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Is Australian currency, that is, notes and coins, an active asset under section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Australian currency is not an active asset under section 152-40 of the ITAA 1997.

A company carries on business and at any particular time has Australian currency on hand (that is, notes and coins).

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.

However, paragraph 152-40(4)(d) of the ITAA 1997 provides that an asset that is a financial instrument cannot be an active asset. Australian currency, ie, notes and coins, fits within the concept of a financial instrument and is therefore not an active asset under section 152-40 of the ITAA 1997.

Australian currency 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. Australian currency 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.