Tingari Village North Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2008/4646 & 2008/4647)
Judgment date: 31 March 2010
Date published: 12 October 2010
Decision outcome: The decision under review was varied by reducing the penalty imposed in respect of the tax shortfall to 25%.

Summary of decision:
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.

Overview 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.

Issues decided:
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.

ATO 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.

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
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