In a unanimous decision, the Full Federal Court has confirmed that a family trust failed the maximum net asset value (MNAV) test for the purposes of accessing the CGT small business concession in respect of a $6m gain made by the trust to which the taxpayer beneficiary was presently entitled.
In doing so, the Court affirmed the decision at first instance in Bell v FCT [2012] FCA 1042 (and the original AAT finding in AAT Case [2012] AATA 45, Re Bell and FCT) that a id=”mce_marker”m debit amount in the bank account of the taxpayer’s wife was an independent liability unrelated to a positive balance in a related offset account, but that in any event, it related to an excluded asset – namely, a family home. In particular, the Court found that the issue did not raise a question of law but, rather, involved a question of fact of whether the accounts were separate or should be treated as one account and that the AAT’s original finding that there were 2 separate accounts was reasonably open to it.
However, the Full Federal Court dismissed the finding at first instance that a $2m loan liability of the trust that financed a capital distribution to the taxpayer beneficiary was “related” to the assets of the trust. The Court at first instance made this finding essentially on the basis that in the absence of the $2m loan, the trust resolution to make the distribution to the taxpayer would have been an encumbrance over the assets of the trust and that, as a result, there was a direct relationship between the $2m loan liability and the assets of the family trust. However, the Full Court found the loan liability was not on the basis that it could not be said that a liability would relate to assets of the trust merely by reason only of having been undertaken to preserve existing assets of the trust to avoid the need for the trust to outlay its existing cash.
Note that despite this second finding overturning the finding at first instance, the MNAV test would have been failed in any event on the basis of the finding on the id=”mce_marker”m debit liability and the offset account issue. [??]
(Bell v FCT [2013] FCAFC 32, Full Federal Court, Jessup, Jagot and Robertson JJ, 22 March 2013.)
[LTN 57, 25/3/13]