Q. We own a commercial property in country Victoria. There are two shops and 5 storage garages. I do all correspondence, invoicing, negotiate the leases, collect the rent, manage the accounts and complete general maintenance. We have held the property for approx. 14 years. Would this qualify as a small business allowing us to take the 15 year exemption and be a CGT-free sale ?

A. You refer to the 15 year exemption, which is one of the four CGT small business concessions. Under this exemption the entire capital gain realised on disposal of a CGT asset is exempt from tax if you satisfy the conditions under Subdiv152-B.

You must meet the basic conditions to access these concessions including the active asset test. This test, requires the property to be an active asset for half of your ownership period or 7 and a half years if the property is owned for more than 15 years. The asset is an active asset if it is used or held ready for use in the course of carrying on a business. However, an asset whose main use is to derive rent is excluded from being an active asset unless its main use for deriving rent was only temporary.

You receive rent from the leasing activities. If the tenant is not a entity connected with you, such as a company or trust in which you have at least 40% interest, nor is your affiliate who acts or could reasonably be expected to act in accordance with your direction or wishes in relation to their business affairs, the property cannot be an active asset even though the activities you have undertaken in managing the property constitute a business. This is because the main use of the property is to derive rental income. If the active asset test is failed, you will not be able to access the small business CGT concessions on sale, however, you will be eligible for the 50% general CGT discount.

If the commercial property is used in carrying on a business by your connected entities or affiliates, the property will be an active asset despite that you receive a rent. If the property is leased to both related and unrelated entities, you need to determine whether its main use is to derive rent or to carry on a business by your connected entities and/or affiliates. You also need to pass the $6 maximum net asset value test or the small business entity test to qualify for the concessions. You should seek advice from your accountant to confirm whether you meet the basic conditions.

In addition to the basic conditions, to access the 15 year exemption, you must have owned the property for at least 15 years just before the CGT event; be at least 55 years of age, and the sale occurs in connection with your retirement.

Further information: Tax Strategy & Structuring