A recent decision impact statement issued by the Commissioner of Taxation in relation to the decision in Tingari Village North Pty Ltd v Commissioner of Taxation emphasises the difficulty in having a property which is used to derive or rent qualifying as an active assets under Division 152 of the Income Tax Assessment Act 1997.
The Tingari Village case involved the sale of a mobile home park. The taxpayer was the owner of the mobile home park and made improvements to the park and sold it at a capital profit. The park contained mobile home sites housed temporary dwellings. Under the terms of state legislation the site agreements which the taxpayer entered into with the residents of the park constituted a lease granting rights of exclusive possession of a site to the residents. The main use of the park, it is, was to “derive rent”.
The park was therefore not an active asset within the meaning of section 152 – 40 of the Income Tax Assessment Act 1997.
The Commissioner of Taxation has issued Taxation Determination TD 2006/78. This taxation determination sets out a number of examples and different scenarios relating to when a property can qualify as an active asset if part of the property is used to derive the income. Broadly speaking the property may qualify as an active asset if other services are provided other than the right to occupy. It seems significant that any agreement given to a person to occupy be framed as a non-exclusive license and the provision of other services.
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