What Counts as an Active Asset?

A CGT asset is an active asset at a given time if you own it and it is used, or held ready for use, in the course of carrying on a business by you, by an affiliate of yours, or by an entity connected with you. Intangibles qualify where they are inherently connected with that business, which is how goodwill and the benefit of a restrictive covenant get through the gate. That is section 152.40 of the ITAA 1997, and every one of the small business CGT concessions has to pass through it.

Short definition, long tail of arguments. Most of those arguments are about rent.

Held ready for use does real work

Those four words pick up assets that are idle right now but still committed to the business. A second delivery van parked through a slow quarter stays active. Plant waiting on a part stays active. A machine pushed to the back of the shed because the business has moved on drifts out.

Both limbs also reach across related entities. An asset used by your affiliate, or by an entity connected with you, counts as used in a business for this purpose even though you are not the one operating it.

What the law pushes back out

Subsection 152.40(4) carries a list of exclusions: interests in most entities, financial instruments, cash except where it is inherently connected with the business, and assets whose main use is to derive rent, interest, an annuity, royalties or foreign exchange gains.

Paragraph (4)(e), the rent one, generates nearly all the disputes. It bites even where the asset is used in the course of carrying on a business. A property operation can be a business in the ordinary sense and still hold nothing that qualifies here.

The tenant decides the answer

This is the part that surprises people, and it is worth getting right because it moves large numbers.

Lease your building to an unrelated tenant and the main use is to derive rent. Excluded, even where that tenant runs a thriving business on the site.

Lease the same building to a company you control and subsection 152.40(4A)(b) treats the company’s use as your use. The main use becomes business use, and the building can be an active asset. TD 2006/63 walks through it with a panel beater who owns the premises personally and leases them to his own company, and the Commissioner accepts the premises are active.

Same building. Same lease. Same rent hitting the same bank account. The answer turns on who is on the other side of the lease.

Figure 1. The rent exclusion turns on the identity of the tenant, not on the presence of rent.

Mixed use

Where an asset does two jobs you look at the asset as a whole and weigh the uses against each other. TD 2006/78 has the worked examples. In one of them a minority of the land by area is used in the business, that portion generates 80 per cent of total income, and the Commissioner accepts the main use is something other than rent.

Short stay accommodation frequently sits on the friendly side of the line. A guest house where the operator keeps a right of entry, moves guests between rooms, provides cleaning and meals and never grants exclusive possession reads as a business. A commercial building let on 3 year terms with exclusive possession reads as rent. Anyone weighing up a property sale should read this alongside how CGT works on property.

Then comes the time test

Being active on the day of sale earns you nothing by itself. Section 152.35 asks how much of your ownership period the asset spent active:

• Owned for 15 years or less: active for at least half the test period.
• Owned for more than 15 years: active for at least 7.5 years.

The active periods do not have to run continuously, and the asset does not have to be active when you sell. A shop used in your business for 8 years and then leased to a stranger for 3 years before sale still passes. The test period runs from acquisition to the CGT event, or to the point the business ceased or was sold where the CGT event happens within 12 months after that. Proving any of this over a long holding is a records exercise first and a tax exercise second, so what records to keep for tax is more relevant here than it looks.

Four ways people come unstuck

Vacant land held for a project that never started, earning nothing and used in nothing. There is no business use to attach the test to.

The holiday house the family uses and occasionally rents out. Personal use is disregarded under subsection 152.40(4A)(a), which sounds generous and works against you, since stripping out the personal use leaves the rental use standing as the main one.

Shares and units, which run a different path. They carry their own conditions on top: an Australian resident entity, a CGT concession stakeholder, and the 80 per cent test at entity level.

Aggregation. The active asset test is only one of the basic conditions, and the entry gate still asks whether you are a CGT small business entity or clear the $6 million net asset test. Aggregated turnover sweeps in connected entities and affiliates, so a business that feels small can fail on arithmetic that has nothing to do with the asset itself.

Where this sits in a sale

Work the active asset question early, before price talks start. It decides whether Division 152 is available at all, and it can change what you are willing to accept. If the answer comes back no, a small business restructure rollover may still move assets between entities without an immediate tax cost, though it solves a different problem and buys you nothing on a sale to a third party. Keeping usage records clean year by year is what makes the answer provable later, and Tax Assistant is where we keep that trail for clients.

Technical reference (current as at July 2026)

• Meaning of active asset: section 152.40, Income Tax Assessment Act 1997. Owned by you and used, or held ready for use, in the course of carrying on a business by you, your affiliate or an entity connected with you; or an intangible asset inherently connected with such a business.
• Active asset test: section 152.35. Active for at least half the test period where ownership is 15 years or less; at least 7.5 years where ownership exceeds 15 years. The periods need not be continuous and the asset need not be active at the time of the CGT event.
• Test period: from acquisition until the CGT event, or until the business ceased or was sold where the CGT event happens within 12 months after that (subsection 152.35(2)).
• Exclusions: subsection 152.40(4). Includes interests in entities, financial instruments and cash subject to the inherently connected carve out, and assets whose main use is to derive rent, interest, an annuity, royalties or foreign exchange gains unless that use was only temporary (paragraph (4)(e)).
• Attribution of use: subsection 152.40(4A). Personal use or enjoyment by you is disregarded; use by your affiliate or an entity connected with you is treated as your use.
• Leasing to a connected entity: TD 2006/63. An asset leased to a connected entity for use in that entity’s business is not excluded by paragraph 152.40(4)(e) for that reason alone.
• Rent compared with a business of providing accommodation: TD 2006/78. Rental property held by a company: TD 2021/2.
• Businesses winding up: section 152.49 and subsection 328.110(5).
• Connected entities: section 328.125, as affected for Division 152 by section 152.78. Affiliates: section 328.130.
• Other basic conditions (Subdivision 152.A): a CGT event happens to a CGT asset, the event would have produced a gain, and you are either a CGT small business entity (aggregated turnover under $2 million) or you satisfy the maximum net asset value test ($6 million). Both thresholds have been unindexed since 2007.
• Additional conditions for shares or trust interests: the entity must be an Australian resident, you must be a CGT concession stakeholder or satisfy the 90 per cent test through an interposed entity, and the entity must satisfy the 80 per cent test.

This article is general information and is not a substitute for advice on your own circumstances.