A taxpayer’s claim that a related trust was entitled to the small business 15-year exemption* was rejected because a loan from his trust had to be included in the net value of his CGT assets.
It was agreed between the ATO and the taxpayer that the total net value of the taxpayer’s other assets in 2008 was $5.93 million.
The parties disagreed, however, as to whether an amount of $1.14 million shown as a loan in the 2008 balance sheet of the taxpayer’s trust should be included as an asset – the taxpayer claimed that he was “statute-barred” from recovering the loan by the Limitation of Actions Act 1936 (SA).
If it was an asset, then the net value of the total assets for the purposes of the small business exemption exceeded $6 million, and the taxpayers were not entitled to CGT relief.
The Federal Court held that any action by the trust against the taxpayer to recover the pre‑1998 loan would be an action to recover “trust property”, and the Limitation of Actions Act does not prescribe any limitation period in respect of claims of that kind.
Therefore, “the contention that the pre‑1998 loan was statute‑barred and did not have to be brought into account in the calculation of the MNAVT must be rejected”.
Note (*): One of the requirements to get this concession is to satisfy the “maximum net asset value test” (MNAVT), whereby the net value of CGT assets of a taxpayer (and their connected entities and affiliates) must not exceed $6 million.