Basten and Ors and Commissioner of Taxation

[2007] AATA 1128

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1128

ADMINISTRATIVE APPEALS TRIBUNAL  ) No WT2001/1089, No WT2001/1127-1134,             ) No WT2001/2351-2352, No WT2001/2896-2897, TAXATION       APPEALS        DIVISION    ) No WT2001/3490-3491, No WT2001/3637,                ) No WT2001/3851-3852, No WT2002/67,                  ) No WT2006/44-45

Re FRANCESCA BASTEN, NICHOLAS BASTEN, SAMANTHA BASTEN,
FRANCISCUS BRUYNINCKS,
ELMER GALLOWAY, CAMERON HOOKER, KERRIDYN HOOKER, LEIGHTON HOOKER, GARY HOPKINS, ROBERT ONG,        GRAHAM SAGGERS, PHILLIP SHIELDS

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Mr B.H. Pascoe, Senior Member  

Date13 March 2007

PlacePerth

Decision The Tribunal varies the decisions under review to the extent of allowing as a deduction in each of the relevant years so much of the deductions claimed in relation to the Northern Rivers Tea Tree Oil Projects as were represented by actual cash outlays of the applicants which were not of a capital nature with a determination under s 177F of the Income Tax Assessment Act 1936 that the excess over such amounts is not an allowable deduction and the Tribunal remits these matters to the respondent with a direction to issue amended assessments to give effect to this decision.  

..........(Sgd Mr B Pascoe)............

Senior Member

INCOME TAX – investment in tea-tree oil farming project – allowable deductions – application of part iva – whether federal court decision can be distringuished – validity of determination under part iva

Income Tax Assessment Act 1936

Sleight v Commissioner of Taxation 2003 ATC 4801

Commissioner of Taxation v Sleight (2004) 136 FCR 211

Fletcher v Commissioner of Taxation (1988) 19 FCR 442

REASONS FOR DECISION

13 March 2007 Mr B.H. Pascoe, Senior Member   

1.      These are applications for review decisions of the respondent to disallow objections to amended assessments of income tax in relation to the years ended 30 June 1995, 1996, and 1997.  The amended assessments were issued to disallow deductions claimed for expenses incurred in respect of the planting, cultivation and maintenance of a tea-tree farm and the production of tea-tree oil.  The claims arose from the participation by the applicants in the project known as the Northern River Tea-Tree Project (the project).

2.      At the hearing consent was given for all applications to be heard together.  The applicants were represented by Mr D. Romano, a solicitor and the respondent by Mr D. McGovern SC with Mr A.J. O’Brien of counsel.  The evidence relied upon by these applicants was given by Mr N. Simpson, a former farm management consultant and now an authorised financial advisor and by Mr I. Banks, a financial advisory services consultant with KPMG.

3.      The basis of these applications and the submissions made were identical to those set out in the reasons for decision of the Tribunal in RePrinci and Others and Commissioner of Taxation [2007] AATA 1119 other than those which related to a specific investment of $200,000 to which these applicants were not parties. As such the reasons for decision in paragraphs 3-7 and 13-23 apply to these applicants and are adopted in these reasons. These applications were heard by consent concurrently with those of Princi and Others.

4.      In relation to several of the applicants it was submitted that they were cash negative in relation to their investment in the project in that the cash outlays exceeded the amount of tax saved from the deductions claimed.  However, I am unable to find that this distinguishes these applicants from the decision in Commissioner of Taxation v Sleight (2004) 136 FCR 211. Whether the result was cash flow positive or negative, the sought for tax deduction and reduction in tax liability substantially funded the investment in the project. As such, I am unable to distinguish these applicants from the findings of Hill J at paragraph 87 and 88 of his decision in Sleight.  Whilst I would find that this expected subsidisation of the investment leads to a conclusion that the matters referred to in s 177D(b)(v) suggest a dominant motive was the obtaining of a tax benefit, this is only one factor to be weighed.  Having regard to all of the factors in s 177D(b) I am satisfied that, viewed objectively, the dominant motive was the same as in Sleight.

5.      As a consequence of the foregoing and, again, for the reasons fully set out in Princi, the decision should be the same as in that matter.

I certify that the 5 preceding paragraphs are a true copy of the reasons for the decision herein of  Mr B H Pascoe, Senior Member.

Signed:         ..........(Ms R Riberi)...........
  Associate

Dates of Hearing  12 - 16 February 2007
Date of Decision  9 March 2007
Counsel for the Applicant         Mr F Wilson

Solicitor for the Applicant          Mr D Romano

Wilson & Atkinson

Senior Counsel for the

Respondent  Mr D M McGovern
Counsel for the Respondent     Mr A J O’Brien

Solicitor for the Respondent     Mr T Burrows

Australian Government Solicitor