Meakins and Commissioner of Taxation (Taxation) - [2023] AATA 3852

Meakins and Commissioner of Taxation (Taxation) [2023] AATA 3852 (17 November 2023)
ReviewNumber: 2021/6477, 2021/6478, 2021/6479, 2021/6480, 2021/6481
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2021/6477, 2021/6478, 2021/6479, 2021/6480 and 2021/6481
Re:Adrienne Lee Meakins and Intaglio Pty Ltd
APPLICANTS

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Deputy President Boyle
Date:17 November 2023
Place:Perth

The objection decisions relating to matter 2021/6477 and matters 2021/6478, 2021/6479, 2021/6480 and 2021/6481 dated 23 July 2021, are affirmed.
...............[Sgd].........................................................
Deputy President Boyle
CATCHWORDS
TAXATION – applications for review of objection decisions – whether assessments excessive or otherwise incorrect – s 14ZZK of Taxation Administration Act 1953 - whether Applicants could claim deductions for property held – whether holding expenses for the property were deductible under s 8.1 of the ITAA 1997 – whether costs incurred in the course of or producing assessable income or the carrying on of a business – whether Applicants had intention to construct something which will produce assessable income – insufficient meaningful action over 17 years to evidence intention – Applicants did not have the requisite degree of commitment to the relevant income producing activity – Steele v DCoT distinguished – whether administrative penalties correctly applied – whether penalties should be remitted in part or in full – reviewable decisions affirmed
LEGISLATION
Income Tax Assessment Act 1936 (Cth) ss 51(1), 227(3)
Income Tax Assessment Act 1997 (Cth) ss 6-5, 8.1
Taxation Administration Act 1953 (Cth) ss 14ZZK, 284-75, 284-90
CASES
Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971
Bosanac and Federal Commissioner of Taxation [2019] AATA 1240
BRK (Bris) Pty Ltd v. FC of Taxation [2001] FCA 164; 2001 ATC 4111; (2001) 46 ATR 347
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Federal Commissioner of Taxation v Anovoy Pty Ltd (2001) 47 ATR 51; [2001] FCA 447
Federal Commissioner of Taxation v Brand (1995) 31 ATR 326; 95 ATC 4633
Federal Commissioner of Taxation v Ilbery (1981) 38 ALR 172; (1981) 58 FLR 191
Federal Commissioner of Taxation v Total Holdings (Aust) Pty Ltd (1979) 24 ALR 401
Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1
Hart v Commissioner of Taxation (2003) 131 FCR 203; 2003 ATC 4665
Inglis v Federal Commissioner of Taxation (1979) 28 ALR 425; (1979) 40 FLR 191
P & G Rocca Pty Ltd v Federal Commissioner for Taxation (2002) 50 ATR 184; 2002 ATC 4543
Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47, (1949) 8 ATD 431
Softwood Pulp and Paper Ltd v Federal Commissioner of Taxation
(1976) 7 ATR 101;

76 ATC 4439
Steele v Deputy Commissioner of Taxation (1997) 197 CLR 459; 99 ATC 4242
Steele v Deputy Commissioner of Taxation (1996) 154 ALR 438
Temelli v Federal Commissioner of Taxation 97 ATC 4716; (1997) 36 ATR 4716
VTBL and Commissioner of Taxation [2023] AATA 168,
Walstern v Federal Commissioner of Taxation (2003) 54 ATR 423; 2003 ATC 5076
SECONDARY MATERIALS
Australian Taxation Office, Position Paper on Intaglio Pty Ltd ATF the Adrienne Meakins Family Trust for the 2015-2018 income years (9 September 2020)
Commissioner of Taxation, Miscellaneous Tax Ruling MT 2008/1: Miscellaneous tax Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard (1 April 2015)
Commissioner of Taxation, Practice Statement Law Administration PS LA 2012/5Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard (23 August 2012, current to 2 March 2023)
Commissioner of Taxation, Taxation Ruling TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities (9 June 2004, current to 4 August 2021)
Commissioner of Taxation, Taxation Ruling IT 2167 Income Tax: rental properties -non-economic rental, holiday home, share of residence, etc. cases, family trust cases (4 July 1985)
REASONS FOR DECISION
Deputy President Boyle
17 November 2023
THE APPLICATIONS

The first-named Applicant (Ms Meakins) seeks the review of an objection decision dated 23 July 2021 by which Ms Meakins’ objection dated 2 February 2021 to the income tax assessment for the year ended 30 June 2017 was not allowed.[1]
[1] R3/1-9.
The second-named Applicant (Intaglio) seeks the review of objection decisions dated 23 July 2021 by which Intaglio’s objections dated 2 February 2021 to the shortfall penalty assessments for the years ended 30 June 2015, 30 June 2016, 30 June 2017 and 30 June 2018 were not allowed.[2]
[2] R1/1-12.
BACKGROUND
Intaglio is the sole trustee of the Adrienne Meakins Family Trust, a discretionary family trust.
Ms Meakins is the sole director and shareholder of Intaglio and the sole guardian and specified beneficiary of the Trust.
The Trust was settled on 24 February 2000.
Intaglio was incorporated on 24 February 2000.
Murray Pollock is the husband of Ms Meakins and is co-founder, director and shareholder of DDH1 Drilling Pty Ltd.
At all relevant times, Lou Di Labio was the appointed tax agent for Ms Meakins, Intaglio (as trustee for the Trust), the Trust and Mr Pollock.
On or about 2 July 2006, Intaglio as trustee for the Trust purchased vacant land at 116-117 Stirling Highway, North Fremantle (the Property) The purchase price of the Property was $1,300,500.
The purchase of the Property was funded by an interest only business loan to Intaglio by the ANZ Bank in the amount of $1,340,000 for a term of 15 years (Loan).
At settlement of the purchase of the Property, the Loan was disbursed as follows:
(a)$1,245,974.75 paid to the vendor; and
(b)$94,025.25 paid directly into Intaglio’s bank account
At the time of purchase of the Property, the vendor already had plans drawn up for the construction of a single residential dwelling on the Property. These plans were given to Intaglio at the time of the purchase.
On 30 August 2012, the Loan principle was paid out by payment by Intaglio of $330,000 and finance in the sum of $1,010,000 from ANZ on a fixed rate commercial bill facility.
The commercial bill facility was repaid in February 2016.
By letter dated 13 March 2015 to the Respondent,[3] Mr Di Labio advised that the intention of Intaglio was to proceed with construction of the dwelling for the sole purpose of production of rental income, or, alternatively to undertake a larger project by building a commercial office for use by DDH1 for the sole purpose of production of rental income.
[3] R1/27.
During the income years ended 30 June 2007 to 30 June 2017, the Property was not rented, and no rental income was received. During the income year ended 30 June 2018, the Trust received $7,000 in rental income from Mosman Bay Construction Pty Ltd which leased the Property from 1 December 2017, at a cost of $1,000 per month, for the storage of building materials and access.[4]
[4] R1/12.
Income Tax Returns and Assessments
The Trust declared relevant information in Income Tax Returns, the details of which are listed in Table 1 of Annexure 1.[5]
[5] Respondent’s amended SFIC para 27.
The Trust also lodged Property Schedules for the Property, the details of which are listed in Tables 2 and 3 of Annexure 1.[6]
[6] Respondent’s amended SFIC para 28.
In 2017, the Trust declared receipt of a distribution of income from an associated trust in the amount of $621,035. The Trust reported net income of $611,289 which was reduced to nil after deducting the prior year carried forward losses, leaving $587,984 in losses being carried forward to later years.
Ms Meakins declared relevant information in her Income Tax Returns, the details of which are listed in Table 4 of Annexure A.[7]
[7] Respondent’s amended SFIC para 30.
By letter dated 10 December 2015,[8] the Respondent wrote to Ms Meakins and stated that available information indicated that Intaglio (as trustee for the Trust) acquired the Property on or about 30 May 2006. The letter advised that rental property schedules lodged by the Trust indicated that the land was made available for rent immediately after its purchase, but that no income had been derived for the 2007 to 2013 income years. The letter advised that the Trust had claimed a total of $1,083,841 of deductions over the seven income years for which income tax returns have been lodged. The letter than asked:
1. Please provide an explanation as to the purpose of the acquisition of the vacant land upon its purchase in 2006 including any supporting documentation such as a loan application.
2. Please provide an explanation as to the basis on which the holding costs associated with the land are incurred in gaining or producing the assessable income of the trust.
[8] R1/19.
By letter dated 16 December 2014,[9] Mr Di Labio advised that the Property was purchased with the intention of building a rental property to derive assessable income and that soon after the purchase the economic circumstances changed but the Trust continued to hold the land for that purpose.
[9] R1/22.
By letter dated 13 February 2015,[10] the Respondent wrote to Ms Meakins and advised that the preliminary view of the Respondent was that holding costs relevant to the Property were not allowable deductions and that any future holding costs relating to the Property will not be allowable as deductions, unless activities are undertaken which indicate that development of the Property has commenced.
[10] R1/23.
By letter dated 13 March 2015,[11] Mr Di Labio advised the Respondent that since purchasing the Property, ongoing uncertainties with respect to local land use planning, local building restrictions and state land resumptions had caused the Trust to defer undertaking the capital works which it had always intended to undertake, in one form or another, on the Property in order to generate income.
[11] R1/27.
By letter dated 24 September 2019, the Respondent wrote to Ms Meakins and requested details of any efforts, additional to those advised by Mr Di Labio in his letter dated 13 March 2015 (see [23] above), that had been taken to produce assessable income from the Property. The Respondent also asked for the production of invoices, if any, that had been issued to DDH1 for the use of the Property.
By letter dated 18 October 2019,[12] Mr Di Labio advised the Respondent that no building had been constructed on the Property and that Intaglio had not, and was still not, considering commencing building on the site. With the letter, Mr Di Labio provided an invoice (number 2019/99) dated 9 October 2019 on Intaglio letterhead in the amount of $53,240, described as being for “Car Parking - 116 Stirling Highway Nedlands” for the period 1 July 2009 to 31 October 2016. The invoice was not addressed to anyone.[13]
[12] R1/45.
[13] R1/131.
By email dated 5 November 2019 to Mr Di Labio, the Respondent requested further information relating to steps and inquiries that had been undertaken with regard to developing the Property.
On 20 November 2019, Mr Di Labio sent an email[14] to the Respondent attaching an amended version of the Intaglio invoice number 2019/99, which showed the recipient as DDH1.[15]
[14] R1/121.
[15] R1/132.
Between November 2019 and March 2020, there was further correspondence between the Respondent and Mr Di Labio on behalf of the Applicants and, in February 2020, a meeting between officers of the Respondent and Mr Di Labio, Mr Pollock and Ms Meakins’ legal representative, Paul Fletcher. Following that meeting, the Respondent sent an email to Mr Di Labio requesting submissions on the deductibility of holding costs and carried forward losses.
By email sent on 3 March 2020, Mr Fletcher provided the requested submissions[16] setting out the Applicants’ reliance on Steele v DCoT[17] and stated that the intention with respect to the Property was always a commercial one, for the purpose of gaining or producing assessable income.
[16] R1/192.
[17] (1997) 197 CLR 459; 99 ATC 4242; (1999) HCA 7.
By letter dated 9 July 2020, sent by email to Mr Di Labio, the Respondent advised Ms Meakins that the review of her income tax affairs for the 2015-2018 income years had been escalated to an audit.[18]
[18] R1/210.
On 9 September 2020, the Respondent sent Ms Meakins a Position Paper[19] which stated that the holding costs incurred by the Trust in relation to the Property were not deductible under s 8.1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for the 2007 to 2017 income years, and that the holding costs for the income year 2018 were deductible in part.
[19] R1/215.
The Respondent also advised that he proposed to impose administrative penalties on the Trust under s 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA).
The Respondent required Ms Meakins to provide a response to the Position Paper and any additional relevant information by 7 October 2020, otherwise the proposed amendments would be actioned, and the administrative penalties raised.
On 14 and 15 October 2020,[20] Mr Fletcher provided a response to the Position Paper which further set out the Applicant’s reliance on Steele and actions that the Applicants had undertaken relating to the Property, including having discussions with an architect and making enquiries about acquiring more land.
[20] R1/248-58.
By letter dated 20 November 2020, the Respondent advised Ms Meakins that the Respondent had considered that matters raised in the response to the Position Paper, however, for the reasons set out in the letter, the Respondent’s position was unchanged.[21]
[21] R1/260.
The Respondent amended Ms Meakins’ income tax returns (as Ms Meakins was the sole beneficiary of income of the Trust) and on 7 December 2020 issued an amended notice of assessment for the 2017 income year[22] and on 2 December 2020 issued an amended notice of assessment for the 2018 income year (the amended assessments).[23]
[22] R1/847.
[23] R1/853.
On 4 December 2020, the Respondent issued notices of assessment for shortfall penalties (pursuant to s 284-75 of Schedule 1 to the TAA) to the Trust (Intaglio) for the 2017 and 2018 income years.[24]
[24] R1/555 and 559.
On 7 December 2020, the Respondent issued notices of assessment of penalties for false or misleading statements (pursuant to s 284-75 of Schedule 1 to the TAA) to the Trust for the 2015 and 2016 income years.[25]
[25] R1/547 and 551.
On 2 February 2021 the Applicants lodged objections to the amended assessments and the administrative penalties[26] and, on 23 July 2021 and 1 November 2021, the Respondent disallowed the objections in full.[27]
[26] R1/265 and 277.
[27] R1/2, R3/1 and R4/825.
THE ISSUES
The general issue for determination is whether the amended assessments are excessive or otherwise incorrect and, if so, what the amended assessments should have been.
More specifically, I must consider the following:
(a)Were the holding expenses for the Property deductible under s 8.1 of the ITAA 1997?
(b)Were the administrative penalties correctly applied?
(c)Should the administrative penalties be remitted in part or in full?
LEGISLATIVE FRAMEWORK
Section 14ZZK of the TAA provides:
Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving:
(i) if the taxation decision concerned is an assessment—that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
(ii) in any other case—that the taxation decision concerned should not have been made or should have been made differently.
(Original emphasis.)
Section 284-75 of Schedule 1 to the TAA relevantly provides as follows:
Liability to penalty
(1) You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
...
(5) You are not liable to an administrative penalty under subsection (1) ... for a statement that is false or misleading in a material particular if you, ... took reasonable care in connection with the making of the statement.
(Original emphasis.)
Section 284-90 of Schedule 1 to the TAA relevantly provides:
Base penalty amount
(1)The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:

Base penalty amount

Item

In this situation:

The base penalty amount is:

1

You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a *taxation law (other than the *Excise Acts) by you or your agent

75% of your *shortfall amount or part

2

You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Excise Acts)

50% of your *shortfall amount or part

3

You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts)

25% of your *shortfall amount or part

Section 8.1 of the ITAA 1997 relevantly provides:
(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.
Note:Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.
(2)However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your * exempt income or your * non-assessable non-exempt income; or
(d) a provision of this Act prevents you from deducting it.
THE PARTIES’ CONTENTIONS
The Applicants
The Applicants’ case as set out in the Applicants’ Statement of Facts, Issues and Contentions dated 10 December 2021 (Applicants’ SFIC), the Applicants’ written closing submissions dated 16 January 2023 and the Applicants’ responsive closing submissions dated April 2023, was to the following effect:
(a)At all material times Ms Meakins was the sole director, shareholder and controlling mind of Intaglio.
(b)At the time of the purchase of the Property and since, particularly during the relevant assessment periods, the sole purpose was to develop the Property to be used for the purpose of deriving assessable income.
(c)Through Ms Meakins, Intaglio has taken, and continues to take, steps to further the purpose and intention of production of income, by Intaglio, from the Property.
(d)The funds borrowed by Intaglio from the ANZ, by way of the initial business loan facility and subsequent commercial bill facility, were applied solely to the cost of acquisition of the Property.
(e)All interest that accrued with respect to the ANZ loans, until each was fully repaid, was the price paid by Intaglio, on ordinary commercial terms, for the use of the funds comprised in the ANZ loans.
(f)All of the holding costs, in addition to the interest incurred on the ANZ loans, claimed by Intaglio to be deductible, were incurred solely in the acquisition or holding of the Property for the purpose and intention of deriving assessable income.
(g)The holding costs were incurred by Intaglio in the year of income in which Intaglio has claimed to have incurred it.
(h)The evidence clearly establishes that the Applicants did have a particular profit-making scheme in mind at the time of purchasing the Property.
(i)The evidence of the Applicants’ witnesses should be accepted. The documentary evidence also supports the purpose and intention of the purchase of the Property as being to derive assessable income. The contemporaneous ANZ “Credit Memorandum”[28] recorded:
Proposed property to be developed into commercial units with which related entity being Western Alloys [Murray Pollock] will rent one.
(j)The Applicants acknowledge that in determining the Applicants’ purpose and intention, the Tribunal may have regard to subsequent conduct, however, there is nothing in the subsequent conduct that warrants the Tribunal finding the purpose and intention in purchasing and holding the Property was other than as claimed by the Applicants.
(k)Insofar as correspondence sent by Mr Di Labio was inconsistent with that intent and purpose, the correspondence was sent without the Applicants’ authority and the correspondence is, in any event inconsistent with other contemporaneous evidence.
[28] AM38 attached to Ms Meakins’ supplementary witness statement of 24 January 2022.

The Applicants, as did the Respondent, made extensive submissions on the law which I will address in my consideration below.
The Respondent
The Respondent’s case, as set out in the Respondent’s Amended Statement of Facts, Issues and Contentions filed on 28 September 2022 (Respondent’s SFIC), the Respondent’s outline of written submissions dated 7 November 2022 and the Respondent’s outline of closing written submissions dated 7 March 2023 was to the following effect:
(a)
Section 8(1) of the ITAA 1997 has two limbs being subsections (a) and (b) (see [45] above. The first limb of the general deduction provision applies to all taxpayers.

The second limb applies in addition to taxpayers carrying on a business and is broader than the first limb. A non-business taxpayer is entitled to a deduction only to the extent that the expenditure is incurred in gaining or producing their assessable income. Business taxpayers can claim deduction for expenditure under either the first or second limb.
(b)Pursuant to s 6-5 of the ITAA 1997, a property owner is assessable on rental income received and may also claim deductions for losses and outgoings incurred in gaining that income. To be eligible to claim expenses that relate to rental properties, the property must be held for the purpose of gaining or producing assessable income. Generally, a property is considered to be held for the purpose of gaining or producing assessable income, if it is tenanted, listed with an agent as being available for tenancy or where the owner is making active and bona-fide efforts to let out the property.[29]
[29] Citing Taxation Ruling IT 2167.
(c)Expenditure will generally be deductible if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce the taxpayer’s assessable income, provided that the expenditure is not of a capital, private or domestic nature.
(d)If an outgoing produces an amount of assessable income greater than the amount of the outgoing, there would normally be no need to examine the taxpayer’s subjective thought processes (i.e. motives and intentions) in characterising the outgoing as falling within the first limb. However, if the outgoing produces no assessable income, or the amount of assessable income is less than the amount of the outgoing, it may be necessary to examine all the circumstances surrounding the expenditure to determine whether the outgoing is wholly deductible. This may, depending on the circumstances of the particular case, include an examination of the taxpayer’s subjective purpose and/or motive or intention in making the outgoing.
(e)In determining whether a taxpayer is carrying on a business for (second limb), indicative factors are:
(i)the existence of a profit-making and commercial purpose;
(ii)the size and scale of the activities;
(iii)repetition and regularity of the activities; and
(iv)whether the activities are carried on in a manner usual for that type of business.
(f)Other indicators of business include the commercial character of the transactions, whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business, the existence of a business plan, particular knowledge or skill, commitment of time, effort and capital, and membership of industry or professional associations.
(g)It is not sufficient to come within the positive limb of s 8.1(1) that the expenditure be incidental and relevant for the purpose of producing the assessable income. It must also be incurred in the course of gaining or producing that income. The absence of that causative connection will result in claims for deductions to be unsuccessful. Whether the claimed deductions were paid by a taxpayer in, or in the course of, gaining or producing assessable income must be determined against the particular facts as they existed, not against some other theoretical arrangement which the taxpayer might have entered into, but did not enter into.[30]
[30] Citing P & G Rocca Pty Ltd v Federal Commissioner for Taxation (2002) ATC 4543 at 4553-4.
(h)If expenditure related to vacant land or property is unconnected with an activity for the production of future income, it does not qualify for a deduction under the first limb of s 8.1(1).[31]
[31] Citing Inglis v Federal Commissioner of Taxation 80 ATC 4001 at 4004; cited with apparent approval in Federal Commissioner of Taxation v Anovoy Pty Ltd [2001] FCA 447 at [46]-[47].
(i)The temporal relationship between the incurring of an outgoing and the actual or projected receipt of income may be one of a number of facts relevant to a judgment as to whether the necessary connection might exist, but contemporaneity is not legally essential.[32]
[32] Steele at [44].
(j)Interest paid by a taxpayer as a prelude to being in a position to derive income may not meet the requirement that expenditure ‘be incidental and relevant to the derivation of income’.[33]
[33] Federal Commissioner of Taxation v Total Holdings (Aust) Pty Ltd (1979) 24 ALR 401 at 406; cited with approval in Steele at [45].
(k)There needs to be a requisite degree of commitment to the relevant income producing activity in order for expenses to be necessary and incidental to the production of assessable income, and therefore deductible under s 8.1.[34]
[34] Temelli v Federal Commissioner of Taxation 97 ATC 4716.
(l)Taxation Ruling TR 2004/4 will allow taxpayers a deduction under s 8.1 for interest expenses incurred prior to the derivation of income provided that:
(i)the interest is not incurred ‘too soon’, is not preliminary to the income-earning activities, and is not a prelude to those activities;
(ii)the interest is not private or domestic;
(iii)the period between the payment of interest and the derivation of relevant assessable income is not so long that the necessary connection between outgoings and assessable income is lost;
(iv)the interest is incurred with one end in view, that is, the gaining or producing of assessable income; and
(v)continuing efforts are undertaken in pursuit of that end.
(m)The holding costs for the Property are not deductible under s 8.1 of the ITAA 1997 as the trustee (Intaglio) has not incurred those costs in the course of or producing assessable income, nor was it necessarily incurred in the carrying on of a business.
(n)The Applicants could have had no expectation of earning rental income from the development of the Property, as they had not:
(i)commenced any development using the plans received at the time of purchase;
(ii)engaged architects, or any other professional to seek alternative plans for development;
(iii)submitted any plans to council for development approvals;
(iv)sought any financing to fund any development; or
(v)had any discussions with builders regarding costings and timeframes for construction.
(o)Relevant factors are:
(i)The trustee had no prior history of engaging in property development;
(ii)The only other property ever purchased by the trustee was for the private use of Ms Meakins;
(iii)The Property was zoned mixed residential/commercial and was therefore open to use the property as a residence and not for any profitmaking activity at all;
(iv)The trustee purchased the Property without a particular profitmaking scheme in mind;
(v)By the last relevant income year in dispute (30 June 2018), the trustee still had not devised a profit-making scheme for the Property;
(vi)The trustee still has not devised a profit-making scheme for the Property;
(vii)Since the purchase of the Property the Applicants have not:
·         commenced any development using the plans received at the time of purchase;
·         engaged architects, or any other professional to seek alternative plans for development;
·         submitted any plans to council for development approvals;
·         sought any financing to fund any development; nor
·         had any discussions with builders regarding costings and timeframes for construction.
(p)The holding costs are directed to preserving the Property as opposed to pursuing profit;
(q)Even if the trustee purchased the Property with a particular profit-making scheme in mind, the trustee has not engaged in activity or continual efforts demonstrating a commitment to that scheme. Further, even if the Property was purchased with a particular profit-making scheme in mind, the Applicants did not have the dual purpose intention of selling the vacant Property for a profit if all else failed;
(r)The profit-making activity which the Applicants purported to engage in did not amount to more than “theoretical arrangements” which the Applicants might have entered into, but did not.
(s)The purposes to which the Property could be put were various and included private or domestic purposes, or to be sold for capital gain. Accordingly, the holding costs cannot be said to be in connection with the production of assessable income by analogy to the High Court’s decision in Steele;
(t)Subjective intention alone is insufficient to allow a deduction where relevant assessable income is yet to be derived and may never be derived. There must be commitment or continuing efforts towards gaining or producing of the intended assessable income; without committed efforts there can be no expectation of any income arising; and
(u)The total lack of activities by the trustee inevitably leads to the conclusion that there can be no expectation of earning rental income and, as the trustee did not carry on a business of property development, the holding costs are not deductible under s 8.1(1)(b) either.
THE HEARING AND THE EVIDENCE
Evidence in the Applications was heard on 8 and 9 December 2022, with oral closing submissions being heard on 1 June 2023. Mr S Penglis SC with Mr P Fletcher appeared for the Applicants and Ms V Long-Droppert appeared for the Respondent. Oral evidence was given at the hearing by Ms Meakins and Mr Pollock. Witness statements of Nathan Jay Hewitt and Kris Keen (each with some redactions) were admitted into evidence by agreement without the need for cross-examination.[35] The following documents were admitted into evidence:
(a)Final supplementary witness statement of Adrienne Lee Meakins dated 7 December 2022 (A1);
(b)Map of the locations of the Intaglio properties, prepared by Adrienne Lee Meakins (A2);
(c)Respondent’s section 37 T-documents filed in matters 2021/6478-81 (R1);
(d)Respondent’s supplementary section 37 T-documents filed in matters 2021/6478-81(R2);
(e)Respondent’s section 37 T-documents filed in matter 2021/6477 (R3); and
(f)Respondent’s supplementary section 37 T-documents filed in matters 2021/6477 (R4).
[35] Transcript at 113.
In her statement dated 10 December 2021, Ms Meakins said:
(a)She and Intaglio as trustee of the Trust have a record of real estate investment going back, in her case, the early 1980s. Excluding her present home, she and Intaglio have invested in a total of seven properties, of which five were purchased prior to the purchase of the Property.
(b)Not including her current residence, Ms Meakins has four separate real estate investments. She has had a number of investment properties that she has rented out since she purchased her first investment property purchased in 1983. Other properties she has bought and after some renovations, sold at a profit. She lived in one such property for about 10 years.
(c)The house that she presently lives in with her husband was built by them (apparently) around 2000 and is “a spacious and lovely home with both ocean and river views and was designed and built to a specification that would allow us to stay and hopefully ‘age-in-place’ for the longer term”. The house won prestigious architectural awards in 2003 and 2004. She and her husband have never considered quitting that house for a residence built on the Property.
(d)Intaglio purchased the Property in May 2006. Since 2006 a number of events have impacted Intaglio’s ability to progress the development of the Property. These were both physical circumstances and changes in circumstances that affected the potential financial outcomes for proposed developments. Notwithstanding these, the intent was and has remained to be to develop the Property to derive income. Uncertainty about the viability of proposed development in 2009 caused Intaglio to rent the property for laydown/storage. It was also always Ms Meakins’ intention that, if the Property could not be developed, she would sell it at a profit undeveloped. She worked on the assumption that given the special features of North Fremantle the Property would always increase in value.
(e)The purchase of the Property was financed through an interest only business loan. Ms Meakins advised the bank officer through whom the loan was arranged that the purpose of the purchase of the Property was to develop it. That advice as to the purpose of the purchase was recorded by the bank officer in a memo dated 14 June 2006 (Attachment AM 7 to the statement).
(f)The loan, which was for five years, was subsequently converted to a commercial bill facility. In 2012 the principal was paid out and a new fixed rate commercial bill facility established. That facility was paid out in 2016.
(g)By the time of the purchase of the Property Ms Meakins had been living in North Fremantle for a number of years and had been involved in the public debate about development around the former martialling yards at Leighton, opposite the Property. She was also familiar with the local government planning requirements and the residential design codes of Western Australia.
(h)In the 2005-2006 period Ms Meakins’ husband, Mr Pollock, had come out of retirement to co-establish DDH1. The planning and initial operations for DDH1 were carried out at Ms Meakins’ and Mr Pollock’s North Fremantle home.
(i)By 2006 the office functions of DDH1 had outgrown their home and she and Mr Pollock discussed the development of a property to accommodate DDH1. She had seen a for sale sign on the Property and contacted the selling agent. She understood DDH1’s operations would require a relatively modest small to medium office with space for six to eight people and a small store with sufficient space for drilling consumables and spare parts.
(j)The R25 zoning of the Property offered multiple development options. While the anchor tenant would be DDH1, she was aware that the Property also had potential for development as a high-end sole residence as plans for such a development had been provided by the vendor. There was also potential for multiple or grouped residence and mixed commercial/residential development. Real state metrics at that time were very positive.
(k)At the time of purchase of the Property the sole intention was to either develop the site or resell it at a profit if it could not be developed profitably. At no time was it Ms Meakins’ intention to hold or use the property for private use or long-term capital gain.
(l)Having purchased the Property, Ms Meakins did not feel pressed to immediately develop the Property. She prepared probably 30 to 40 “rough sketches” to try to determine what the best possible use for the Property would be “with respect to residential or mixed-use type developments”. The preparation of these rough drawings disclosed potential issues caused by the narrow frontage onto Stirling Highway. This highlighted the need to purchase adjoining land to maximise the development potential.
(m)By late 2007 DDH1 had grown faster than envisaged and had moved into a commercial property at 123 Stirling Highway. At this point Ms Meakins realised that she had probably lost DDH1 as an anchor tenant for a commercial or mixed development. In 2008 she registered a new username with “Dial Before You Dig” and made relevant enquiries about the location of buried services. By that time, however, the global financial crisis (GFC) had started to impact the market for any development.
(n)In 2008 she was also involved in discussions in relation to civil works with the owners of the adjoining properties that were being developed as residential developments. There was potential for some sharing of civil works costs for that adjoining development and development of the Property.
(o)In 2014-2015 there were also discussions with the owners of the property to the North of the Property (118 Stirling Highway) which was being developed. Notwithstanding potential non-compliance issues with the development proposed for 118, Ms Meakins did not object, as she hoped that that development would set a precedent for the development of the Property.
(p)Little progress was made with the development of 118, but in 2018 major excavations were due to commence on 118 which required Intaglio’s approval. Ms Meakins discussed her plans for the development of the Property with the architect for 118, to ensure that the development of 118 did not compromise the potential development of the Property. During the development of 118, Ms Meakins had discussions with the architect of 118 about potentially designing something for the Property. In November 2017 the architect offered to assist Ms Meakins in design and development approval for the Property.
(q)After the purchase of the Property, Ms Meakins became aware of an issue with the boundary of the Property to the South (115 Stirling Highway) which encroached onto the Property. That issue was resolved in August 2020 when Intaglio purchased 115. This opened up development options.
(r)Ms Meakins said that issues relating to the proposed re-alignment of Stirling Highway also impacted her ability to proceed to develop the Property. In 2012 the Western Australian Planning Commission wrote to Intaglio advising that under the Metropolitan Region Scheme Proposed Amendment 1210/41 they intended to resume 72m2 or approximately 11% of the Property. The area of the proposed resumption was reduced in 2016 to about 10%. For the five-year period between 2012 and 2017 the actual lot dimensions of the Property were “in limbo”.
(s)From the time of the purchase of the Property Ms Meakins has explored the potential to acquire adjoining land, in particular the land to the East on Lime Street. As noted earlier, in 2020 Intaglio acquired 115.
(t)In mid-2009, Intaglio agreed to allow DDH1 staff who operated out of 123 Stirling Highway to park on the Property, for which DDH1 agreed to pay $550 a month. Through an oversight, Intaglio did not invoice DDH1 for the parking until October 2019.
(u)In May 2017 Intaglio entered into a lease with the builder undertaking the development on 118, by which the builder could access the Property for $1000 a month. In total the builder paid Intaglio $27,500.
(v)Since the purchase of the Property a number of events have adversely impacted the potential development of the Property. These include the GFC and other major developments in Leighton and North Fremantle. The long-term depressed market and impact of other developments have influenced Intaglio’s decision not to proceed with the development. Ms Meakins said that “For Intaglio to undertake a development under anything other than improved market conditions would almost certainly incur a loss”.
(w)Ms Meakins set out steps that she intends taking to expand the area of the Property and to develop the Property in conjunction with developing 115 and marketing the combined development “as a package”.

Under separate headings, Ms Meakins’ statement referred to the delays which she says have caused the delay to the development of the Property. These headings were:
(a)Impact and delays due to the re-development of 86 Thomson Road 2008-2009 and 2014-2015 (the Barrymore site)
This address was a factory site owned by the Barrymore family, the western boundary of which was on Lime Street. The eastern boundary of the Property was on Lime Street. A condition of the redevelopment of the Barrymore site was an upgrade of Lime Street to a fully-formed roadway with landscaping. As this redevelopment had the potential to affect the usage to which the Property could be put, Ms Meakins “took an active interest in the proposed plans” for that redevelopment.
The redevelopment of the roadway in Lime Street had the potential to impact the height of the Property’s eastern boundary onto Lime Street. The main sewer connection to the Property also ran under Lime Street. In November 2008 Intaglio and the Barrymore family signed an agreement by which, at some cost to Intaglio, civil works were undertaken to the eastern boundary of the Property (fronting Lime Street) and a new sewer connection made.
The Barrymore site, or a portion thereof, was sold to Match to construct 16 boutique apartments. That development was constructed through 2015 and completed in February 2016.
(b)Impact and delays due to Froud development on 118 Stirling Highway and 15 Lime Street, 2014-2021.
In 2015 the City of Fremantle advised Intaglio of the proposed development of 118 Stirling Highway, the site to the North of the Property. Ms Meakins supported the prosed development as it could set an effective benchmark for the development of the Property.
Some of the civil works to be undertaken in the development of 118 impacted the Property and needed approval from Intaglio. Construction of the development on 118 ceased in 2020 when the builder went into administration.
(c)Impact and delays due to boundary issues with 115 Stirling Highway, 2018.
Encroachment of the adjoining property onto the Property was discovered “after Intaglio purchased” the Property, however as it was the intention of Intaglio and the owners of 115 to redevelop their respective properties, there was an understanding that the encroachment issue would be sorted out at the time of the redevelopment.
In 2018, however, the adjoining owner constructed a new fence on the boundary that “exacerbated” the encroachment. It also was discovered at that time that the structure on 115 was partly on the Property. The issue was resolved in 2020 when Intaglio purchased 115.
Now that Intaglio owns both properties, further design options are available which Ms Meakins is considering.
(d)Impact and delays due to re-alignment of Stirling Highway Reserve
In March 2012, the Western Australian Planning Commission wrote to Intaglio advising of the proposed change to the Metropolitan Region Scheme (see [50(r)] above). For the five-year period (2012-2017) that there was deliberation on the proposed change, the precise dimensions of the Property were not settled.
(e)Attempts to acquire additional land to improve viability of developing the Property
Over the years since Intaglio purchased the Property, Ms Meakins has spoken to the owners of the Lime Street property and 115 to try to purchase land from them to increase the size of the Property.
In 2015 Ms Meakins also “canvassed the possibility of purchasing” a recently created lot at the rear of 118. She obtained advice from Mr Hewitt on what a reasonable price would be (see [58(c)] below). Because the asking price was above what she considered to be reasonable, she “abandoned the idea” of buying that land.
In 2020 she was contacted by another real estate agent who advised that the owners of 115 and the property in Lime Street were coming up for sale. Intaglio purchased 115 in August 2020. After that, Ms Meakins also approached the owner of 114 Stirling Highway to see if they were interested in selling that property to Intaglio.
(f)Adverse Market Factors since 2006
See [50(v)] above.
In her supplementary statement dated 25 January 2022, Ms Meakins relevantly advised that she had obtained a full copy of the bank memo relating to the loan which funded the purchase of the Property (see [50(e)] above) and a letter from the bank to Intaglio. That memo and letter support the claim that the purpose of the acquisition of the Property was to construct commercial units.
Ms Meakins’ further supplementary witness statement dated 23 November 2022 referred to the construction undertaken on 118 and the lease granted to the builder to use the Property. The programmed date of completion of the development on 118 was delayed and the lease to the builder was, at that time, ongoing. She also referred to the results of her “Dial Before You Dig” enquiries and more recent discussions with an adjoining owner in relation to development being undertaken on that land. She also referred to discussion that she had had with real estate agents and others relating to possible developments. In that regard in October 2022 she had “commenced drawing a set of concept plans for a potential mixed-use development” covering the Property and a portion of an adjoining property. These drawings were prepared so that she could assess whether to purchase a portion of the adjoining property. She was also at that time speaking to a surveyor to seek advice about minimum block sizes.
Ms Meakins also addressed what she described to be errors in previous written submissions and in correspondence from her accountant Mr Di Labio relating to her intentions for the development of the Property. She said that the statement by Mr Di Labio that “the construction of a dwelling for the sole purpose of production of rental income” over undertaking “a larger project by building a commercial office for use by DDH1 Drilling, again, for the sole purpose of production of rental income” was incorrect. It was, according to Ms Meakins, always Intaglio’s aim to pursue a modest mixed-use development that would include office space and a small store for DDH1. Similarly, Mr Fletcher’s submissions to the Respondent in March 2020 were incorrect for the same reason.
Ms Meakins disputed the Respondent’s contentions in the outline filed by the Respondent in these proceedings that, as at the last income year in dispute, the year ended 30 June 2018, Intaglio had still not devised a profit-making scheme for the Property. She said that was not correct and that at 30 June 2018 her intention was to build a mixed-use commercial/residential development, although at that time the chance to secure DDH1 as an anchor commercial tenant had “long passed”.
Mr Pollock’s statement dated 29 November 2021 was to the following effect:
(a)He is a director of DDH1 which is the parent company of two other companies involved in drilling. They employ 680 people and own 65 drilling rigs.
(b)He is married to Ms Meakins and they live in Alfred Road North Fremantle, where they moved in late 2001.
(c)Initially DDH1 operated from the Alfred Road house, but by 2006 it was becoming difficult to accommodate DDH1 operations. He and Ms Meakins discussed the possibility of finding a site to use as office premises and storage area for DDH1. He encouraged Ms Meakins to look for a suitable site in North Fremantle.
(d)She told Mr Pollock that she has identified the Property, which was for sale, as a potentially suitable site. He looked at the Property and agreed.
(e)He discussed with his business partner the potential for DDH1 to rent premises on the Property, once developed. His business partner agreed and Mr Pollock told Ms Meakins that DDH1 would be interested in renting office and storage accommodation if developed on the Property.
(f)DDH1 grew much quicker than he had anticipated. It was clear to him by mid-2007 that DDH1 would have to move its administrative operations out of their house in Alfred Road into its own offices as a matter of urgency. He was at that time, aware that Ms Meakins had concerns about the ability to construct something on the Property that would meet DDH1’s needs, because of the narrow (14m) width of the Property. Ms Meakins advised him that she intended to approach the owners of an adjoining property to see if land could be purchased to address that problem.
(g)In mid-2007 he and his business partner agreed that they needed to look for an existing office premises for DDH1. He found suitable premises at 123 Stirling Highway in September 2007. Around this time the use of another property (Pearse Street) in North Fremantle for storage of vehicles was becoming problematic so DDH1 relocated its storage to Welshpool.
(h)By 2009 parking for DDH1 staff at 123 Stirling Highway had become an issue so he rented the Property for overflow parking.
(i)By 2016 DDH1 had grown so significantly that it moved its office premises and storage to Canning Vale. It had grown to the point where it could never be accommodated in North Fremantle.
The statement of Mr Keen dated 21 November 2021 (with redactions) was to the following effect:
(a)He is an architect. In 2014 he was engaged by the owners of 118 to design a residential development on that property.
(b)During several years starting in early 2015 he had a number of conversations with Ms Meakins concerning both 118 and the Property. He had discussions with Ms Meakins on behalf of his clients about excavations that need to be undertaken on118 .
(c)His clients intended to sell off part of their land and, realizing that the Property had a very narrow frontage to Lime Street, he approached Ms Meakins and asked if she would be interested in buying the rear block. She said that she was.
(d)His clients subdivided 118 and put the rear block up for sale. Ms Meakins advised that the asking price was too high and did not buy it.
(e)He had discussion with Ms Meakins about getting piling done on the Property at the same time as piling for excavation was being done by his clients on 118 as it would save money to do it together. He provided a quote to Ms Meakins for the piling on the Property. In the end 118 did not need piling so the work was not done.
The statement of Mr Hewitt dated 10 December 2021 (with redactions) was to the following effect:
(a)He is a licenced real estate agent and a director of Yard Property. He first met Ms Meakins after Intaglio purchased the Property in 2006. At that time, she said that she had purchased the Property “for the purpose of using it for a development project”. He did not discuss with her the detail of the project.
(b)In 2015 he had discussions with Ms Meakins in which she said that she wanted to acquire land adjoining the Property to increase her development footprint, in part at least, to address parking issues.
(c)He then undertook an appraisal for Ms Meakins of a newly created adjoining lot on the Lime Street frontage (the rear lot created by the subdivision of 118) which she was interested in buying to facilitate the development on the Property. He provided that appraisal to Ms Meakins by letter dated 21 April 2015.
(d)He has also over the years had discussions with Ms Meakins about acquiring property adjoining the Property to gain more developable land. He also assisted Ms Meakins with the purchase of 115.
CONSIDERATION
Both parties referred extensively to the High Court’s decision in Steele. In that case the High Court (Gleeson CJ, Gaudron, Gummow, Kirby and Callinan JJ) were considering the taxpayer’s entitlement to deductions under s 51(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) which was materially to the same effect as s 8.1 of the ITAA 1997 (see [31] above).
Mr Fletcher, in his March 2020 submissions to the Respondent (see [30] above)[36] stated that the Applicants relied on Steele and the principles stated in that case. The Respondent’s Position Paper (see [31] above)[37] responded to the Applicants’ contentions.
[36] R1/192.
[37] R1/215.
The Applicants’ argument relying on Steele, as set out in Mr Fletcher’s submissions of March 2020, was that the Applicants’ intention with regard to the Property was, as was Ms Steele’s, an entirely commercial one, for the purpose of gaining or producing assessable income.[38] That intention, according to Mr Fletcher, was firstly to construct a residence for generation of rental income and subsequently by building a commercial office to be rented and, potentially, purchasing additional land at the rear of the Property to increase the overall land package to afford easier access to underground parking for an office complex.
[38] Steele at 228.
The submission continued, again quoting a passage from the majority in Steele, that “…once it is determined…that the …outgoing incurred in gaining or producing the taxpayer's assessable income (even though no assessable income is derived during that year, and no such income may ever be derived), the circumstance that the capital asset has produced no income is not a reason to conclude that the interest is an outgoing of a capital nature”.[39] The Applicants contend that that observation is equally applicable in the present case.
[39] Steele at 210.
In Steele, the taxpayer had different plans over a number of years as to how the land that she had purchased would be developed to generate income, some of which required a change in the zoned usage of the land. None of those plans came to fruition. The Applicants submit that the High Court did not treat the limited steps taken by the taxpayer in Steele as insufficient connection to satisfy the first limb of s 51(1) of the ITAA 1936. The fact that Intaglio, through Ms Meakins, changed its mind as to how to develop the Property and did not proceed to obtain finance for any particular development, is not conclusive. The Applicants contend that in the present case the changes in circumstances and outside forces explain why things such as design development were deferred. According to the Applicants, as in Steele, the “unavoidable” conclusion is that there was no purpose other than income production and the temporal hiatus is of little utility in deciding the issue of deductibility.
In the Position Paper dated 9 September 2020,[40] the Respondent referred to authorities going to the need for and level of connection between the claimed deductible expenditure and the production of or the purpose of producing assessable income.[41]
[40] R1/216.
[41]Cases cited included Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 8 ATD 431 at p 435-436; P & G Rocca Pty Ltd v Federal Commissioner of Taxation 2002 ATC 4543 at 4553-4 and 4557, Inglis v Federal Commissioner of Taxation 80 ATC 4001 per Brennan J at 4004 and Davies J at 4008 and 4011, Temelli and Federal Commissioner of Taxation v Brand 95 ATC 4633.
The Position Paper referred to the statement of the majority in Steele that “[t]he temporal relationship between the incurring of an outgoing and the actual or projected receipt of income may be one of a number of facts relevant to a judgment as to whether the necessary connection might, in a given case”[42] citing Lockhart J in Federal Commissioner of Taxation v Total Holdings (Australia) Pty Ltd.[43]
[42] Steele at 212.
[43] (1979) 24 ALR 401 at 406.
The Position Paper and the Respondent’s case as run in these proceedings, distinguished Steele from the present case on the basis that in Steele contemporaneity was not particularly in issue because of the facts, and the taxpayer had made conspicuous continuing efforts and demonstrated commitment towards gaining or producing assessable income in one form or another. As is noted in Inglis, expenditure does not become expenditure incurred in gaining or producing future assessable income merely because the taxpayer intends in the future to produce assessable income. A lack of continuing efforts/commitment may lead to prospective income being considered too remote (lacking contemporaneity) from the expenditure, such that the expenditure is not considered to be incurred in the course of deriving the income. Also, as Carr J found in the Federal Court Full Court decision,[44] the taxpayer intended that, if the motel development did not proceed, she would have sought to sell the land at a profit meaning that the taxpayer held the land on revenue account and any profit on sale would therefore have been assessable income.

The majority in the High Court agreed with Carr J’s assessment.
[44] Steele v Deputy Commissioner of Taxation (1996) 154 ALR 438 (Steele FC).
The Position Paper posits that having a mere intention to gain or produce assessable income, without making continuing efforts to derive that income, will be insufficient to claim a deduction for the expenditure. There can be no expectation of producing prospective income until such efforts are made.
In Steele, the majority’s (Gleeson CJ, Gaudron and Gummow JJ) analysis of the deductibility of costs incurred under s 8.1 of the ITAA 1997 (in the case of Steele, s 51(1) of the ITAA 1936) starts at [22] with reference to Fletcher v Federal Commissioner of Taxation[45] and the summary in that case that:
It has also been said that the test of deductibility under the first limb of s 51(1) is that 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income'.
[45] [1991] HCA 42; (1991) 173 CLR 1 at 16-17.
At [27] the High Court noted that:
In Federal Commissioner of Taxation v Ilbery[46] Toohey J, with whom Northrop and Sheppard JJ agreed, noted[13], without disapproval, the generalisation that “[i]nterest on moneys which are borrowed for the purpose of acquiring an income-producing asset is deductible under s 51(1)" and recorded the Commissioner's concession that "so long as the ... property was held for an income-producing purpose, interest paid on a loan to acquire that property was deductible under s 51." Such generalisations may require qualification in particular cases, but they fairly reflect the ordinary position referred to by Dixon J. Because of the issue that has arisen in the present case, it is necessary to examine why that is so, having regard to the language of s 51(1).
(Footnotes omitted)
[46] (1981) 38 ALR 172; (1981) 58 FLR 191.
At [44] the Court observed that:
There are cases where the necessary connection between the incurring of an outgoing and the gaining or producing of assessable income has been denied upon the ground that the outgoing was "entirely preliminary" to the gaining or producing of assessable income or was incurred "too soon" before the commencement of the business or income producing activity. The temporal relationship between the incurring of an outgoing and the actual or projected receipt of income may be one of a number of facts relevant to a judgment as to whether the necessary connection might, in a given case, exist, but contemporaneity is not legally essential, and whether it is factually important may depend upon the circumstances of the particular case.
(Footnotes omitted)
At [47] the Court said:
The respondent placed reliance upon the concept of commitment as an aid to the formation of a factual judgment, in a case such as the present, as to the sufficiency of the relevant connection between outgoing and income. The utility of that concept may vary with the circumstances of individual cases….. The present is not a case in which the appellant had in contemplation a variety of alternative possible uses of Tibradden, some of an income-producing nature and others not. There was no suggestion, for example, that she ever contemplated using the property for private or domestic purposes. That was never an option. As Carr J pointed out, whilst she was not financially committed to a motel development, and had not decided upon any particular development, she does not appear to have envisaged any use of or dealing with the property other than one which would produce assessable income.

As noted above (see [48(g)]), the Respondent’s Position Paper referred to Rocca, in particular, to the statements of Mansfield J at 4553-4 that:
... it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.
and at 4557 that:
Whether the claimed deductions were paid by the applicant in, or in the course of, gaining or producing assessable income must be determined against the particular facts as they existed, and not against some other theoretical arrangement which they might have entered into, but did not enter into.
The Position Paper then quoted Brennan J’s finding at 4004 of Inglis[47] that:
… expenditure on or in connection with… [the property] does not become expenditure incurred in gaining or producing future assessable income merely because the taxpayer intends in the future to use [the property] to produce assessable income. If a capital asset is not being used to produce assessable income, though it is intended for use in the future to produce assessable income, expenditure in merely preserving the asset until it is so used is not deductible…
And the observation of Davies J in Inglis that:
subject years, having regard to the uncertainties and possibilities of the future, the property was not then devoted by Mr. and Mrs. Inglis to the derivation of assessable income. It was then neither used to produce assessable income nor committed by Mr. and Mrs. Inglis to the production of assessable income.
… The nexus between the expenditure and the derivation of assessable income was too slight to confer upon the expenditure the requisite character.
[47] Inglis at 4004.
The Applicants contend that the facts of the present case are sufficiently analogous to those in Steele to find that, as was found in Steele, the outgoings incurred were allowable deductions. The Respondent argues that the facts of the present case are materially distinguishable from Steele and that the expenses claimed are not deductions for the purposes of s 8.1 of the ITAA 1997. For the reasons set out below, I agree with the Respondent’s argument.
The relevant timeline and the actions taken by the taxpayer in Steele are, in my view, sufficiently different to the present case to clearly distinguish that case from the present. The relevant timeline in Steele[48] was as follows:
[48] These facts are taken from Steele at [5]-[9] and Steele FC at 439.
(a)1980: the taxpayer, Ms Steele sold a business in hospitality and catering industry and was looking for a new business opportunity. Ms Steele identified a 7.4 hectare property, then being used for purposes associated with horseracing, which she thought could be developed into a motel.
(b)December 1980: Ms Steele entered into a contract to purchase the property for $1 million with the sale settling in January 1981 and with a balance of purchase price and interest to be paid in January 1982.
(c)July 1981: Ms Steele engaged a firm of architects to prepare schematic designs for 80 townhouses. Plumbing and engineering reports were prepared. The proposal was described as "Residential Development with Community Facilities, Restaurant, Office Accommodation, Recreation Sports and Riding”. Around that time Ms Steele started negotiations with Mr Williams, a business associate and builder, for a possible joint development of the property.
(d)December 1981: Ms Steele and Mr Williams, having received engineering advice, applied to the local council for planning approval in respect of the construction of 40 units of motel-style accommodation, including administration and restaurant facilities, together with 110 free-standing units which could be either self-contained or serviced from the motel administration centre. The application was refused on grounds related to zoning and sewerage requirements.
(e)January 1982: Ms Steele sold half of her interest in the property to Mr Williams for $650,000. There was a collateral agreement which required Mr Williams to pay a specified additional sum "if the project proceeds to profitable completion".
(f)January 1982: a further application was made to the local council, and the development was approved in principle in February 1982.
(g)1982: a new architect was engaged, and a revised motel development plan, including livestock stables and a yearling sales complex, was lodged. Approved was granted by the council in May 1982.
(h)1982-3: negotiations on finance took place and Ms Steele and Mr Williams negotiated with Southern Pacific Hotel Corporation Ltd for the sale of an interest in, and management rights of the proposed motel development. Those negotiations ultimately fell through.
(i)1984: Ms Steele and Mr Williams fell into dispute over the development resulting in litigation and, eventually, an order of the Supreme Court for partition or sale of the property.
(j)December 1986: the property went to auction pursuant to the Court order with Mr Williams’ half interest being purchased by Ms Steele.
(k)May 1987: Ms Steele sold a half interest in the property.
(l)November 1988: Ms Steele sold the remaining interest in the property.
(m)
1981-1987: the property was used for the commercial agistment of horses.

The income from this activity was modest.
The above timeline is materially different to the timeline in the present case. In the case of Steele, within six months of settlement of the purchase of the property, Ms Steele had retained architects to prepare schematic design for a specific commercial development.

In December 1981, that is four months after retaining the architects, Ms Steele lodged an application for development approval for a specific development. This was refused on zoning and technical grounds. In January 1982 she sold a half interest to Mr Williams and by later in 1982 new architects were retained to develop revised plans for development. Development approval was granted by the council. Approval for the development having been granted, Ms Steele and Mr Williams entered into negotiations with a potential operator to manage the proposed motel. Those negotiations did not result in agreement and, it would appear that shortly thereafter, the development stalled as Ms Steele and Mr Williams fell into disagreement. That was only resolved by order of the Court made some time in 1985-6 with Mr Williams’ half interest in the property being sold in December 1986 to Ms Steele. Within six months, in May 1987, Ms Steele sold a half interest and, in November 1988, sold the balance.
Within approximately three years of purchasing the property with the intention developing a motel, Ms Steele had retained two sets of architects, designed and re-designed the proposal for a specific project to a level sufficient to obtain development approval, sold a half interest in the development and entered into negotiations with a national operator to operate the developed motel. The reason that the development stalled was the falling out of Ms Steele and Mr Williams. What can be seen from the timeline, however, is that there was a continuum of activity unequivocally directed to the development of a motel/commercial operation.
That is to be contrasted with the timeline in the present case as disclosed by Ms Meakins’ evidence (see [50] above). That timeline in total extends of some 17 years without even getting to a stage of architectural drawings being produced, let alone approval being granted or even an application for development approval being lodged. Ms Meakins evidence was that apart from not having any drawings done for a development of the Property, she has not had any costings for any proposed development done, she has not spoken to a builder about any proposed development, has not made any enquiries as to finance for any proposed development, has made no efforts to secure a tenant for any proposed development and has made no calculation of any income that might be generated by any development.[49]
[49] Transcript at 121-2.
Ms Meakins points to a range of external factors that she says have caused her not to have developed the Property (see [50] and [51] above). I have difficulty, however, in accepting that over a 17-year period, or even over the shorter periods from the purchase of the Property in 2006 to each of the 2015-18 financial years for which the deductions were claimed, that the circumstances identified by Ms Meakins justify nothing substantial being done towards developing the Property to generate income. The lack of any substantial action towards developing an income producing asset is inconsistent with an ongoing intention to develop the Property to generate assessable income. It is equally, if not more, consistent with an intention to hold the property on capital account. To hold onto the Property for nine or 12 years (i.e. to the dates on which the deductions are claimed), and ultimately 17 years, on the possibility that the market might change, or Intaglio may be able to secure adjoining property (which has happened), or Ms Meakins’ overseas work commitments permit, with no action of the most basic kind (e.g. having architectural drawings prepared, talking to a builder, costing a proposed development, doing any profitability calculation, sourcing possible finance) being taken towards realising the claimed intention, is not consistent with a meaningful, genuine intention during the relevant assessment periods of holding the Property for the sole purpose of deriving assessable income.
The elements Taxation Ruling TR 2004/4 (see [48(l)] above) are not met in the present case. Apart from minor and ad hoc rental being received for use of or access to the vacant, undeveloped Property, there has been no income generated and certainly no income generated by the type of development claimed by the Applicants to have, at all times, been the intended income producing development. The costs claimed are, at best, “entirely preliminary” to generating assessable income and were incurred “too soon before the commencement of the business or income-producing activity” as envisaged in [44] of Steele (see [70] above). The High Court in Steele referred to Softwood Pulp and Paper Ltd v FCT[50] wherein Menhennitt J found that, despite statements to the contrary, as a matter of fact the taxpayer “never did decide to go ahead in any definitive sense with the matter”. His Honour found that the payments were not deductible under s 51(1) of the ITAA 1936 because there were, in his view “entirely preliminary and directed to deciding whether or not an undertaking would be established to produce assessable income” and that the project “had not reached anything like the stage of doing anything in the course of gaining or producing assessable income”.
[50] (1976) 7 ATR 101 at 113 ; 76 ATC 4439 at 4450
In the present case there is a lack of any temporal relationship between the payments for which deductions are claimed and the actual or projected receipt of income. In fact, income from development of the Property of the character which Ms Meakins says was always the intention has never been generated. The payments for which deductions are claimed are not connected, temporally or otherwise, to the intended, but totally unrealized, income-producing development of the Property. As noted earlier, the payments for which deductions are claimed could relate as easily to costs of simply holding the asset on capital account. As found by Brennan J in Inglis (cited by the High Court in Steele; see [73] above) “….expenditure…does not become expenditure incurred in gaining or producing future assessable income merely because the taxpayer intends in the future to use [the property] to produce assessable income”.[51] Payments made to merely preserve the asset until it is so used are not deductible. In the case of the Applicants, the relevant intention is very much in futuro, and even then, only if circumstances and outside factors change from what has been the case since the purchase of the Property more than 17 years ago.
[51] Inglis at 4004.
The Applicants claim that it has always been the intention of Intaglio (effectively Ms Meakins) to develop the Property by building an income producing commercial or mixed commercial residential development. At the time of purchase of the Property the primary basis of the intention to develop the Property was to provide commercial offices and storage for DDH1. That may well have been the case, which is totally understandable and if, having purchased the Property for that purpose in May 2006, substantial steps had been taken to realise that intention, then there would be little doubt that the interest and other costs incurred in holding the Property would have been deductible. However, no such steps were taken and even on the Applicants’ case, the primary commercial factor underpinning the purchase of the Property, the construction of offices and storage for DDH1, ceased to be a factor by late 2007 when DDH1 moved into a commercial property at 123 Stirling Highway. Ms Meakins evidence was that at that point, she realised that she had lost DDH1 as a tenant (see [50(m)] above). No effort has been made since that time to secure another tenant.[52]
[52] Ms Meakins evidence, Transcript at 141.
I accept that an income producing development planned for a property may not proceed as initially planned and that along the way there may be circumstances that disrupt, delay, change or even defeat the development as originally intended. Such was the case in Steele. As noted above, however, the difference between the present case and Steele is that, unlike Ms Meakins, Ms Steele had a definite, identifiable plan for the development of the property which, in a relatively short timeframe, she refined and developed to the point of architectural plans and consultants’ reports sufficient to obtain local government development approval. Even to this day the Applicants have not advanced their “intention” in relation to the development to anywhere near that level.
While Ms Meakins says that it is and always has been her intention to build something on the Property which will produce assessable income, there comes a point at which an intention, if it is to be considered real or to have any meaning, has to be acted on in a practical sense otherwise the “intention” becomes nothing more than an unrealised, unactioned “hope”. That point, in my view, has long passed in the case of the Applicants and had passed by the relevant tax years for which the deductions are claimed. The present case is akin to Temelli in which Merkel J found:[53]
In my view the taxpayers did not have the requisite degree of commitment to the relevant income producing activity. At all relevant times until 30 June 1991 the issue of whether, and if so when, a residence would be built by them for income earning purposes remained to be determined. Pending that decision the payment of interest was a payment to preserve the land as a capital asset and, accordingly, was of capital or of a capital nature. Whilst it can be accepted that the acquisition of the Wyuna Court land and the preparation of plans early in 1989 is evidence of some commitment those steps fall short of a commitment to the income producing element of the project, being the building of the home.
[53] Temelli at 4721.
The Applicants in the present case did not even get to the level of commitment (preparation of plans) that were found by Merkel J in Temelli to be insufficient.
I find that the holding costs incurred by the Intaglio as trustee of the Trust in relation to the Property were not deductible under s 8.1 of the ITAA 1997 for the 2007 to 2017 income years, and that the holding costs for the income year 2018 were deductible in part only as determined by the Respondent.
Penalties
The Respondent imposed the shortfall penalties on the basis that the Applicants, more particularly Intaglio, had been reckless in claiming the holding costs as deductions under s 8.1 of the ITAA 1997.
As noted at [91(g)] below, a 20% increase in the base penalty amount for the 2016, 2017 and 2018 income years, was applied under s 284-220(1)(c) of Schedule 1 to the TAA on the basis that Intaglio “were (sic) previously liable to 50% administrative penalty for making a false or misleading statement”. I assume that this is a reference to the administrative penalty applied in respect of the 2015 income year.
At para 53 of the Reasons for Decision of 23 July 2021[54] in respect of Intaglio’s objections (see [2] above), the Respondent remitted the 20% increase on the basis that Intaglio “had not been advised of the previous penalty and your behaviour was not intentional disregard”. Accordingly, whether the 20% uplift was correctly applied is not an issue for determination in these proceedings. I do, however, note that, for the reasons explained by me at [339]-[345] of VTBL and Commissioner of Taxation,[55] the application of a 20% increase in penalty under s 284-220(1)(c) was not valid because the application of the relevant penalty for the 2015 income year was not “worked out under one of those items previously” as required for that subsection to apply. In fact, the relevant penalty in respect of the 2015 income year was “worked out” contemporaneously with the penalty for the 2016 income year, and after the penalties for the 2017 and 2018 income years (see [37]-[38] above). Accordingly, at the time of the “working out” of the uplift on the penalties for the 2016, 2017 and 2018 income years, there had not been a relevant base penalty applied “previously”. I also note that the error in para 15K of PSLA 2012/5 identified in [344] of VTBL remains uncorrected.
[54] R1/7.
[55] [2023] AATA 168.
The Applicant’s SFIC set out the Applicants’ case in relation to penalties as follows:
45. The taxpayer, on the evidence, clearly had at the very least a reasonably arguable case, indeed a compelling case, to be entitled to deduct the Holding Costs.
46. The conclusions of the Commissioner to the contrary, and that recklessness, intentional disregard and failure to take reasonable care are involved in the claiming of the deductions, have demonstrably no foundation whatsoever.
The Respondent’s SFIC was to the following effect:
(a)The Applicants became aware of the Respondent’s view as to the non-deductibility of the holding costs in 2015 because the necessary connection between the outgoings and the assessable income from rent had been lost. By that time Intaglio had had the Property for eight and a half years and there had been no apparent continuing efforts in pursuit of gaining or producing assessable rental income from the Property and no income had been derived from the property since its acquisition.
(b)Notwithstanding this, the Applicants subsequently made statements by lodging income tax returns which disclosed the amount of tax losses carried forward to later income years.
(c)A reasonable tax agent would have foreseen the significant risk that the claim for the deduction was highly likely to involve an adverse finding by the Respondent in relation to the existence and deductibility of the losses.
(d)The claim to the tax deduction was so tenuous that it was only explicable on the basis of gross carelessness in propounding the claim after the Respondent raised concerns in 2015.
(e)Intaglio (Ms Meakins) was reckless because gross carelessness or indifference was shown in the completion of the Trust income tax returns.
(f)The Applicants rely on Steele to support their deductions for holding costs. The facts of the two cases are fundamentally different. Accordingly, Intaglio did not have a reasonably arguable position in relation to deductions claimed.
(g)In relation to the 20% increase in the base penalty amount, a penalty was imposed in respect of the 2015 income year and, accordingly, the Trust (Intaglio) is liable for a 20% increase to the base penalty amount in the subsequent 2016, 2017 and 2018 income years.[56]
[56] Explained in para 172-5 of the Position Paper; R1/244.

In closing submissions, the Applicants expanded on the minimalist contentions in the SFIC. The Applicants stated that “it was never suggested to Ms Meakins in cross-examination that she did not consider the Holding Costs to be deductible”. That is correct, however, the Respondent does not contend that Ms Meakins (or Intaglio) claimed the deductions knowing or considering them not to be deductible. If that were the Respondent’s case, then the Respondent would have imposed the base penalties at 75% under item 1 in the table in s 284-90 of Schedule 1 to the TAA, not at 50% under item 2 (see [44] above).
The Applicants in closing contended that the deductibility of the holding costs was reasonably arguable given the facts and the law (citing Hill J in Walstern v Federal Commissioner of Taxation[57] which is referred to with approval in subsequent cases identified by the Applicants). They point to the fact that the Respondent had (before the income years in question) raised with the Applicants the deductibility of the holding costs and that “whilst preserving the position with respect to the future, [the Respondent] did not intend to take any action with respect to the Holding Costs claimed to be carried forward and to be deductible against future income”. The Applicants refer to the 13 February 2015 letter from the Respondent in this regard (see [22] above). In those circumstances, the Applicants claiming these expenses as deductions could not be said to be reckless.
[57] (2003) ATC 5076.
For the reasons that I have set out above, I have found that interest and other holding costs claimed by Intaglio were not deductible. I do not accept the Applicants’ argument that it was reasonably arguable (as that term is defined in the TAA) that the expenses claimed were, in the circumstances, deductible under s 8.1 of the ITAA 1997. Section 284-15 of the TAA relevantly provides that:
(1) A matter is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect.
(2) …
(3) Without limiting subsection (1), these authorities are relevant:
(a) a * taxation law;
(b) material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901 ;
(c) a decision of a court (whether or not an Australian court), the * AAT or a Board of Review;
(d) a * public ruling.
(Original emphasis)
The Applicants relied heavily on Steele. For the reasons set out in [75] to [81] above, the facts in the present case are obviously and clearly distinguishable from the facts in Steele. Given the circumstances of the Applicants’ case and the relevant authorities, it could not be concluded that the Applicants’ arguments were about as likely, or more likely, to be correct than incorrect. The Applicants’ case was not reasonably arguable.
I am also satisfied that the false or misleading statements, being the claims for deductions under s 8.1 of the ITAA 1997, were reckless. Miscellaneous Tax Ruling MT2008/1[58] describes “reckless” as being conduct which “…is more culpable than a failure to take reasonable care to comply with a taxation law but less culpable than an intentional disregard of a taxation law”.[59] MT2008/1 goes on to say that “…[t]here must be the presence of conduct that falls short of the standard of a reasonable person in the position of the entity. Similar to the position with a failure to take reasonable care, dishonesty is not an element of establishing recklessness”.[60]
[58] MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
[59] Ibid at [99].
[60] Ibid at [100].
MT2008/1 refers to the endorsement of the Full Court in Hart v C of T[61] of the comments of Cooper J at [77] in BRK (Bris) Pty Ltd v. FC of Taxation[62] that:
Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and a reasonable person in the position of the statement maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood the proscribed conduct is more than mere negligence and must amount to gross carelessness.
[61] (2003) 131 FCR 203; 2003 ATC 4665.
[62] [2001] FCA 164; 2001 ATC 4111; (2001) 46 ATR 347.
The above passage was cited with approval in Anglo American Investments Pty Ltd (Trustee)v Commissioner of Taxation.[63]
[63] [2022] FCA 971 at [474] (Logan J).
The Applicants’ relevant statements in the present case were made knowing that there was a real, as opposed to a fanciful, risk that the material may be incorrect and a reasonable person in the Applicants’ position would see there was a real risk that the relevant legislation and regulations may not operate correctly to lead to the assessment of the proper tax payable. This was more than the making of claims that “pushed the envelope” or which were at the boundaries of reasonably claimable, they were claims made relying heavily on analogy to Steele when the circumstances of the Applicants’ case were clearly distinguishable from the circumstances of Steele.
I find that the application of the penalty at the rate of 50% under Item 2 in the table in s 284-90 of Schedule 1 to the TAA is appropriate.
Should the penalties be remitted?
Section 298-20 of Schedule 1 to the TAA relevantly provides:
(1) The Commissioner may remit all or a part of the penalty.
At [192] of Sanctuary Lakes Pty Ltd v Commissioner of Taxation,[64] Greenwood J described the discretion to remit penalty under s 298-20 of the TAA as follows:
Section 298-20 addresses the topic of “Remission of Penalty”. It applies to each penalty arising under each of the penalty regimes under Part 4-25. In order to provide the Commissioner with the flexibility necessary to determine the circumstances informing the exercise of the discretion to remit a penalty imposed under a Division of Part 4-25, s 298-20(1) simply provides that the Commissioner “may remit all or a part of the penalty”. Section 298-20 does not provide for any considerations that must be taken into account in the exercise of the discretion to remit all or a part of the penalty.
[64] (2013) 212 FCR 483; [2013] FCAFC 50.
Greenwood J at [193] further described the discretion under s 298-20 of the TAA in the following terms:
The discretion conferred by s 298-20(1) is unconstrained, according to its terms. It must, however, be exercised for a proper purpose; in accordance with the objects of the [TAA]; and according to law.
His Honour described the basis for the exercise of the discretion to remit as follows:
206. Upon a proper exercise of the discretion, the Tribunal might or might not conclude that the penalty imposed by the [TAA] on the taxpayer in failing to take reasonable care is to be remitted to zero. That is entirely a matter of merits assessment in the exercise of the discretion for the Tribunal in determining where the balance of factors lies. However, the exercise of the discretion must take account of the statutory scheme, the foundation upon which the [TAA] imposes the penalty and the questions that need to be examined in exercising the discretionary power to remit the penalty.
207. The Tribunal must be taken to have asked itself the question, does the object of the penalty regime justify the exercise of the discretion conferred by s 298-20(1) of Sch 1 so as to remit the penalty imposed upon the taxpayer by operation of s 284-75(1), s 284-80, s 284-85 and s 284-90 of Sch 1, to nil because the statement made to the Commissioner in the absence of reasonable care nevertheless gave rise to a reasonably arguable claim for a deduction.
...
209. In exercising the discretion under s 298-20(1) to remit, the Tribunal was required to ask itself, having regard to the evidence, what were the circumstances surrounding the failure on the part of the taxpayer or its agent to exercise reasonable care in making the statement to the Commissioner that might explain the conduct the subject of the penalty and what circumstances, on the evidence, ought to be taken into account in determining, as a matter of discretion, that notwithstanding the imposition of a penalty on the taxpayer by the [TAA] on the footing of a failure to take reasonable care in making the statement, the penalty ought nevertheless be reduced either in whole or in part, and as in this case, to nothing.
Justice Griffiths in Sanctuary Lakes, having reviewed the language of s 227(3) of the ITAA 1936 dealing with the discretion under that act to remit penalties (which refers remission where the outcome would otherwise be harsh), observed at [247]:
In my view, there is no warrant for reading into the broad discretion conferred by s 298-20 of the TAA 1953 (or, indeed, former s 227(3) of the ITAA 1936) a requirement that the decision-maker must be satisfied that the outcome is “harsh” for the particular taxpayer in his or her individual circumstances unless penalty is remitted. One rhetorically asks what is the basis for reading into s 298-20 a term which is simply not there?
And at [249]:
In my opinion, the correct question which arises under s 298-20 should not be expressed in terms of “harshness”. Rather, the question is simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part. For example, a decision-maker might determine that it is appropriate to remit penalty in whole or in part because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate), as opposed to harsh (see the observations of McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 465 on the different meanings of the individual words “harsh”, “unjust” and “unreasonable” in a different context concerning unfair dismissal and the collocation of those words in both legislation and an industrial award).
In Bosanac and Federal Commissioner of Taxation[65] at [33] I described the exercise of the discretion under s 298-20 of the TAA as follows:
The Tribunal is bound and guided by the principles spelt out by the Court in Sanctuary Lakes. On that point the parties seem to be agreed. The correct question for the Tribunal as identified by the Court in Sanctuary Lakes is whether it is satisfied, having regard to the “taxpayer’s personal circumstances”, that it is “appropriate” to remit the penalty in whole or in part. The judgment in Sanctuary Lakes, as applied in subsequent cases, also makes it clear that the discretion in s 298-20 of Schedule 1 is broad.
[65] [2019] AATA 1240.
There was nothing in the evidence which would indicate that either of the Applicants’ personal circumstances, the circumstances that have given rise to the imposition of penalties or any other consideration, make it appropriate to remit any part of the penalties.
DECISIONS
The Applicants have failed to establish an entitlement to the deductions claimed and, accordingly, have failed to discharge the onus of proof under s 14ZZK of the TAA to prove that the assessment was excessive or otherwise incorrect. The Applicants have also failed to establish that the penalties were not correctly applied or that the penalties should be remitted in part or in full.
Application 2021/647 (Ms Meakins)
The objection decision dated 23 July 2021 is affirmed.
Applications 2021/6478, 2021/6479, 2021/6480 and 2021/6481 (Intaglio)
The objection decisions dated 23 July 2021 are affirmed.

I certify that the preceding 110 (one hundred and ten) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle

.................[Sgd]......................................................
Associate
Dated: 17 November 2023

Dates of hearing: 8-9 December 2022, 1 June 2023

Counsel for the Applicant: Mr S Penglis SC, Fourth Floor Chambers

Solicitors for the Applicant: Mr P Fletcher, Fletcher Law

Counsel for the Respondent: Ms V Long-Droppert, Francis Burt Chambers

Solicitors for the Respondent: Australian Taxation Office
ANNEXURE 1
Table 1

Income
Year

Date Lodged

Gross Rent

Net Rent

Total Net Trust
Income before Tax Losses Deducted

Losses
Deducted

Total Losses
Carried Forward

Beneficiary
Income

$

$

$

$

$

$

2007

09/05/2008

0

-94021

-97548

0

91778

0

2008

25/03/2009

0

-193098

-186024

0

277802

0

2009

15/06/2010

0

-197693

-195300

0

473102

0

2010

31/05/2011

0

-152427

-155830

0

628932

0

2011

20/04/2012

0

-168234

-164611

0

793543

0

2012

11/05/2013

0

-170844

-164255

0

957798

0

2013

29/03/2014

0

-107524

-107317

0

1065115

0

2014

25/06/2015

0

-76514

-76514

0

1141629

0

2015

03/06/2016

0

-38344

-38344

0

1179973

0

2016

19/10/2017

0

-18469

-21950

0

1201923

0

2017

11/07/2018

0

-12200

611289

611289

587984

0

2018

11/06/2019

7000

-4206

-870

0

588854

0

Table 2

Income Year Date Lodged Number of weeks property was rented this year Number of weeks property was available for rent this year

2007 9/05/2008 0 52

2008 25/03/2009 0 0

2009 15/06/2010 0 52

2010 31/05/2011 0 52

2011 20/04/2012 0 52

2012 11/05/2013 0 52

2013 29/03/2014 0 52

2014 25/06/2016 0 52

2015 3/06/2016 0 52

2016 19/10/2017 0 52

2017 11/07/2018 0 52

2018 11/06/2019 30 52
Table 3

Year

Gross Rent

Borrowing
Expenses.

Council Rates

Interest on Loan

Land Tax

Water Rates

Sundry Expenses

Total Expenses

Net Rent

$ $ $ $ $ $ $ $ $

2007 0 1446 2137 89422 1016 0 0 94021 -94021

2008 0 1594 1970 181669 7865 0 0 193098 -193098

2009 0 1761 5505 184073 6354 0 0 197693 -197693

2010 0 2427 5055 138741 5272 93 0 152427 -152427

2011 0 1594 5420 155619 4162 967 470 168234 -168234

2012 0 803 8608 153311 6383 1256 483 170844 -170844

2013 0 0 2140 102702 2173 509 0 107524 -107524

2014 0 0 5870 65660 3678 1306 0 76514 -76514

2015 0 0 3691 29243 4316 1094 0 38343 -38344

2016 0 0 5165 6524 6374 1406 0 18469 -18469

2017 0 0 4181 0 6448 1571 0 12200 -12200

2018 7000 0 4189 0 5684 1333 0 11206 -4206
Table 4

Income Year Date Lodged Non-PP Share of net income from trusts, less capital gains, foreign income and franked distributions

2017 11/07/2018 -6644

2018 11/06/2019 -71423

*Base penalty amount*
Item	In this situation:	The base penalty amount is:
1	You have a shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a taxation law (other than the *Excise Acts) by you or your agent	75% of your *shortfall amount or part
2	You have a shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a taxation law (other than the *Excise Acts)	50% of your *shortfall amount or part
3	You have a shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a taxation law (other than the *Excise Acts)	25% of your *shortfall amount or part

Dates of hearing:	8-9 December 2022, 1 June 2023
Counsel for the Applicant:	Mr S Penglis SC, Fourth Floor Chambers
Solicitors for the Applicant:	Mr P Fletcher, Fletcher Law
Counsel for the Respondent:	Ms V Long-Droppert, Francis Burt Chambers
Solicitors for the Respondent:	Australian Taxation Office

Income Year	Date Lodged	Gross Rent	Net Rent	Total Net Trust Income before Tax Losses Deducted	Losses Deducted	Total Losses Carried Forward	Beneficiary Income
$	$	$	$	$	$
2007	09/05/2008	0	-94021	-97548	0	91778	0
2008	25/03/2009	0	-193098	-186024	0	277802	0
2009	15/06/2010	0	-197693	-195300	0	473102	0
2010	31/05/2011	0	-152427	-155830	0	628932	0
2011	20/04/2012	0	-168234	-164611	0	793543	0
2012	11/05/2013	0	-170844	-164255	0	957798	0
2013	29/03/2014	0	-107524	-107317	0	1065115	0
2014	25/06/2015	0	-76514	-76514	0	1141629	0
2015	03/06/2016	0	-38344	-38344	0	1179973	0
2016	19/10/2017	0	-18469	-21950	0	1201923	0
2017	11/07/2018	0	-12200	611289	611289	587984	0
2018	11/06/2019	7000	-4206	-870	0	588854	0

Income Year	Date Lodged	Number of weeks property was rented this year	Number of weeks property was available for rent this year
2007	9/05/2008	0	52
2008	25/03/2009	0	0
2009	15/06/2010	0	52
2010	31/05/2011	0	52
2011	20/04/2012	0	52
2012	11/05/2013	0	52
2013	29/03/2014	0	52
2014	25/06/2016	0	52
2015	3/06/2016	0	52
2016	19/10/2017	0	52
2017	11/07/2018	0	52
2018	11/06/2019	30	52

Year	Gross Rent	Borrowing Expenses.	Council Rates	Interest on Loan	Land Tax	Water Rates	Sundry Expenses	Total Expenses	Net Rent
Year	Gross Rent	Borrowing Expenses.	Council Rates	Interest on Loan	Land Tax	Water Rates	Sundry Expenses	Total Expenses	Net Rent	$	$	$	$	$	$	$	$	$
2007	0	1446	2137	89422	1016	0	0	94021	-94021
2008	0	1594	1970	181669	7865	0	0	193098	-193098
2009	0	1761	5505	184073	6354	0	0	197693	-197693
2010	0	2427	5055	138741	5272	93	0	152427	-152427
2011	0	1594	5420	155619	4162	967	470	168234	-168234
2012	0	803	8608	153311	6383	1256	483	170844	-170844
2013	0	0	2140	102702	2173	509	0	107524	-107524
2014	0	0	5870	65660	3678	1306	0	76514	-76514
2015	0	0	3691	29243	4316	1094	0	38343	-38344
2016	0	0	5165	6524	6374	1406	0	18469	-18469
2017	0	0	4181	0	6448	1571	0	12200	-12200
2018	7000	0	4189	0	5684	1333	0	11206	-4206

Income Year	Date Lodged	Non-PP Share of net income from trusts, less capital gains, foreign income and franked distributions
2017	11/07/2018	-6644
2018	11/06/2019	-71423