Small Business Concessions

 

I operate under a discretionary trust. In 2003, I purchased the freehold ($350,000) and leasehold ($150,000) to a motel for $500, 000. I on hold the leasehold operation prior to settlement. I continued to own the freehold until I purchased the leasehold in February 2012. I intended to own and operate the motel indefinitely. However, due to unforeseen circumstances, the motel was subsequently closed down. The motel site was then demolished and sold as vacant land during the current financial year for $1.5 million.  

 

Does the intention to run the motel suffice for the purpose of the active asset test? Is it required to physically run the motel as a business in order to access the small business concessions? 

 

• With the burden of proof on the taxpayer, how would you prove that you had this intention? Some hard evidence explaining the unforeseen circumstances and showing steps to commence the business would be needed, if you could solve this problem, then it is not just the asset that was not used in a business- the business itself appears not to have commenced.  

• Section 152-40 requires that an active asset is used or held ready for use "in the course of carrying on a business". Although I am not sure the point has been tested. There must be a real business in which an asset is used or held ready for use for there to be an active asset (i.e. "ready for business" may not be enough). 

•  It may not help if the asset was an active asset because the asset fails the active asset test in any case (i.e. it was not an active asset for more than half of the time it was owned under s 152-35(1) of ITAA 1997). The asset appears to have been exclusively put to earning rent for more than half of the time it was owned by you.