ATO Interpretative Decision
ATO ID 2003/167 (Withdrawn)
Income Tax
CGT small business concessions: active asset - bank accountsFOI status: may be released
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This ATO ID is withdrawn as the ATO view on this matter is now reflected in Draft Taxation Determination 2006/D32.This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a bank account an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A bank account is not an active asset under section 152-40 of the ITAA 1997.
Facts
A company carries on business and has funds deposited in bank accounts from time to time.
Reasons for Decision
For a CGT asset of a business to be an active asset for the purposes of Division 152 of the ITAA 1997 it must firstly satisfy one of the 'positive tests' in subsection 152-40(1) of the ITAA 1997 and then also not be excluded by one of the exceptions in subsection 152-40(4) of the ITAA 1997.
Under subsection 152-40(1) of the ITAA 1997, a CGT asset is an active asset at a particular time if, at that time, it is owned and used (or held ready for use) by a taxpayer or certain related entities in the course of carrying on a business or is an intangible asset that is inherently connected with a business that the taxpayer carries on. A bank account is a debt (owed by the bank) and is a CGT asset under section 108-5 of the ITAA 1997.
However, under paragraph 152-40(4)(d) of the ITAA 1997 an asset that is a financial instrument cannot be an active asset.
A bank account represents a contractual arrangement between the depositor and the bank. The depositor in effect lends their money to a bank by depositing money into an account. A savings or deposit account is in law a loan to the banker (Tyree, A. 1995, Banking Law in Australia, 2nd edition, Butterworths, p.44; Pearce v. Creswick (1983) 2 Hare 286; 12 LJ Ch 251; Dixon v. Bank of New South Wales (1896) 12 WN (NSW) 101; Akbar Khan v Attar Singh [1936] 2 All ER 545.
A loan is listed as a financial instrument in paragraph 152-40(4)(d) of the ITAA 1997. A bank account is therefore a financial instrument and accordingly, not an active asset under section 152-40 of the ITAA 1997.
A bank account may also be excluded from being an active asset under paragraph 152-40(4)(e) of the ITAA 1997 if its main use is to derive interest.
A bank account can not therefore be included via subparagraph 152-40(3)(b)(i) of the ITAA 1997 in the '80% test' in paragraph 152-40(3)(b) of the ITAA 1997 to determine if the shares in a company carrying on a business are active assets. A bank account (being a debt) may be included in the '80% test' via subparagraph 152-40(3)(b)(ii) of the ITAA 1997 if it represents capital proceeds received during the previous 2 years from CGT events happening to active assets, and which are held pending the acquisition of new active assets.
Date of decision: 13 February 2003Year of income: Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 108-5
section 152-40
subsection 152-40(1)
subparagraph 152-40(3)(b)(i)
subparagraph 152-40(3)(b)(ii)
subsection 152-40(4)
paragraph 152-40(4)(d)
paragraph 152-40(4)(e)
Case References:
Pearce v. Creswick
(1983) 2 Hare 286
12 LJ Ch 251
(1896)12 WN (NSW) 101 Akbar Khan v. Attar Singh
[1936] 2 All ER 545 Related ATO Interpretative Decisions
ATO ID 2003/168
ATO ID 2003/166
Other References:
Tyree, A. 1995, Banking Law in Australia, 2nd edition, Butterworths, p.44
Keywords
Capital gains tax
CGT assets
Financial instruments
Active asset test
CGT small business relief
Basic conditions for relief
ISSN: 1445-2782
| Date: | Version: | |
| 13 February 2003 | Original statement | |
| You are here | 16 June 2006 | Archived |