In our July 2018 Tax Flash, we discussed a Tribunal case where the taxpayer was unsuccessful in arguing that (mostly vacant) land was an “active asset” for the purpose of the CGT small business concessions [Rus and FCT AATA 1854].
The land in question had two houses on it (one of which was used as an office) and a shed that occupied about 10% of the land area. The taxpayer used the office and shed in his construction business. Most of the business activities were conducted off-site.
The taxpayer initially sought a private ruling from the Commissioner of Taxation. After the Commissioner did not rule in his favour and the taxpayer unsuccessfully objected to the Commissioner’s decision in the private ruling, the taxpayer then sought a review from the Tribunal.
The Tribunal found that the land was not an active asset as the taxpayer only used a very small proportion of it. The taxpayer also provided additional facts that the land was also used as security for a line of credit for the business and provided a Deed of Agreement recording a lease of the land with the related company. As this was a Tribunal review of the Commissioner’s decision in a private ruling, the taxpayer was not allowed under the law to introduce those additional matters. In any case, the Tribunal did not consider that the grant of security over the land for a line of credit was a relevant use by the company.
However, in a recent case, Eichmann and FCT  AATA 162, the taxpayer had more success in arguing that the land used was an active asset and qualified for the CGT Small Business Concessions.
In the case, the taxpayer carried on a business of building, bricklaying and paving through a trust. The taxpayer and his wife purchased the property next door to their matrimonial home. There were 2 sheds measuring 4 metres x 3 metres each on the land. The taxpayer used the sheds for the storage of work tools, equipment and materials. The open space on the property was used to store materials that did not need to be stored under cover, including bricks, blocks, pavers, mixers, wheelbarrows, drums, scaffolding and iron. Work vehicles and trailers were also parked there.
In some cases, the property would be visited a number of times a day in between jobs depending on what each job required. Although most of the work was done on work sites, some preparatory work was done at the property in a limited capacity. There was no business signage on the property.
The taxpayer sought a private ruling from the Commissioner after the property was sold. After the Commissioner issued an unfavourable private ruling and the subsequent objection was unsuccessful, the taxpayer sought a review from the Tribunal.
The Commissioner relied on an earlier case, Re Karapanagiotidis and Commissioner of Taxation  AATA 1961, where it was held that “passively storing old records into containers placed on a property” that was otherwise vacant land could not be regarded as “using the land” in the course of carrying on a business for the purposes of the Active Asset Test. The Commissioner further argued that to satisfy the active asset test, there must be more than a mere incidental use of the land and that consideration must be given to what use the asset was put and to what extent those activities could be said to be “in the course of carrying on a business”.
However, the Tribunal found that the facts of the case were completely different from those considered in Karapanagiotidis. The extent of the use of the land was far from minimal, or incidental to the carrying on of the business. The Tribunal was satisfied that, on the balance of probabilities, the taxpayer had shown that the Commissioner had erred in determining that the land did not satisfy the requirements for being an active asset. Accordingly, the Tribunal held that that the property was an active asset for the purpose of the CGT Small Business concessions.
The case provides some clarification on the extent of use required for land or other assets to be an active asset. However, each case must be determined based on its own facts and taxpayers have the onus of proving that the use of the asset is not “trivial or insignificant”. Further, the case also demonstrates that a property or land used for storage does not automatically disqualify it from being an active asset.