VSVS and Commissioner of Taxation (Taxation and Business)
[2024] ARTA 249
•6 November 2024
VSVS and Commissioner of Taxation (Taxation and Business) [2024] ARTA 249 (6 November 2024)
Administrative Review Tribunal
Applicant/s: VSVS
Respondent: Commissioner of Taxation
Tribunal Number: 2022/7822
Tribunal: Deputy President D O’Donovan
Place: Brisbane
Date: 6 November 2024
Corrigendum
Date of Corrigendum: 14 November 2024
Pursuant to section 114 of the Administrative Review Tribunal Act 2024, the following alteration is made to the decision and the statement of reasons for the decision at page 17:
Solicitor for the Respondent: Mr Thomas Jarman (Australian Tax Office)
……..……….[SGD]………………. Deputy President D O’Donovan
Decision and Reasons for Decision
Applicant/s: VSVS
Respondent: Commissioner of Taxation
Tribunal Number: 2022/7822
Tribunal: Deputy President D O'Donovan
Place: Brisbane
Date: 6 November 2024
Decision: The Tribunal affirms the decision under review.
………………..[SGD]………………..
Deputy President D O'Donovan
Catchwords
TAXATION – capital gains tax concession available if farm property used or held ready for use in a business – whether an inherited property held ready for use – property the subject of arrangements where others used the property – property not held ready for use – decision affirmed
Legislation
Income Tax Assessment Act 1997, ss 152-40
New Business Tax System (Capital Gains Tax) Act 1999 Tax Laws Amendment (2006 Measures No. 7) Act 2007
Cases
Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503
Secondary sources
The Board of Taxation, ‘A Post-implementation Review of the Quality and Effectiveness of the Small Business Capital Gains Tax Concessions in Division 152 of the Income Tax Assessment Act 1997’ (Report to the Treasurer, October 2005).
Statement of Reasons
Introduction
The applicant is a third-generation primary producer. He and his wife run a beef cattle business in partnership. The business is currently located in Greenvale, but before that the business was run on properties near Craigieburn in Victoria. The properties on which the applicant ran beef cattle were adjacent to the dairy farm that his parents owned and he grew up on.
In 2007, following his father’s death, the applicant acquired legal interests in the two properties on which that dairy farm was operated – Lindum Vale and Ridley View (the Properties). In the course of divesting those interests in 2016, the applicant incurred a capital gains tax liability, which was included in his 2016 assessment. He objected to the
assessment. When the objection was unsuccessful, he applied to the Administrative Appeals Tribunal for review. The matter now falls to be determined by the Administrative Review Tribunal.
The applicant’s contention is that he is entitled to the concessional capital gains tax (CGT) treatment provided for in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997). The Commissioner disagrees. The Commissioner accepts that the disposal of the assets meets all of the requirements necessary to attract the concessional treatment provided for in that Division except for one. The Commissioner contends that the assets that have been disposed of – namely a 12.5% interest in Lindum Vale and a 6.25% interest in Ridley View, held as tenant in common with other interest holders - do not meet the ‘active assets’ test specified in section 152-40(1) of the ITAA1997.
At the relevant time section 152-40(1) provided that:
A CGT asset is an active asset at a time, if at that time:
(a)You own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by:
(i)you; …
Both parties accept that the assets in question were not ‘used’ in the applicant’s beef cattle business at any time. However, the applicant contends that at least from 1 January 2011 the applicant held the assets ‘ready for use’ in the carrying on of his beef cattle business. The contention is advanced on the basis that the applicant wanted to make use of the asset in his cattle business and the nature of the asset was such that it could have been used in the business, but the hostility of his brother Harold prevented him from using the asset in the way that he wanted to. Consequently, he held the asset with the intention of using it in his business, but due to a contingency beyond his control he was unable to.
In order to determine the application it is necessary to make findings about the applicant’s actual use of the asset and his intentions in relation to it. I note at the outset that I accept that the applicant had a hostile relationship with his brother Harold which made the actual use of his interest in the Properties difficult if not impossible.
But before turning to the facts of the case it is appropriate to say something about the relevant statutory test for an active asset.
As the High Court has said repeatedly, interpretation of a statute begins and ends with the text; but discerning the meaning of the text requires consideration of the context of the provision in the broadest sense of that word, including the purpose of the provision, the policy behind it and the mischief it is seeking to remedy.1 Consequently some examination of the legislative history of the provision assists in understanding the meaning of the concept ‘held ready for use’ in the context of a definition of the term ‘active asset’.
Section 152-40 was added to the Income Tax Assessment Act 1997 in 1999 by the New Business Tax System (Capital Gains Tax) Act 1999. It introduced the concept of an active asset as an asset used or held ready for use in the course of carrying on a business. The explanatory memorandum stated as follows:
This Bill amends the ITAA 1997 to streamline existing CGT concessions for small businesses and provide a further concession for small businesses where an active asset of the business, held for at least 15 years, is disposed of because either the taxpayer is to retire on account of being at least 55 years old or is incapacitated.
In the second reading speech it was noted that the concession:
…will be of enormous benefit to farmers. Farmers, who might have worked a property for 15 years and who, heading up to the time of retirement, want to sell the property and use the proceeds to buy a house in town, can do that under these proposals, capital gains tax free.
The concession was amended in 2007.
The explanatory memorandum to the Tax Laws Amendment (2006 Measures No. 7) Act 2007 noted:
These amendments are in response to the recommendations made by the Board of Taxation in October 2005 … A number of changes have been made to the small business CGT
1 See in particular Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503 at [39].
concessions to reduce the compliance costs for small business and increase the availability of the concessions…The amendments will improve the operation of the small business CGT concessions by making changes to the … active asset test.
The following extract from the Board of Taxation’s 2005 report to the Treasurer provides important context for understanding the policy behind the availability of the concession:2
The policy intent of Division 152 is that the small business CGT concessions relate to gains on business rather than passive assets. The definition in section 152-40 seeks to achieve this by defining an active asset at a time the taxpayer owns it as an asset which is:
· used or held ready for use in the course of carrying on a business;
· an intangible asset that is inherently connected with a business that the taxpayer carries on; or
· used or held ready for use in the course of carrying on a business by the taxpayer’s small business CGT affiliate or connected entity.
As is clear from the second reading speech, recommendations from this report were considered by Parliament for the Tax Laws Amendment (2006 Measures No. 7) Act 2007 referenced above.
The statute also helpfully identifies assets that will not be regarded as ‘active assets’. Paragraph 5(e) of section 152-40 excludes from active assets an asset whose main use by the taxpayer is to derive interest, an annuity, rent, royalties or foreign exchange gains unless:
(i)the asset is an intangible asset and has been substantially developed, altered or improved by [the taxpayer] so that its market value has been substantially enhanced; or
(ii)its main use for deriving rent was only temporary.
An example is used to provide context:
2 The Board of Taxation, ‘A Post-implementation Review of the Quality and Effectiveness of the Small Business Capital Gains Tax Concessions in Division 152 of the Income Tax Assessment Act 1997’ (Report to the Treasurer, October 2005).
A company uses a house purely as an investment property and rents it out. The house is not an active asset because the company is not using the house in the course of carrying on a business. If, on the other hand, the company ran the house as a guest house the house would be an active asset because the company would be using it to carry on a business and not to derive rent.
This example emphasises what is already clear from the terms of the statute. The concession is not available for passive assets even if they are owned by a person running a business. Consequently, while the concept of an asset which is ‘held ready for use’ extends the meaning of an active asset, it cannot extend the concept so far as to include passive assets which generate a separate income stream. The term extends concessional treatment to an asset class which sits in the grey area between obviously active assets which are being deployed in the business and obviously passive assets from which passive income is derived.
It is also clear from the structure of the legislation that the character of an asset can change over time. Section 152-35 makes it clear that an asset need only satisfy the active asset test for half the period of ownership of the asset if it has been owned for less than 15 years. Consequently, a house which is rented for a period will be treated as a passive asset in that period. However, if the asset owner converts it to a guest house and runs it as such, it will become an active asset.
What is less clear is at what point a passive asset transforms into an asset held ready for use in a business. For example, if a rental property is transformed into a guest house it will make the transition from a passive asset to an active asset at some point. But whether that occurs at the point at which rental incomes ceases, renovations begin, renovations are completed, or guests are booked is a more difficult question. In my assessment ‘held ready for use’ carries with it an implication of imminence. In the Macquarie Dictionary the first definition of ‘ready’ is ‘completely prepared or in due condition for immediate action or use.’ I am satisfied it is in this sense that word ready is used in phrase ‘held ready for use.’ Applying the phrase with this meaning of ready in mind to the guest house example, until renovations are completed it cannot be said that the asset is held ready for use in carrying on the business. More clearly, if the house is being used to generate passive income, then regardless of the owner’s ultimate intention, it is not being held ready for use at that point in time.
The hallmarks of assets held ready for use include that they are suitable for use in the business in their current form when some contingency that prevents or discourages their deployment in the business passes. An asset is not ‘held ready for use’ when it is effectively a passive asset even if it is generating cash flow or other financial resources that are used in the business carried on by the taxpayer.
Consequently, if the deployment of the asset is not imminent because it is being put to some other non-active asset type use, then it is not an asset held ready for use. In determining whether an asset is an active asset it is necessary to consider to what other uses the asset was put at various times and to determine whether for more than half the period of ownership the asset was held ready for use and not deployed as a passive asset in some way.
The evidence
The evidence before me is specified in the Exhibit List that is appended to this decision.
The applicant’s evidence in chief was received by way of a signed witness statement which he adopted in the witness box. The applicant was cross-examined extensively about the various family arrangements concerning the use of the Properties, which developed over the years.
In the witness statement which he adopted at the hearing, the applicant’s essential claim is that he has been trying to get proper access to the Properties for use in his business since at least the early 2000s. The only thing preventing him from utilising the asset was the hostility between him and his brother Harold.
I do not accept that evidence.
The applicant struck me as an honest witness who wanted to tell the truth as best he could recall it. However, he also wanted to ensure that no detail of the complex family arrangements that had developed over the past four decades was left out, lest some mistaken impression be created by an incomplete answer. The result was that his answers were generally long and often unresponsive to the question asked. He clearly preferred to
talk around subjects rather than deal in specifics. It rendered much of his evidence unhelpful.
More significantly though, for the purposes of making factual findings, I did have cause to doubt the precision of his memory. His witness statement supplemented by his oral evidence suggested that he had been trying to get access to the Properties to use them in his cattle business since the early 2000s. He went so far as to suggest that he saw a solicitor for the purposes of securing access. The attendance was said to be in around 20003 and the applicant contends that it was for the purposes of getting advice about exercising his rights to access the Properties. As the applicant had no legal interest in the Properties at the time I do not accept that he sought such advice at that time on that subject. Consequently, I am reluctant to put much weight on the evidence the applicant gave as to his subjective thoughts at any given time about the use of the properties in question. To the extent that it is necessary for me to determine what the applicant had in mind in terms of use of the assets I have determined those intentions by reference to what was documented at the relevant time.
The Issue
In order for the applicant to succeed I must be satisfied that the applicant’s interest in the Properties was held ready for use in the course of the applicant carrying on his beef cattle business for half of the period he held the asset. The only relevant interest is the interest the applicant acquired in 2007 upon his father’s death, 31 March 2007, and disposed of on 16 May 2016. The applicant must establish that he held that interest ready for use in the business for a period of at least 1667 days – a period of roughly four and a half years.
Facts
Set out below are my findings of fact. To the extent that any are controversial I have identified the evidence on which I have relied.
3 See transcript at page 49 and 50.
The applicant grew up on his parents’ dairy farm. His parents were named Francis and Ruth. He had three brothers: Noel, Eric and Harold. The applicant was the youngest of the four.
The applicant married Doris in 1984 and they carried on a beef cattle business on land adjoining the Properties. His brothers also ran primary production businesses on a range of land holdings in the area.
In the late 1990s when the applicant’s parents were in their early 80s, the applicant’s brother Harold initiated a process whereby a rural financial counsellor got most of the family together to make an arrangement whereby Francis and Ruth could move out of the day to day running of their dairy and hand it over to Harold and Eric, while still drawing income from the business and continuing to live in the family home.
The result of this discussion was a document that will be referred to as ‘the Proposal’.4 It was however more than a mere proposal. The document outlined arrangements which would enable the applicant’s parents to hand over responsibility for running the dairy business on the Properties in a way that attempted to be roughly equitable as between the members of the family who signed it. I am satisfied that it did not result in the grant of a lease to any of the brothers or the entities through which they conducted their businesses, and it may not have resulted in any enforceable rights as between the parties. It did however provide a basis whereby steps could be taken to transfer the running of the dairy business to Harold and Eric and the entities through which they conducted business and did so without undue friction within the family. It also served as a baseline for determining what was considered fair in the dealings between the brothers for many years to come.
The arrangements put in place by the Proposal were imperfect in many respects and it is possible that no one was completely happy with the outcome. I accept that the applicant’s brother Harold did not comply at all times with its terms. It did however have a number of specific practical effects. First, the stock and plant necessary to conduct the dairy business were transferred to an entity controlled by Eric and Harold (E&H [redacted] Nominee Pty Ltd) in exchange for payments to Francis and Ruth. Sums equal to the amount of shire rates
4 T-Documents, 158.
were to be paid to Francis and Ruth as a kind of rental payment for use of the properties (at least for a while). Francis and Ruth retained a right to live in the family home, were to receive an additional $200 per week (which was paid for at least some period), and received other benefits including cattle for raising on other land.
The Proposal also provided that all members of the family would have access to and be allowed to see over any part of the property owned by Francis and Ruth.
Somewhat ominously, the Proposal included the statement that ‘brothers and sons to be treated as such, not as unpaid servants. Changes outlined in this document are not to be seen as termination of family ties’.
In addition to the provisions concerning Francis and Ruth, the Proposal also provided the applicant and his brother Noel with access to machinery on the property when necessary. The applicant was to be compensated for unpaid work and foregone wages ‘going back some years’ in the amount of $35,000. The document was signed by Francis and Ruth, Harold and his wife, Eric and his wife and the applicant. Noel and his wife did not get involved in the issues because Noel had left the district and had his only primary production business in Kooring. It would appear that he had no strong interest in sorting out the issues about the ongoing use of the Properties or whatever he may be entitled to from his parents’ dairy at that point in time.
The Proposal, while perhaps unenforceable, had the desired effect. The running of the dairy passed to Eric and Harold. The applicants’ parents remained living on the Properties in the family home. The applicant continued to visit his parents and provide support to them while running his own beef cattle business in partnership with his wife and living on a nearby property. He continued to use machinery which was the subject of the Proposal. However, the sharing of the machinery created friction between the applicant and his brother Harold. There is also evidence that Francis felt he was not fairly compensated under the Proposal. It is however unnecessary for me to consider that question in detail.
From 15 March 1999 the following arrangements were in place in relation to the Properties.
Lindum Vale was owned 50% by Francis and 50% by Ruth as tenants in common. Ridley View was owned by Noel and his wife, and Francis and Ruth as tenants in common with
one quarter each. Harold and Eric ran the dairy along lines broadly consistent with the Proposal. Francis and Ruth lived in the house on the property and no other child asserted an interest in the Properties or derived any value from them.
The applicant accessed machinery on the property for use in his business and was entitled to pump water onto his adjoining property to water his stock. As noted previously, the applicant had no entitlement (legal or moral) to use the Properties in his cattle business. I am satisfied that in this period he did not hold the asset nor make any attempts to gain access to the Properties for the purpose of using it in his business. To the extent that his evidence suggests otherwise I reject it.
While the Proposal created a workable transfer of the dairy business from Francis and Ruth to Harold and Eric, it did little to resolve simmering tensions within the family. These soon bubbled to the surface following the death of Francis on 31 March 2007. Eric and Harold were executors of Francis’ will. Francis bequeathed his one quarter interest in Ridley View and his half interest in Lindum Vale to each of his children as tenants in common in equal shares. As a result, the applicant acquired a 12.5% interest in Lindum Vale and a 6.25% interest in Ridley View. It is the disposal of this interest 9 years later that triggered the capital gains tax liability which is the subject of the current dispute with the Commissioner.
It is difficult to make precise findings about the applicant’s attitude and wishes in relation to the interest he inherited in the following two years. There is likely to have been a period where the applicant was uncertain as to what interest he had inherited (or whether he had inherited any interest at all) as a consequence of the executors of the will seeking to keep him in the dark about its contents.5 The applicant also concedes6 that he at least regarded the Proposal as providing governing principles for use and access to the property after his father’s death.
In other words, he regarded his brothers as empowered to continue to operate the dairy, while he was entitled to access the property and machinery on it. His mother was entitled to continue to live in the family home. There is no convincing evidence that the applicant made any attempt to disturb this arrangement while his mother was alive and living at the
5 Transcript p 56.
6 Transcript line 20 p 59.
property or had a desire to do so. He was caring for his elderly mother and had his own business to run. The evidence before me does not persuade me that the applicant had any desire to upset existing arrangements at that point in time by asserting his legal rights and using the interests that he had inherited in the Properties to incorporate the use of them in some way into his cattle business.
In circumstances where, with the applicant’s acquiescence, another business was using the Properties in a dairy business and the applicant was willing to abide by an arrangement whereby others were permitted to run a business on the Properties, I am not satisfied that the applicant was holding his interests in the Properties ‘ready for use in the carrying on of’ his cattle business.
The dairy business operated by Harold and Eric continued as it had prior to the death of Francis. However, in 2008 Eric died7. Eric’s wife was the beneficiary under his will. There was some issue with probate that delayed the sorting out of Eric’s estate, which meant that arrangements were left as they were until at least November 2008. From that point there was an obvious need to re-organise affairs in relation to the dairy farm as Eric was no longer there to assist with the running of the business and his legal interest in the land had passed to his wife.
Based on the documents available to me, I am satisfied that until 30 June 2010 the entity through which Eric and Harold (E & H [redacted] Nominees) had run the dairy since 1999, continued to do so.8
I am also satisfied that in or around October 2009 agreement was reached between the siblings that Harold would take over the running of the dairy through the entity he operated with his wife – HJ and AJ [redacted] Nominees Pty Ltd. This was done with the acquiescence of the applicant. The arrangement that produced this outcome was largely undocumented. However, the arrangement is referred to in a letter dated 2 July 2010. The letter was written by the applicant and it records the essence of the agreement, which he
7 There is confusion as to the correct date as the applicant said in his written statement that Eric died in 2010 but was adamant it was 2008 in his oral evidence.
8 See the 2 July 2010 letter which states: ‘There seems to be a misconception by Noel [redacted] as to the arrangement (short term) by D W [redacted] in regard to both these property “Lindum Vale” and “Ridley View” jointly farmed since May 1999 by E&H [redacted] Nominees up to 30 June 2010 David believes’.
had accepted from October 2009 as an adequate short-term arrangement in relation to the use of the Properties. It was expressed in the following terms:
None of this [discussions concerning the asserted failure of E& H [redacted] nominees to pay rent to Ruth for the previous three years] was documented by any party and David formed no understanding with Harold other than as Noel stated 12 months short time [sic] lease from the 1st of January 2010 to 1st January 2011 [emphasis added]. To come to this short time [sic] lease of one year David firstly at this meeting put forward to Noel a short term solution to enable this short term lease of 12 mths. As stated by Harold in his letter endorsed by Annette [redacted], Friday 18th June 2010 David share as tenants in commons with all the parties in Lindum Vale and Ridley View if Harold Calculations are correct is 57.74 acres and Harold estimates he has given David 75 to 80 acres to do with as he likes the “area swap” … David only agreed to a 12-month lease only. David did not want 70-80 acres if he was only entitled to 57.5 acres. But this allowed David to step back from joint farming with his bully brother Harold and let Harold and Anette have a short term lease on Lindum Vale and Ridley View. This allowed David to farm independently from E&H [redacted] and H&A. 9
While the letter refers to a lease being agreed it almost certainly overstates the legal formality and enforceability of the arrangement. But leaving aside questions of how the arrangement is described, it is clear that at the point in time at which the letter was written, the applicant had agreed to be, and was, the beneficiary of a land swap. The advantage to him from the arrangement was that he got access to other grazing land. In exchange, Harold was able to use the land at Lindum Vale and Ridley View to continue the dairy business which he operated in partnership with his wife at the time. I am satisfied that at this point the applicant was not holding the Properties ready for use in carrying on his business. Quite the contrary. He made an arrangement whereby others were permitted to use it and he used the Properties as collateral to obtain other advantages.
However, it is made clear at the end of the letter that the applicant’s participation in this ‘area swap’ arrangement is short-term and he wants it reviewed no later than 1 January 2011. He concludes the letter by stating:
The lease is only for 12 months NOEL and then review. Agreed Noel!!!
9 T-Documents, 154.
In approximately 2011 the dairy business being operated on Lindum Vale and Ridley View was shut down. It may have been wound down in a period prior to that, but at some point in 2011 all of the dairy cows were sold and taken away. At about the same time Harold and his wife relocated to a property near Euroa. The Properties were then used by Harold through H & A [redacted] Nominees Pty Ltd to run cattle.
The basis on which Harold did that is set out in the applicant’s witness statement:
At about that time [when Harold moved to Euroa] to recognise that Harold and Annette were continuing to farm Lindum Vale and Ridley View it was agreed orally between them, Doris [the applicant’s wife] and I be allocated a back paddock of 630 Old Sydney Road of approximately 44.52 hectares (110 acres) for our exclusive use. That paddock was chosen as it adjoined my and Doris’ land at 570 Old Sydney Road and it was already fenced with its own water supply. The 110 acres added to the one quarter I already owned with Harold and Denise. Doris and I then used the back paddock for our business.
I am satisfied on the basis of this evidence that at some point, after the letter of 2 July 2010 was sent, there was a further discussion about what arrangements should be put in place to recognise that the applicant had an interest in the Properties which due to his poor relationship with Harold he was unable to use. The resulting arrangement in relation to the Properties was that the applicant would not use them in his business and instead he would be given exclusive rent-free access to another tract of land for use in his beef cattle business. Again, this arrangement is inconsistent with the applicant holding the assets ready for use. On the contrary, is permitted use by others and accepted an arrangement which different assets were used by him in his business.
This arrangement remained workable until February 2014 when relations between the applicant and Harold deteriorated further. I make no findings as to what arrangement the applicant had in place from that point in time and, for reasons which I explain below it is unnecessary for me to do so.
On 16 May 2016 the applicant sold the interest he had inherited from Francis in the Properties.
Used or held ready for use
In order to determine the capital gains consequences of the sale of the applicant’s interest in the Properties it is necessary to consider whether the applicant had used or held ready for use in his beef cattle business the asset constituted by his 12.5% interest as a tenant in common in Lindum View and his 6.25% interest as a tenant in common in Ridley Vale for a period of greater than 1,667 days.
It is common ground that the applicant never used the asset in his cattle business.
As already noted, the question that must be answered in this case is whether for a period of roughly four and half years, the applicant held his interest ‘ready for use’ in his cattle business.
In many cases the taxpayer’s intentions at the time of acquisition of the asset will be helpful and potentially decisive in answering the question. Often the nature of the asset will assist in answering the question.
In the present case, neither is particularly helpful. The applicant did not acquire the asset the subject of these proceedings as a result of any intentional act. He obtained his interest in the Properties as a result of a bequest in his father’s will. What he wanted to do with the asset and what he was able to do with the asset were matters that developed out of circumstances. There was no predetermined use that motivated the acquisition of the interest in the Properties.
To answer the question of whether the asset was held ready for use, it is best to look at what use was made of the interest in the Properties.
I am satisfied that from the point in time that he acquired his interest in the land, 31 March 2007, until October 2009, the applicant had no clear view about how he could deploy his interest in the land. Following his father’s death, he was unsure about what he had inherited. When he found out the nature of his interest, he decided not to make any alteration to arrangements that would disturb his brothers’ ability to use the land as a dairy. He was caring for his mother in this period and he continued to honour the arrangements outlined in the proposal even if his brother was not necessarily going to comply with many aspects
of it. I am not satisfied that during this period he had any formulated intention to use his interest in the property to secure access to the land to allow the grazing of cattle.
In October 2009 the family clearly had discussions about how the Properties would be used going forward. I am satisfied on the basis of the letter of 2 July 2010 that very little was agreed to by the applicant except that H&A [redacted] Nominees could continue to use the Properties for the dairy business that had operated on the Properties for decades. The applicant did not want to use the Properties at that point. He wanted to farm independent of his brothers and so agreed to use other land instead of the Properties.
As at 2010 it was understood that the short-term arrangement was to be reviewed. Further discussions took place and from 2011 the applicant co-operated in an arrangement whereby he continued to have access to an alternative asset for his cattle business in exchange for his brother Harold having exclusive use of the Properties in his business. There was no holding of the interest in the Properties ‘ready for use’. Quite the contrary – the interest in the Properties was deployed as a financial asset10 to gain access to different assets which were used in the business. The Properties themselves were used exclusively by another person in their business and the applicant agreed to the arrangement. That arrangement held until at least the start of 2014.
From 2007 to 2014 the applicant never used the Properties in his business. Nor did he ever hold his interest in the Properties ready for use in his business. He either permitted others to use them (while the Proposal held) or used his interest to secure access to other properties which he did use in his business (the arrangement referred to in the letter and in the subsequent arrangement which the applicant concedes was entered into around 2011.11
He acquired the relevant interest on the death of his father and the circumstances over the following years were never such that he could contemplate using them in his business. He held the asset, but he never held it ready for use in carrying on his cattle business.
10 In Rus and Commissioner of Taxation [2018] AATA 1854 the Tribunal drew a distinction between using land as a financial asset of the business and its physical use in the business. When used only as a financial asset, land does not become an active asset. ‘The grant of the security did not result in the largely vacant land contributing to the physical conduct of the company’s business activities. The use by the company in carrying on its business is of the funds borrowed under the facility that was secured by the grant of the security’ – at [23].
11 Transcript p 83.
His attitude and intentions may have changed after February 2014 when he lost access to the additional paddocks previously reserved for his exclusive use in recognition of his interest in the Properties, but even if that is the case, the Properties were sold in May 2016 with the result that the asset was disposed of before the 1667 threshold was met for holding an asset ready for use.
In these circumstances I am satisfied that the applicant has not held his interest in the Properties ‘ready for use in carrying on’ his cattle business for the requisite period of time. Consequently the interest in the Properties is not an active asset and the applicant is not entitled to concessional capital gains tax treatment.
The decision under review is affirmed.
I certify that the preceding 69 (sixty-nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President D O’Donovan.
……………[SGD]………………… Associate
Date(s)ofhearing: 29 & 30 August 2024 CounselfortheApplicant:
Mr Michael Bearman
SolicitorsfortheApplicant:
Ms Natasha Stewart (NS Legal)
SolicitorfortheRespondent:
Mr Thomas Jarman (Australia Government Solicitor)
CounselfortheRespondent:
Ms Anna Wilson
APPENDIX A - LIST OF EXHIBITS
List of exhibits
A1
Witness statement of the applicant, 29 August 2024
A2
Historical title searches of Lindum Vale and Ridley View
R1
Map entitled 630 Old Sydney Road, Beveridge, Victoria 3753
R2
Contract of sale in relation to 240 Mickleham Road, Mickleham, Victoria
R3
Contract of sale in relation to 1960 Mickleham Road, Mickleham dated 26 May 2016
T-Documents, filed 24/10/2022
Supplementary T-Documents, filed 6/11/2023
0
2
0