Capital business assets not qualifying as active assets
Outlined in the table below are a number of typical business assets, which in light of Eichmann’s FC case will most likely not qualify as active assets for the purposes of the CGT SBCs.
This table should be viewed as somewhat of a ‘snapshot’ of the potential effect of the decision.
|
Asset Description |
Reasons asset is likely not an active asset |
|
1. Storage or administration facility for a construction business that is separate from any active worksites. E.g., a separate commercial building and surrounding vacant land used to store tools and equipment of a builder. |
While the whole of the storage or administration facility may be used by the construction business, its use is not integral to the day-to-day carrying on of the construction business. This is primarily because the storage or administration facility is not directly used in the income earning activities of the business (i.e., the construction on the various worksites), despite the fact the use clearly relates to the business. |
|
2. Offsite storage facility for professional firm for the purpose of archive document storage. E.g., a warehouse in which prior years paper documents are kept by a law firm. |
While the whole of the storage facility may be used by the professional firm, the concern here is that its use is arguably not integral to the day-to-day carrying on of the business. This is primarily because the storage facility is not directly used in the income earning activities of the business (i.e., the professional services provided at another location), despite the fact the use clearly relates to the business. |
|
3. Tradesman’s single room home office and garage used to store tools and equipment and work-horse vehicle. E.g., sole trader plumber who uses a room in his home as a home office to do paperwork and his garage to store his ute, tools and supplies. |
As the single room home office and garage will generally not constitute the whole or predominantly the whole of the asset, the taxpayer’s home is unlikely to be treated as an active asset. Additionally, the home office and garage are not directly used in the income earning activities of the business (i.e., the trade services provided at various worksites), despite the fact the use clearly relates to the business. |
|
4. Professional consultant’s single room home office from which all work is completed (assuming the consultant runs a business). E.g., an IT consultant with multiple contracts who works from a single room in their home developing in- house software for their clients. |
As the home office will generally not constitute the whole or predominantly the whole of the asset, the taxpayer’s home is unlikely to be treated as an active asset. This is despite the fact the home office is directly used in the income earning activities of the business (i.e., the development of the in-house software for clients). |
|
5. A professional sole trader’s single room home office from which all work is completed, and clients visit. E.g., a hairdresser who has converted their garage to a salon from which they run their hairdressing business. |
As the converted garage will generally not constitute the whole or predominantly the whole of the asset, the taxpayer’s home is unlikely to be treated as an active asset. This is despite the fact the garage is directly used in the income earning activities of the business (i.e., the provision of hairdressing services). |