CGT small business concessions: property investment companies

March 4, 2021

In Ruling TR 2019/1, the ATO accepted that a company can be carrying on a business even if its activities are relatively limited and consist of passively receiving investment returns or rent, which it distributes to shareholders.

However, the ATO cautions that TR 2019/1 only applies to and binds the Commissioner in relation to specific provisions – namely, the definition of “small business entity” in Div 328 ITAA 1997 and historically in relation to the Income Tax Rates Act 1986. TR 2019/1 warned that “care must be exercised in applying the reasoning and conclusions expressed in this Ruling when applying other provisions”.

One such example is the CGT small business concessions (Div 152 ITAA 1997). Taxation Determination TD 2021/2, states that a company carrying on a business in a general sense as described in TR 2019/1 but whose sole activity is renting out an investment property cannot obtain Div 152 relief in relation to that property . While the property is used in the course of carrying on a business (a requirement for Div 152 relief), the property does not qualify as an active asset (a separate requirement). This is due to the “main use to derive rent” exclusion in s 152-40(4)(e) ITAA 1997.

Date of effect: retrospective.