Decision impact statement

Tingari Village North Pty Ltd v Commissioner of Taxation

Court Citation(s):
[2010] AATA 233
2010 ATC 10-131
78 ATR 693

Venue: Administrative Appeals Tribunal
Venue Reference No: 2008/4646 & 2008/4647
Judge Name: DP Hack & DP Dr McPherson
Judgment date: 31 March 2010
Appeals on foot:
The taxpayer appealed to the Federal Court but subsequently filed a notice of discontinuance

Impacted Advice

Relevant Rulings/Determinations:

• TD 2006/78

Subject References:
CGT
Small business 50% reduction
Small business retirement exemption
Active asset
Main use to derive rent
Maximum net asset value test
Tax shortfall penalty
Lack of reasonable care

Précis

This case considered whether the taxpayer was entitled to small business capital gains relief under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of a mobile home park; and whether the main use of the mobile home park was to 'derive rent' under paragraph 152-40(4)(e) of the ITAA 1997.

Decision Outcome:

The decision under review was varied by reducing the penalty imposed in respect of the tax shortfall to 25%.

Brief summary of facts

1. The taxpayer was the owner and operator of the Tingari Village North Mobile Home Park ('the Park') in Terrigal, New South Wales.

2. The taxpayer acquired the land and improvements constituting the Park on 6 February 1996.

3. On 30 November 2005, the taxpayer sold the Park. In its income tax return for the 2006 income year, the taxpayer disclosed a net capital gain of $70,646 as a result of the sale of the Park. The taxpayer had claimed the small business 50% reduction under Subdivision 152-C of the ITAA 1997 and the small business retirement exemption under Subdivision 152-D of the ITAA 1997.

4. The Park contained 77 mobile home sites at the time of the sale. All but one of the sites were occupied by mobile (or "moveable") homes. The structures of the moveable homes were manufactured off the site before being transported and installed on steel bearers on a designated site in the Park. Each mobile home was fully self-contained, plumbed and connected to mains electricity.

5. Under the Residential Parks Act 1998 (NSW) a moveable dwelling on a residential site is not regarded as a fixture and the resident is able to sell it separately from the site. The site continues to be owned by the park owner.

6. The taxpayer entered into a site agreement with each of the residents of the Park. Each site agreement was in the form of the standard agreement contained in the Residential Parks Regulation 1999 (NSW).

Issues decided by the tribunal

The Tribunal decided that:

1. The site agreement entered into between the taxpayer and each resident of the Park conferred on the resident a right to exclusive possession of the site and thus amounted to a lease. Accordingly, the main use of the Park was to 'derive rent' (per paragraph 152-40(4)(e) of the ITAA 1997). The Park was therefore not an 'active asset' under section 152-40 of the ITAA 1997.

2. The taxpayer did not satisfy the maximum net asset value test in section 152-15 of the ITAA 1997. The sum of the net values of the CGT assets of the taxpayer and its 'connected entities' exceeded $5m.

3. The taxpayer was not entitled to small business relief under Division 152 of the ITAA 1997 in relation to the capital gain it made on the sale of the mobile home park.

4. An administrative penalty should be imposed at 25% (failure to take reasonable care) of the shortfall amount due to the taxpayer's misapplication of the maximum net asset value test. The commissioner had conceded this point prior to the hearing.

Tax Office view of Decision

The Tax Office agrees with the Tribunal's decision.

Administrative Treatment

Implications on current Public Rulings & Determinations

The Tribunal's decision is consistent with Taxation Determination TD 2006/78.

Implications on Law Administration Practice Statements

None

Legislative References:
Income Tax Assessment Act 1997 ("ITAA 1997")
Div 152
152-15
152-20
152-25
152-30
152-35
152-40
152-40(4)(e)
152-50
152-60
152-305
52-325
995-1

Income Tax Assessment Act 1936 ("ITAA 1936")
166A
204(1A)

Tax Administration Act 1953 ("TAA")
250-5
250-10
255-1
280-100
280-160
284-75
284-85
284-90
298-20

Residential Parks Act 1998 (NSW)
Sections 3, 4, 9, 10, 41, 62, 63, 127

Residential Parks Regulation 1999 (NSW)
Schedule 1, Schedule 2

Case References:
Radaich v Smith
[1959] HCA 45
101 CLR 209

Addiscombe Garden Estates Ltd v Crabbe
[1958] Ch 513
[1958] 1 All ER 550

Amad v Grant
[1947] HCA 9
74 CLR 327

Appah v Farncliffe Investments Ltd
[1964] 1 All ER 838

Aussie Traveller Pty Ltd v Marklea Pty Ltd
[1998] 1 Qd R 1

Bowen v Anderson
[1894] 1 QB 164

Bruton v London & Quadrant Housing Trust
[2000] 1 AC 406

CSD v Commonwealth Funds Management Ltd
(1993) 38 NSWLR 173
31 ATR 457
95 ATC 4756

Gandy v Jubber
(1865) 9 B & S 15
122 ER 914

Hamilton Enterprises Ltd v Croycom Pty Ltd
(1998) Q Con R 54 - 509
[1998] ANZ ConvR 615

Lewis v Bell
(1985) 1 NSWLR 731

Mellows v Low
[1923] 1 KB 522

Progressive Mailing House Ltd v Tabali Pty Ltd
[1985] HCA 14
157 CLR 17
57 ALR 609

Street v Mountford
[1985] AC 809

United Scientific Holdings Ltd v Burnley Borough Council
[1978] AC 904
[1977] 2 All ER 62