Tax Bites

Tax Bites are regular, short communications containing a snapshot of various common tax issues of interest to professional advisers. Here are some of our previous Tax Bites. Should you wish to subscribe to receive Tax Bites via e-mail, please click on the "Subscribe to Tax Bites" button to the right.

Are you still incorporating companies in NSW or SA – If so please reconsider

17th December 2013

NSW and SA still levy share transfer duty on transfers of shares in unlisted companies incorporated / registered in those jurisdictions at the rate of 0.6%. Both States previously announced... read more

Unit trusts that carry on business – Terrible tax outcomes for all where SMSF investors involved

19th November 2013

Unrelated geared unit trusts (UGUT) are becoming more common as vehicles SMSF’s invest in. The advantages typically relate to the “flow-through” income tax treatment and t... read more

Forming a tax consolidated group on acquisition can offer flexibility on subsequent sale

15th October 2013

There can be many benefits of forming a tax consolidated group when acquiring a target company. One of the key benefits that most taxpayers consider is whether they will get a tax cost upli... read more

Top-hatting for long-term asset protection

20th August 2013

Many taxpayers carry on their businesses through companies. Those companies may hold valuable assets (including land, plant & equipment, goodwill, brand names etc) which are exposed to operat... read more
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About Tax Bites

Tax Bites are general in nature and are not a substitute for specific advice. They are the opinion of Tax Advisory Specialists, and the ATO or the Courts may take a different view. They are not updated for changes in the law or the interpretation of the law since publication.

 

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Latest Tax Bite

Active asset definition clarified for real property used in a business – Further update

On 13 January 2020 I wrote a Tax Bite about a Federal Court case that clarified the active asset definition for real property used in a business.  At the time, I wrote that I disagreed with the Federal Court’s decision, and hoped that the issued could be further considered by a higher Court.

Thankfully, the Full Federal Court has effectively reversed the Federal Court’s decision and ruled in the taxpayer’s favour.

By way of background, real property can be an active asset where it is used, or held ready for use, in the course of carrying on a business that is carried on by the taxpayer, the taxpayer’s affiliate, or another entity that is connected with the taxpayer.

The taxpayer had applied for a private ruling based on the following facts:

  • The taxpayer and his wife ran a business of building, bricklaying and paving through a family trust.
  • The property was used mainly for storing work tools, equipment and materials as work would be done on work sites.
  • On occasion, some preparatory work was done at the property in a limited capacity.

The Commissioner had ruled that the real property was not used in the carrying on of the business.  The AAT ruled in the taxpayer’s favour.  The Federal Court ruled in the Commissioner’s favour.  I summarised the Federal Court’s reasoning in my 13 January 2020 Tax Bite and I won’t repeat that reasoning here.

The Full Federal Court has now ruled in the taxpayer’s favour.  The Full Federal Court’s reasoning for concluding that the real property was used in the carrying on of the business is as follows:

  • “… the provisions conferring small business relief … should be construed beneficially rather than restrictively in order to promote the purpose of the concessions…”;
  • “… the language used … relevantly requires one to ascertain three matters.  One must determine the use of a particular asset; one must then determine the course of the carrying on of a business; and then one must see whether the asset was used in the course of the carrying on of that business.  These inquiries involve issues of fact and degree.  But because [the provisions] should be construed beneficially, no narrow approach to the consideration of these issues should be applied.  … It is sufficient if the asset is used at some point in the course of the carrying on of an identified business.”;
  • “… in our view [the relevant provision] does not require the use of the relevant asset to take place within the day to day or normal course of the carrying on of a business.  Nor does the provision require a relationship of direct functional relevance between the use of an asset and the carrying on of a business.  Such narrowing qualifications to the statutory test are not supported by the language of the provision, and are inconsistent with the need to construe that language beneficially.”; and
  • “… we are … of the opinion that the appellant’s property was used in the course of carrying on the business here of building, bricklaying and paving.”.

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