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In the recent Administrative Appeals Tribunal case of Del Castillo and Commissioner of Taxation (Taxation) [2022] AATA 4233, a taxpayer tried to claim the Small Business CGT Concessions in respect of the sale of residential investment properties.
But the properties did not satisfy the Active Asset Test, predominantly because they were excluded from being active assets as their main use was to derive rent (from residential tenants instead of from a business entity that was either a connected entity or an affiliate of the taxpayer).
As such, the Small Business CGT Concessions were not available.
The taxpayer and her legal counsel tried unsuccessfully to argue that, in broad terms, the exclusion should not apply as it should be limited to rent derived from passive assets rather than rent derived from actively managed assets as part of a residential property leasing business.
But that is not the test. Yes, there needs to be a business. But in addition the exclusion for deriving rent (other than from a business entity that is either a connected entity or an affiliate of the taxpayer) cannot apply.
This is where the taxpayer and her legal counsel failed – the exclusion did apply.
For completeness, the Administrative Appeals Tribunal did not consider whether the activities of the taxpayer amounted to the carrying on of a business as it was unnecessary to do so given the Active Asset Test was already failed.