Issue
Was the taxpayer's farm 'held ready for use' in the course of carrying on a breeding business thus satisfying the definition of 'active asset' in section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes, the farm was held ready for use in the taxpayer's breeding business and therefore satisfies the definition of 'active asset' in section 152-40 of the ITAA 1997.
Facts
The taxpayer acquired breeding stock and a farm on which to conduct a livestock breeding business. The taxpayer made improvements to the property after it was acquired to better carry on that business.
The taxpayer appointed a farm manager to look after the business. However, the manager did not provide satisfactory care for the stock and was subsequently dismissed. The stock were moved to another property for rehabilitation. Plans were made to move the stock back to the property when they had fully recovered.
The farmhouse was leased on a short term basis. The lease did not extend to the remaining area of the farm.
The taxpayer continued to improve the property in preparation for the stock's return.
However, the taxpayer began to suffer various health problems and was unable to work. The plans to move the stock back to the property were delayed.
The taxpayer's worsening health situation led to a decision to sell the property and purchase a smaller and better equipped farm.
The taxpayer sold the property and made a capital gain.
The proceeds from the sale were used to acquire a replacement farm. The stock were gradually relocated to the new property. The breeding business continues to operate from the new property.
Reasons for Decision
Paragraph 152-40(1)(a) of the ITAA 1997 defines an active asset as a CGT asset you own and use, or hold ready for use, in the course of carrying on a business.
In this case, the farm was not used by the taxpayer in carrying on the business from the time the stock were removed until its disposal. During that time, the business was essentially carried on from another property not owned by the taxpayer.
However, the requirement in paragraph 152-40(1)(a) of the ITAA 1997 is that the asset is used or held ready for use in a business.
The term 'held ready for use' is not defined in the ITAA 1997. Therefore, its interpretation depends on the particular facts of each case.
The taxpayer did not cease to carry on business when the stock were removed from the farm; that business continued to be carried on temporarily on another farm. After the stock were removed, the farm was further improved and plans were made to return the stock there as soon as their health improved.
However, due to the taxpayer's own health situation, these plans were delayed. Nevertheless, until its sale, the property was held ready for use in the breeding business and there was never an intention to abandon the business due to the health of the stock or the taxpayer.
It is accepted that the property was held ready for use in the taxpayer's breeding business and therefore the definition of active asset in paragraph 152-40(1)(a) of the ITAA 1997 will be satisfied.