ZBFF and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal, presided over by Deputy President Bernard J McCabe, considered a dispute between ZBFF (the taxpayer) and the Commissioner of Taxation concerning capital gains tax. The core of the disagreement involved the deductibility of a payment made by the taxpayer to a Mr Green, which the taxpayer sought to treat as a business expense under section 40-880 of the *Income Tax Assessment Act 1997* (Cth).

The Tribunal was required to determine whether the taxpayer had discharged its onus to establish that the trust was conducting a business and that there was a sufficient nexus between the payment made to Mr Green and that business. Specifically, the Tribunal had to assess whether the evidence demonstrated the characteristics of a business and whether the payment constituted a capital expenditure relevant to such a business.

Deputy President McCabe found that the taxpayer had not provided sufficient evidence to satisfy the requirement of conducting a business, noting that mere investment activity and property acquisition within a given period were insufficient. Furthermore, the Tribunal concluded that the payment to Mr Green was made pursuant to an obligation under a contract, rather than being a capital expenditure in a relevant sense related to a business. Consequently, the payment was not deductible under section 40-880.

The Tribunal affirmed the Commissioner's objection decision. It held that, despite being persuaded by the taxpayer regarding the substance of the agreement, the operation of the capital gains tax provisions meant the payment to Mr Green formed part of the taxpayer's net capital gain and was therefore assessable income.