ATO Interpretative Decision
ATO ID 2002/820
Income Tax
Capital gains tax: active asset - strata unit in motel complexFOI status: may be released
This version is no longer current. Please follow this link to view the current version. |
-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer's strata motel unit, in a commercially operating motel complex, an active asset in terms of section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The strata motel unit is not an active asset in terms of section 152-40 of the ITAA 1997.
Facts
The taxpayer owns a number of strata title motel units in a commercially operating motel complex.
The taxpayer has entered into an agreement with an agent. The agent is exclusively authorised to let the units at a market rent for holiday purposes.
Under the agreement, the agent takes bookings for the letting of the units, collects rent and any other monies due, and issues receipts for such monies. The agent does not provide any other services to the occupants.
Reasons for Decision
Under subsection 152-40(1) of the ITAA 1997, a capital gains tax (CGT) asset is an active asset at a given time if, at that time, the entity owns it and:
- (a)
- uses it, or holds it ready for use, in the course of carrying on a business;
- (b)
- it is an intangible asset inherently connected with a business carried on by the entity; or
- (c)
- it is used, or held ready for use, in the course of carrying on a business by the entity's small business CGT affiliate or another entity connected with the entity.
However, paragraph 152-40(4)(e) of the ITAA 1997 provides that where an asset whose main use in the course of carrying on the business is to derive, among other things, rent, that asset is specifically excluded from being an active asset, unless the main use for deriving rent is only temporary.
The taxpayer, through the agent, is granting occupants of the motel unit the right to exclusive possession of a property for an agreed period.
The grant of the right to exclusive possession of a property for an agreed period, however short, constitutes a lease. This right to exclusive possession is essential to the existence of a lease and establishes a landlord/tenant relationship. In return for the payment of a fee the occupants of the motel unit has the right to exclusive possession of the unit.
Under these circumstances, the fee paid by the occupants for the use of a unit is rent. As each unit is being used to derive rent only, each motel unit owned by the taxpayer will not be an active asset by virtue of paragraph 152-40(4)(e) of the ITAA 1997.
Date of decision: 20 June 2002Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 152-40
subsection 152-40(1)
paragraph 152-40(4)(e)
Keywords
Active asset test
Capital gains tax
CGT small business relief
Hotel & motel industry
Rental property income
Strata titles
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 20 June 2002 | Original statement |
| 1 August 2003 | Archived |