Tax Logic vs Common Logic

As published in The Q Review Autumn 2020 Magazine.  Follow the link to Subscribe and receive your FREE copy each quarter!

A dispute between the ATO and a business and property owner has recently 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.

The business in question was that of building, bricklaying, and paving. It was operated via a family trust, just like hundreds if not thousands of Australian small businesses.

As you might expect, such a business required storage of materials, equipment and vehicles. Accordingly, the business owner decided to acquire a block of land upon which these important business assets could be safely and securely held.

Business tools and materials were stored, and in turn collected from, the property each day, as were their work vehicles and trailers.

To ensure items were stored safe from damage and theft, sheds were used, high walls installed along with a secure gate.

The property was also used on occasion for preparatory work, and could even be visited on multiple occasions per day in between jobs.

By all accounts, at least to the layman, the property appeared to be an ‘integral’ part of the business.

Upon selling, the business owner naturally enough hoped to take advantage of the Small Business CGT Concessions.

We have previously introduced these concessions to Q Review readers (Autumn 2019 Edition).

As we have commented, they can be the difference between retiring in luxury or wallowing in self-pity and regret. But as explained, and as you will see, the hard part is qualifying!

Should the concessions apply, the tax payable on the property disposal would have been substantially reduced, even entirely eliminated, greatly improving the financial outcome for the business owner and enhancing their lifestyle in its next stage.

By all accounts … the property appeared to be an ‘integral’ part of the business

Rather than simply applying the concessions in their tax returns and hoping for the best, the business owner wanted to make absolutely sure they were doing the right thing. So they applied to the ATO for a Private Ruling, asking them to confirm the concessions were definitely available.

This is a sensible, conservative approach, and one we have recommended to CapitalQ Clients at times.

However unfortunately for the business owner, and for those watching the outcome with interest, the result was not what anyone expected.

Check out Part 2, where we detail the result, and what to do about it!