Owners of passively-held assets (like offices, factories, and warehouses) are not carrying on a business, so are not entitled to access the capital gains tax (CGT) small business concessions when selling these assets.
An exception to this rule applies whereby a taxpayer that owns a passively-held asset can access the CGT small business concessions for the asset if it is used in a business carried on by an affiliate, or a connected entity and certain conditions are satisfied.
The following conditions must be satisfied in the income year:
- The affiliate, or connected entity, is a small business entity for the income year in which the asset is sold.
- The affiliate, or connected entity is a small business entity that carries on a business and uses the asset in that business, and also meets the active asset test.
- The taxpayer does not carry on a business other than in a partnership and the CGT asset is not an interest in an asset of the partnership.
This means that if a taxpayer leases their asset to an affiliate or a connected entity for use in their business, the asset may still qualify as an active asset. This enable the taxpayer to access the small business CGT concessions even though the individual or entity owning the asset is not actually operating a business.
An example of this would be two companies, company A operating a business, and company B owning the commercial premises and renting it to company A. If the two companies are connected then company B will be a connected entity of company A and entitled to the small business CGT concessions.