Topics on active assets classification (2)

Pursuant to S.152-35(1), an asset will satisfy the active asset test if:

1. where the taxpayer owned the asset for 15 years or less – the asset was an active asset of the taxpayer for a total of at least half (i.e., 50%) of the relevant ownership period; or
2. where the taxpayer owned the asset for more than 15 years – the asset was an active asset of the taxpayer for a total of at least 7½ years during the relevant ownership period.

TAX TIP – Determining the relevant ownership period

There is no requirement that the minimum period for which an asset must be an active asset, (i.e., during the relevant ownership period) be a continuous one.

The relevant ownership period begins from the time the taxpayer acquired the asset and generally ends at the time of the relevant CGT event. For these purposes, an asset is generally acquired when the taxpayer becomes the owner of the asset (refer to ATO ID 2004/531(withdrawn)).

With respect to the end of the relevant ownership period, if the business was sold (or otherwise ceased to be carried on) within the 12 months before the CGT event (or such a time as the Commissioner allows), the ownership period is taken to be the period from when the taxpayer acquired the asset until the business ceased (rather than ending at the time of the relevant CGT event). Refer to S.152-35(2).

Section 152-40(1) defines when an asset will be an active asset. For present purposes, the relevant part of the definition provides as follows:

“A CGT asset is an active asset at a time if, at that time:

• you own the asset .... and it is used, or held ready for use, in the course of carrying on a business (whether alone or in partnership) by:
• you
• your affiliate; or
• another entity that is connected with you.”

The facts in Eichmann’s case

The facts and circumstances in Eichmann’s FC case can be broadly summarised as follows:

The taxpayer and his spouse owned a separately titled block of land (the ‘block’) located at 10 Yalunga Place, Mooloolaba QLD 4557 (‘the property’) that was adjacent to their family home located at 8 Yalunga Place.

The block had two 4m x 3m sheds, as well as a 2m high block wall and a gate to secure the block. There was no business signage on the block.

The taxpayer was connected with a family trust (the Eichmann Family Trust) that carried on a business of building, bricklaying and paving.

The trust had an aggregated turnover of less than $2 million (meaning it was a small business entity for the purposes of S.152-10(1A), hence allowing the taxpayer to satisfy the condition at S.152-10(1)(c)(iv)).

• The block was used mainly for storage as work would be done on work sites.
• The two sheds were used 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 (e.g., bricks, pavers, mixers, wheelbarrows, drums, scaffolding and iron).
• Work vehicles and trailers were parked on the property.
• In some cases, the property would be visited multiple times a day in between jobs depending on what each job required.
• On occasions, some preparatory work was done at the property in a limited capacity.

The taxpayer sold the land on October 2016 for a capital gain and sought a Private Binding Ruling (‘PBR’) on 15 December 2016 as to whether he was entitled to apply the SBCs.

The ATO ruled that the taxpayer was not entitled to apply the SBCs to the capital gain made on the sale of the land as it did not satisfy the active asset test.

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• Topics on active assets classification (1)
• Topics on active assets classification (3)
• Topics on active assets classification (4)
• Topics on active assets classification (5)
• Topics on active assets classification (6)
• Topics on active assets classification (7)
• Topics on active assets classification (8)