The AAT has ruled that a taxpayer failed the maximum net asset value test for the purposes of accessing the CGT small business concessions in relation to a capital gain of over $6m made by a family trust to which he was presently entitled from the trust’s sale of units in related unit trusts.
The AAT found that various liabilities of the trust as a connected entity or affiliate of the taxpayer could not be taken into account because the liabilities either did not “relate” to a relevant asset as required or were excluded “contingent” liabilities.
In particular, the AAT found that a debt of $2m that was owed by the family trust to one of the unit trusts (that was on-lent to the family trust for it to make a distribution to the taxpayer) did not relate to any specific asset of the family trust for the purpose of it being a liability related to a relevant asset.
Likewise, the AAT found that an amount of $1.2m held in the bank account of the taxpayer could not be reduced by a debit balance in a linked account which reflected borrowed funds used to purchase a residence owned by the taxpayer’s spouse, as the liability was not attached to an asset which was owned by the taxpayer, a connected entity or an affiliate.
However, the AAT found that 50% shortfall penalties imposed for recklessness should be reduced to 25% for failing to take reasonable care essentially because the taxpayer had engaged professional advice and that because the positions adopted were matters of judgment and not recklessness in the circumstances.
(AAT Case [2012] AATA 45, Re Bell and FCT, AAT, Ref No 2010/3362, O’Loughlin SM, 30 January 2012.)
[LTN 19, 31/1]