Minor or insignificant - that's my middle name

I promised not to write a comprehensive summary of TR 2024/D3, and I will abide by that promise, but a few (ok, literally two) people asked for my perspective on the draft ruling’s guidance on s820-427A(3)(c)’s stipulation to disregard minor or insignificant assets.

As someone who was once a minor, and who is often thought of as insignificant, this was a topic which I feel I have particular expertise in...

I thought I’d approach this by first showing how I would interpret the paragraph, and then perhaps drawing a contrast with the draft ruling’s guidance.

First, in a daringly individualistic approach, I would start with the statutory text. One immediate point is that the words minor and insignificant are divided by the disjunctive “or”. That is, it must be possible for an asset to be minor and not insignificant or insignificant and not minor – the phrase must create a Venn diagram and not a circle.

Then, I would turn to their ordinary meaning. Some definitions of minor that I have seen include ‘inferior in importance’ and ‘comparatively unimportant’ – that is, it is a relational definition. Some definitions of insignificant that I have seen include ‘of little or no consequence’, ‘trifling’. Ok, we have two words with quite different meanings. One meaning small in an absolute sense, one meaning small by comparison and those two words are divided by "or" that is, it is expected that the two different meanings could encompass different classes of assets.

Lest anyone accuse me of hypocrisy in making a fortress out of a dictionary, this meaning should also be informed by judicial guidance. For example, in a case concerning charitable purposes (South Australian Employers’ Chamber of Commerce & Industry Incorporated), Blue J presciently noted that ‘determining what is no more than a minor purpose involves a relativity assessment and questions of degree’ comparing the minor purpose against a purpose which is ruling, prevailing or most influential. This should be possible in the context of what constitutes a minor asset also. That is, a relativity assessment of which asset is minor and which is major.

Let us also look to the statutory context, paragraph (c) requires one to disregard the recourse to minor or insignificant assets to ensure that the relevant recourse is only to Australian assets. That is, there is a natural comparison created by the statutory context between those assets which are minor or insignificant and those Australian assets which are the subject of the paragraph.

In short, the phrase minor or insignificant should be taken to create two separate tests. An asset will be minor if is relatively or comparatively small – where the natural comparator is to the Australian asset base – and an asset will be insignificant if it is small or unimportant in its own right.

One might then hope that administrative guidance could give some quantitative guidance for the relativity test in minor (say less than 10% of Australian assets) and for the absolute test for insignificant (say a $ figure).

Is this what the guidance does?

Well, not quite. Paragraph 64 states that the ‘exception covers assets of minimal or nominal value’. Hmm, that doesn’t seem to give the word 'minor' much work to do and recall that it is a presumption of statutory construction that all words must be given some meaning and effect (see for example, Commonwealth v Baume). Minimal or nominal value both seem to be descriptors of assets which are insignificant.

Perhaps the ATO have understandably fallen into the error that the drafters of the explanatory memorandum did by thinking that minor or insignificant should be read as ‘minor and insignificant’ – that is, separated by a conjunctive and rather than a disjunctive or. But that is not what the statutory text did.

Fortunately, the ruling is in draft and hopefully this is an easy ‘fix’ (if others agree that this needs fixing). The ruling already covers the meaning of insignificant, now it just needs to be expanded to cover the meaning of minor (in my opinion which is both humble and which has much to be humble about).

Disclaimer:

All ATO guidance is welcome. Draft rulings are a fantastic resource to hopefully improve guidance through collaborative consultation.

Writing rulings is harder than writing linkedin posts and I respect the authors immensely.

All errors are my own, the views are mine and not of any firm or organisation I could be purported to represent and all errors are mine too.