CGT small business concessions denied
The Administrative Appeals Tribunal (AAT) has confirmed that the exclusion in s 152-40(4)(e) of the Income Tax Assessment Act 1997 (ITAA 1997) from the CGT small business concessions for assets used “mainly to derive rent” applies even if the assets are used in “carrying on a business” of deriving rent. Accordingly, the AAT held that three commercial properties that a taxpayer used in carrying on a business of deriving rent did not qualify as “active assets”, even though the Commissioner had previously ruled (on a different matter) that the taxpayer was “carrying on a business” in respect of the use of the commercial properties.
Before the AAT, the taxpayer argued, among other things, that according to the rules of statutory interpretation it was necessary to distinguish between those assets used to derive passive investment income such as rental income and those actively used in carrying on a business. The taxpayer argued that the clear purpose of Div 152 was to allow the concessions apply to those assets used by a taxpayer in carrying on their small business. The taxpayer also contended that the view that all properties used mainly to derive rent are automatically excluded from being “active assets” unfairly discriminates against small leasing businesses.
However, in dismissing the taxpayer’s claim the AAT said that as a matter of statutory interpretation the AAT must first consider the text of the section (as “it is only by considering the meaning of the words used by the legislature that the court can ascertain its intention [and that] it is not unduly pedantic to begin with the assumption that words mean what they say”). Accordingly, it found that on the clear face of the words used in s 152-40(4)(e) – words in which there is nothing ambiguous – an asset whose main use by a taxpayer is to derive rent cannot be an “active asset”. It also found that the accompanying example in s 152-40(4)(e) did not assist the taxpayer’s case.
In so finding, the AAT also noted that had parliament intended assets used to derive rent as part of a business to be included as active assets, an exception for this situation could have been provided. It also stated that the Explanatory Memorandum to the Bill that introduced s 152-40(4), if anything, supports the proposition that whether a particular CGT asset is an “active asset” is to be answered by reference to the use to which the asset is put by a taxpayer, and not by reference to the nature of the taxpayer’s particular business. In this regard, the AAT also noted comments from the Full Federal Court in Telstra Corp Ltd v Hurstville City Council (2002) 118 FCR 198 where it said that: “It is a rare day when an explanatory memorandum provides much assistance in the construction of a statute”.
Re Jakjoy Pty Ltd and FCT [2013] AATA 526, www.austlii.edu.au/au/cases/cth/AATA/2013/526.html.
