A recent case heard by the Federal Court has seen the Australian Taxation Office (ATO) successfully challenge the eligibility of a vacant block of land in relation to Capital Gains Tax (CGT) small business (SB) concessions. This poses foremostly negative implications for small businesses as the decision appears to create further difficulty in gaining the CGT concessions.

The case (Commissioner of Taxation v Eichmann) involved a block of land owned by a married couple who ran a construction business. The land, adjacent to their home, was vacant except for a storage shed where they stored tools and equipment for their construction firm. The firm’s day-to-day business operation and activities were however conducted elsewhere.

It is important to note that to be eligible for SB CGT concessions, one of the conditions is that the asset (land) must be seen as ‘active’.

Here, the court determined that a vacant block of land can only be considered an active asset (eligible asset) for tax concession purposes if it is used in a manner that is ‘integral’ to the business. In this case, the Federal Court ruled that the land in question was not considered an active asset as it was not integral or essential to the business’ operation; merely providing storage.

The decision in the matter is argued to have generated considerable worry for small business owners. A number of small businesses have factored concessions into their plans, reliant upon the SB CGT exemptions.

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If you have any queries in relation to Capital Gains Tax or are a small business seeking more information on CGT tax concessions, please feel free to contact our team of experienced tax accountants by clicking here to submit an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment.