The Administrative Appeals Tribunal (AAT) has determined that land, used to store tools and materials for the purposes of operating a business, constituted an “active asset” for the purposes of the small business capital gains tax (CGT) concessions.
In Eichmann v Commissioner of Taxation, a trust controlled by the taxpayer carried on a business of building, bricklaying, and paving. The taxpayer and his spouse owned the land. The land had two 4 x 3 metre sheds, a 2-metre-high brick wall, and a gate to secure the property.
The land was primarily used for the storage of work tools, vehicles, equipment and materials and the taxpayer visited the land daily or several times a day in between jobs to collect tools or items for the purposes of use in the business. There was no business signage on the land. In October 2016 the land was sold for $935,000 and the taxpayer sought to access the small business CGT concessions.
At the time of sale, the taxpayer sought a private ruling from the Commissioner of Taxation (Commissioner) to apply the small business CGT concessions. The Commissioner decided unfavourably and the subsequent objection lodged by the taxpayer was also unsuccessful. The taxpayer sought review of the Commissioner’s decision in the AAT with the only question being whether the land was an “active asset”, specifically whether the land was “used in the course of carrying on the business” of the trust.
The AAT found for the taxpayer. It cited several authorities for statutory interpretation, examined the definition of the term “used”, and found nothing detracted from the ordinary and common sense meaning of the words.
In reaching its decision, the AAT rejected the Commissioner’s argument that the phrase “in the course of” required the use to be integral to the process by which the business is carried on and said:
the legislature could have easily used the words ‘necessary’, ‘integral’ or ‘essential’ to further limit availability of the concession but did not; and
instead, the phrase “used in the course of carrying on a business” encompasses a broad range of activities.
Consequently, the AAT decided that there was sufficient nexus between the use of the land and the business operations on the basis that the use of the land contributed to the efficiency of the business, the use was not trivial or insignificant, and the taxpayer did not merely hold the land as a passive investment.
Accordingly, the land was an “active asset” for the purposes of the small business CGT concessions.
If you require advice in accessing the small business CGT concessions or have any questions in relation to the above, please contact us:
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