in their own farming business). However, he claimed that it was for the relevant period it was held ready for use in his own farming business, but that a dispute with his brothers prevented him from using it as such.

In this case, it was clear that the farming land was never really held ready for use in his business – so the large capital gain he made on the asset was fully taxable and not entitled to any CGT small business concessions.

However, there are many cases where the period that an asset is held ready for use in a business will count towards the required time that an asset must have been used in a business (ie, half the period that the asset was owned, or 7 ½ years if you owned it for 15 years or more).

For instance, in relation to farmland, this would include where farmland is being prepared for grazing activity (eg, while fencing is being built or while waiting for the stock to be trucked in from other sources) or cropping activity (eg, while pastures are being sown).

In relation to other businesses, this could include the period that, say, a factory or a shop is being fitted out in preparation for the relevant business activity or where, say, relevant structures are being built on the land for that purpose (eg, greenhouses for a nursery).

And this period of being held ready for use may be important in meeting this holding period rule – where otherwise the actual business activity hasn’t been carried out for the requisite period.

But whether an asset is being held ready for use in a business can be a difficult question to determine – as can the other requirements of this rule. And this includes the crucial issue of whether an asset can qualify for the CGT small business concessions where it has also been used for rental purposes. 

So, if you run a small business and have this type of issue come and have a talk to us and we can help you.

In any of these scenarios we are here to help – as this is a matter which clearly requires the expertise of a tax professional. Email us at [email protected] or call us on (08) 7078 3505