CGT Active Asset Test Failed

No Concession for Passive Landholding

In a blow to small business owners banking on CGT concessions, the AAT has ruled in The Trustee for the Whitby Trust v Commissioner of Taxation [2025] AATA 788 that a property held for passive purposes did not meet the Active Asset Test under the small business CGT concessions.

This decision offers a critical reminder that partial or incidental business use is not enough — particularly where the dominant purpose is investment or passive income.

The facts in brief

The asset in question was a block of land held by a trust. Over a multi-year period:

The land was used intermittently to store equipment for the taxpayer’s business
No structural improvements were made
The land was otherwise vacant and not actively used to generate business revenue

When the property was sold, the trust attempted to apply the CGT 15-year exemption and small business 50% reduction, relying on the argument that the land was an active asset used in the course of business.

What the AAT found

The Tribunal was not convinced.

Key findings included:

The land’s primary use was passive — there was no evidence of consistent, substantial business activity on the site.
Storage of business items was irregular and insufficient to characterise the land as an asset “actively used in the course of carrying on a business.”
The taxpayer’s subjective intent to use the land for future business expansion was not relevant — it’s the actual use that counts.

As a result, the land failed the Active Asset Test, meaning the trust was ineligible for the small business CGT concessions.

Why this matters

This case cuts to the heart of a common misconception — that occasional business use or long-term intention is enough to meet the Active Asset Test.

In reality, the test under section 152-40 ITAA 1997 requires:

Use “in the course of carrying on a business”
Use that is substantial, continuous, and connected to the business activity — not merely ancillary or incidental

If that standard isn’t met, none of the small business CGT concessions apply — not the 15-year exemption, not the 50% active asset reduction, and not the retirement exemption.

Practical implications

Firms assisting clients with CGT planning should:

Review property holdings carefully — particularly land, vacant lots, or mixed-use premises.

Ensure that business use is ongoing, deliberate, and well-documented.

Watch out for assets that are passively held “just in case” or for vague future expansion plans.

Maintain clear records of how and when business use occurs — including photos, logs, invoices, and location-specific records.

Also be aware: storage use alone is unlikely to qualify unless the property is an integral and necessary part of the business operation.

Looking ahead

The small business CGT concessions are generous, but they come with tightly policed eligibility criteria. The Active Asset Test is a gatekeeper, and this case shows just how strictly that gate is guarded.

If the property isn’t being used now — and in a meaningful way — for the active conduct of a business, the tax concessions are off the table.