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.
Facts
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.
Decision
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 occupy.
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 exclusive possession.
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.
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