“If we assume that a property isn't business, and the trustees are considering purchasing it, they want to then make some changes to that property so it does meet the definition. They can do that, but as long as those changes are substantive and enduring.”

Banton said the requirement from the ATO is designed to stop trustees from “window dressing” properties so that they can be classified as BRP at the time of acquisition and then soon after change the nature and characteristics so they can get the property into the fund.

“The prohibition of avoidance scheme in Section 66 also kicks into play at this point. What we need to look at is, what is the underlying use of the land and to what degree is it being used in a business?”

“It's a holistic assessment of all those facts and circumstances that are going to come into play. [As an auditor] we sometimes don't quite get all the information that we need up front and that's where a continuing dialogue goes on, so we can assess the facts from a holistic point of view.”

Furthermore, Banton said it is important for auditors to assess what's happening on the land, by looking closely at activities, operations, and other actions occurring on that land.

“It must be there in play to an appreciable degree or extent. If we look at a situation where you've got maybe minor, insignificant or trifling non-business use, the commissioner acknowledges that having it wholly and exclusively in one or more businesses might be quite a rigid definition, so there is a little bit of flexibility there.”

Banton gave an example of Bruce, who owns a motel that he operates with his family and an onsite manager.

“So part of that business is not actually being used in the business. It's been used for the manager to operate the business, but the use of that area that's not being used in the business is incidental.”

“However, the manager is relevant to the operation of that business because they have to manage the motel. It is then business real property, and Bruce's fund can acquire that property from the related party.”

Another exemption is in primary production that leads to a residential dwelling that doesn't exceed two hectares and is not the main use of that primary production property.

“That's two hectares in total, so it doesn't matter if you've got one or three residential dwellings on that property, the maximum amount that it can't exceed is two hectares.”

“Lastly, just because you've got a lease agreement in place, it doesn't automatically mean it's business real property.”