A taxpayer has unsuccessfully challenged a private ruling that land which was mostly vacant was not an “active asset” for the purpose of the CGT small business concessions. These concessions are found in Div 152 of the ITAA97 and give a (further) 50% discount, up to $500k superannuation contributions and a rollover of any remaining capital gain, into a new business.

The taxpayer and her husband owned a small construction company. They also owned a 16 hectare property, most of which was vacant. However, about 10% of the land contained a shed and office which were used in the business. Most of the business activities were conducted off site. The taxpayer obtained a private ruling to the effect that the land was not an active asset.

The AAT confirmed the ruling, rejecting the taxpayer’s contention that the business activities conducted on the land were sufficiently important to the company’s business operations so that the whole land could be considered to be an active asset.

The Tribunal said:

 

13.  The concept of use of an asset in carrying on a business must be understood in the statutory context. The relevant gain which is sought to be reduced or disregarded, is a gain arising from the disposal of the whole of the land. Here activities were being carried out on a small part of the asset, less than 10% of the total land. That 10% which was used included use of the land for private dwellings. The relevant question to be answered in the present circumstances is whether the whole of the land is an active asset when only a very small part of it has been used in carrying on a business?

14.  In the course of hearing, the Applicant accepted that incidental use of a CGT asset was not sufficient for CGT asset to be regarded as an active asset, but contended that it was not necessary for the CGT asset to be exclusively and exhaustively used in carrying on a business. The Applicant submitted that here the activities carried on the land were sufficiently important to the functions of the company’s business operations and those activities had been carried on for many years. ….

15.  We do not accept that submission based on the facts identified in the ruling. …

 

The AAT also refused to allow the taxpayer to rely on facts additional to those set out in the description of the scheme as set out in the private ruling. The relevant facts, upon which the AAT needs to consider the taxpayer’s review application, are the assumed facts set out in the ruling.

(Rus and FCT [2018] AATA 1854, AAT, File Nos: 2017/3492-3493, O’Loughlin DP and Hespe SM, 22 June 2018.)

FJM 8.7.18

[LTN 124, 3/7/18; Tax Month  – July 2018]

 

Study questions (answer available)

  1. Was the case about whether the taxpayer got the Div 152 CGT relief on the sale of this 16 ha property?
  2. Was the property largely vacant and not used for the relevant business, save for a small portion used for an office?
  3. Was it sufficient that only a small portion of the land was used for the business, when the concession was for the whole of the gain?
  4. Could the taxpayer adduce new/further facts, when appealing the private ruling?

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