The fundamental issue before the AAT in Eichmann’s AAT case was whether the taxpayer’s land was an active asset under S.152-40(1)(a) and, hence, whether he was entitled to apply the SBCs.
It was not in dispute that the business was carried on by an entity (the Eichmann Family Trust) that was connected with the taxpayer during the relevant period. What was in dispute was whether the relevant block of land was used in the course of carrying on the building, bricklaying and paving business of the Eichmann Family Trust for the purpose of the active asset test.
The ATO’s ‘integral’ argument
In its PBR, the ATO ruled that the land adjacent to the family home was not an active asset within the meaning of S.152-40(1)(a), because the land was not “used…. in the course of carrying on a business”.
This was because, the ATO contended the phrase “in the course of” required the asset to be integral to the process by which the business is carried on (i.e., the ATO’s ‘integral’ argument).
Before the Tribunal, the ATO contended that to satisfy the active asset test:
“there must be more than a mere incidental use of the land and that
consideration must be given to what use the asset was put and to what extent those activities could be said to be in the course of carrying on a business.”
The ATO was asserting that the Eichmann Family Trust’s use of the land for the purpose of storing equipment and materials was a purpose ancillary to the primary business of building, bricklaying and paving. As such, that use was not ‘integral’ to the process by which the business was carried on and could not, therefore, be an active asset.
The AAT rejects the ATO’s ‘integral’ argument
Ultimately, the AAT disagreed with the ATO, and found in favour of the taxpayer, concluding that the block qualified as an active asset (and the active asset test was satisfied).
The AAT rejected the ATO’s view that the phrase “in the course of carrying on a business” in S.152- 40(1)(a) requires the use of the asset to be integral to the process by which the business is carried on. Instead, the Tribunal was of the view that the land was used in the course of carrying on a business of the connected family trust.
The AAT noted that the use of the land by the trust was not trivial or insignificant and that the extent of its use was far from minimal, or incidental to the carrying on of the business.
Further, the land was used to store material in the sheds, to store material outside the sheds and to store tools, all of which were undoubtedly done for the purpose of operating the business.
In reaching its conclusion, the AAT noted that the legislative provision only requires an asset to be used in the course of carrying on a business, which encompassed, necessarily, a fairly wide range of activities. In this regard, the AAT stated that nothing in the Act, any applicable case authority or explanatory memoranda detracted from the ordinary and common sense meaning of such a phrase. Indeed, it noted that the legislature could easily have used the word integral, necessary or essential to the relevant business being carried on.