ATO Interpretative Decision

ATO ID 2002/630 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it is a simple statement of the law and is not an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will a taxi licence which the taxpayer has leased to another entity for 13 years satisfy the definition of an active asset in section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. A taxi licence which the taxpayer has leased to another entity for 13 years does not satisfy the definition of an active asset in section 152-40 of the ITAA 1997.

Facts

The taxpayer acquired a taxi business on the death of their spouse in 1987.

The taxpayer subsequently sold the vehicle and has leased the taxi licence for the past 13 years.

The taxpayer is now selling the licence and shares in the taxi company.

Reasons for Decision

Section 152-40 of the ITAA 1997 sets out the conditions that must be met for a CGT asset to be an active asset. Under subsection 152-40(1) of the ITAA 1997, a CGT asset is an active asset if it is owned by a small business entity and it is:

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used or held ready for use by the small business entity, a small business CGT affiliate, or an entity connected with the small business entity, in the course of carrying on a business; or

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an intangible asset that is inherently connected with a business carried on by the small business entity, for example, goodwill.

For the taxi licence to meet this definition, it is necessary to determine if the leasing of the taxi licence by the taxpayer to another entity for 13 years constitutes the carrying on of a business.

In FC of T v. Murry (1998) 155 ALR 67; (1998) 39 ATR 129; (1998) 72 ALJR 1065; (1998) 193 CLR 605; 98 ATC 4585 (Murry's Case), a taxpayer and her husband, operating in partnership, leased a taxi licence to an operator who owned the vehicle which had the benefit of the partnership's licence. The partners subsequently sold the licence and shares in the taxi co-operative company to a purchaser. The operator also sold the vehicle to the purchaser. A majority of the High Court held that the taxpayer and her husband did not dispose of a business within the meaning of section 160ZZR of the Income Tax Assessment Act 1936 (ITAA 1936). The taxpayer and her husband simply sold a licence to use a taxi together with shares in a taxi co-operative company. Before the sale, the licence was leased to the operator who owned the vehicle. Insofar as the licence gave a right to conduct a taxi business, the business was conducted by the operator. The sale of the licence was not a disposition by the taxpayer of the goodwill of the operator's business. It was further held that the lease of the taxi licence does not constitute the carrying on of a taxi business by the lessor.

In accordance with the decision in Murry's Case, as the taxpayer has leased out the taxi licence for a period of 13 years, the taxpayer cannot be said to be carrying on a taxi business. Therefore, the taxi licence is not used, or held ready for use in the course of carrying on a business, or inherently connected with a business that was carried on. Consequently, it fails to meet the definition of active asset set out in section 152-40 of the ITAA 1997.

Year of income:  Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 152-40

Case References:
FC of T v. Murry
   (1998) 155 ALR 67
   (1998) 39 ATR 129
   (1998) 72 ALJR 1065
   (1998) 193 CLR 605
   98 ATC 4585

Other References:
Explanatory Memorandum to Taxation Laws Amendment Act (No. 1) 1997

Keywords
Capital gains tax
Capital gains
CGT assets
CGT small business relief
Active asset test
Taxis

Business Line:  Centres of Expertise Capital Gains Tax

Date of publication:  31 May 2002

ISSN: 1445-2782