As published in The Q Review Autumn 2020 Magazine. Follow the link to Subscribe and receive your FREE copy each quarter!
In Part 1 of this series titled “Losing the Unlosable Case” we brought to your attention a recent dispute between the ATO and a business and property owner which has gone all the way to the Federal Court with the rather concerning outcome of a win for the Tax Man, going against what most would likely consider common sense.
So we continue…
The ATO decided that despite all the facts detailed in Part 1 (which were not in dispute as we understand it), the property was not sufficiently ‘integral’ to the business.
Therefore, the ATO determined the property was not an ‘active’ business asset and hence was not eligible for the Small Business CGT Concessions.
The business owner took the matter to the Administrative Appeals Tribunal (“AAT”) as we suspect anyone in their position would.
And a good result for them meant the concessions were reinstated.
However, the ATO chose to pursue things further, appealing the case to the Federal Court.
The test which the Federal Court was asked to consider was –
Is the property “used, or held ready for use, in the course of carrying on a business”?
Its decision, rather despairingly for the business owner and probably many of you reading this, was “No”.
Accordingly, the ATO won, and the concessions were once again denied.
It was determined the property was not sufficiently ‘integral’ to the business. And therefore, did not ‘sufficiently’ pass this test!
Hence the property was not an ‘active’ business asset and the Small Business CGT Concessions do not apply.
Tough! Very tough!
So what can we learn from this outcome?
Well it was noted that the property didn’t have any signage on it.
Further, the property was next door to the business owner’s home. So, a cynic might say fix those two things and you are okay. But that probably isn’t the case.
In the initial aftermath you may consider the ATO, and arguably the Courts, have signalled that they see their job is to stop Australian small business owners from benefiting from the concessions legislated by Governments looking to support these vital contributors to the economy.
the ATO chose to pursue things further
However, don’t get mad, get information!
If you want to treat your property as part of your business, and therefore claim the highly prized Small Business CGT Concessions, its use in your business must be substantially more ‘integral’ than what you might have thought was required.
It means some serious thought, planning and professional advice should be employed before triggering any taxable event, especially one where the dollar values are substantial and significant to you and your family’s future.