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Is a bank account an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. A bank account is not an active asset under section 152-40 of the ITAA 1997.

A company carries on business and has funds deposited in bank accounts from time to time.

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.