The AAT has found that husband and wife taxpayers who were the sole shareholders and directors of a healthcare company were not entitled to the CGT small business concessions in Div 152 of the ITAA 1997 in respect of the capital gain made on the sale of their shares in the company in view of the AAT’s finding that they did not satisfy the $6m maximum net asset value (MNAV) test. In doing so, the AAT dismissed the taxpayers’ claim that ETPs paid to them by the company totalling some $2.75m prior to the sale were “liabilities” to be taken into account for the purposes of the MNAV test. Instead, the AAT found that the ETP liability was not an enforceable liability that had arisen “just before” the relevant CGT event as required in order to be taken into account as a liability for the purposes of the MNAV test.
In addition, the AAT also found that if such a liability did in fact exist at the appropriate time, then it was not “related” to the CGT assets of the business as required for the purposes of the MNAV test.
Furthermore, the AAT dismissed the taxpayers’ claim that rights to receive an ETP were assets used “solely for [their] personal use and enjoyment” and therefore should be excluded from the MNAV test.
In any event, the AAT agreed with the Commissioner that the company’s obligation to pay the ETPs to the taxpayers formed part of the capital proceeds for the CGT event that gave rise to the sale and therefore helped generate the capital gain, rather than being a liability in respect of it.
Finally, the AAT upheld 25% shortfall penalties for failing to take reasonable care.
(AAT Case [2014] AATA 725, Re Scanlon and FCT, AAT, Ref No 2013/3136 -3137, Fice SM, 3 October 2014.)
[LTN 193, 7/10/14]