A recent Federal Court ruling involving a Queensland businessman has prompted the crackdown for access to capital gains tax (CGT) concessions. The decision adds a ‘direct functional relevance’ test to classing an asset as an active asset.
The case involves David Eichmann, owner of a building, bricklaying and paving business through the Eichmann Family Trust (‘the Trust’). Eichmann and his spouse, beneficiaries of the Trust, purchased their home in Mooloolaba in 1997. They acquired the vacant block of a land next door, which had a 2-meter-high block wall and gate to secure it. There was no business signage on the property.
The usage of the property involved storage of work tools, equipment and materials; parking for work vehicles and trailers. Tools and items were collected on a daily basis. The property was mainly for storage as work would be done on work sites. On occasion, some preparatory work was done at the property in a limited capacity.
Eichmann applied for a Private Ruling regarding the sale of the property, which he received on 22 March 2017. He objected to the private ruling. Seeking review of the objection, Eichmann made an appeal and won the favour of the Administrative Appeals Tribunal (AAT). The Australian Taxation Office (ATO) appealed the Tribunal’s decision.
In the notice of appeal, the Commissioner identified questions of law arising from the Tribunal’s decision:
- Is it sufficient for the characterisation of the land as an “active asset” to show that the land, owned by the taxpayer, was used for the purposes of a business carried on by an entity connected with the taxpayer in a manner that was no more than non-trivial and not insignificant?
- The words “is used, or held ready for use, in the course of carrying on a business”, in subsection 152-40(1)(a) of the ITAA 1997, refer to a use that is integral to the process or processes by which the business is carried on?
- Whether the Tribunal, in reviewing the objection decision on a Private Ruling, exceeded its jurisdiction when it made findings of fact that were neither found in, nor inferences necessarily drawn from, the facts constituting the scheme set out in the Private Ruling?
Find out more about the Eichmann case and the CGT Active Asset Test by watching Effective PD’s webinar. Effective PD offers an innovative way for busy accountants to be on top of their game with continuing professional development in a brief, flexible and easy way. Subscribe to Effective PD at www.effectivepd.com.au.
