The recent AAT decision in Carson's case held that a
single holiday unit was not considered to be an active asset
for the purposes of the small business CGT concessions
contained in Div 152 of the ITAA 1997.
The taxpayers purchased a single holiday unit for $500,000
on 31 August 1999 and have used the property since that time to
provide short term tourist accommodation, usually for stays of
about a week to two weeks. At no time were there any lease
agreements entered into. Occasionally, the unit was used for
private purposes, e.g. for a two week period in 2006.
The majority of bookings were taken via a local real estate
agent who also attended to minor repairs. The property was
serviced twice a year and during the year, a contract cleaner
was used after each stay at the unit. Advertising was done by
the agent but the taxpayers produced and distributed brochures
as required. The taxpayers also dealt with financial
institutions, rating authorities, body corporate matters and
maintained proper accounting and tax records.
One of the taxpayers also owned an adjacent unit which was
used and managed in the same way.
In considering if an asset is an active asset it is
important to determine whether that asset is used in the course
of carrying on a business in accordance with section 152-40. It
is also important to note that an asset can not be an active
asset if its main use is to derive rent (section 152-40(4).
The taxpayers argued that their circumstances were similar
to TD 2006/78, where premises used in a business of providing
accommodation for reward were considered to satisfy the active
asset test. In this determination, a complex of six holiday
apartments as opposed to a single unit, was advertised and
operated similar to a motel where there is no landlord/tenant
relationship present. The ruling indicated that s 152-40(4)
exclusion would not apply as the occupiers did not have
exclusive possession of the property but rather a licence to
In Carson's case, the AAT held that although the
occupants did not have any formal lease agreement, there is no
doubt that the occupants regarded themselves as having rented
the unit for the period of their stay and during that stay had
The activities the taxpayers undertook were found to be no
more than any investor in real estate would do in deriving
income rather than carrying on of a business.
Given the facts of this case, the AAT could not distinguish
it from the previous decisions in McDonald's case 15
FCR 172 and Cripps' case 99 ATC 2428.
Therefore, the single holiday unit was not considered to be
an active asset.
The taxpayers have not as yet made a decision to appeal to
The Federal Court.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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