Federal Court decision in the retirement village scheme test case
On 22 April 2008, the Federal Court handed down a decision in the retirement village scheme test case Malouf v. Federal Commissioner of Taxation (2008) FCA 497 (Malouf) on the issue of the income tax deductibility of contributions made by investors for the cost of the acquisition of land and the construction of a retirement village.
The Commissioner has appealed the decision to the Full Federal Court on the substantive issue of ‘incurred’ and the appeal is to be heard on 14 November 2008.
In the Malouf decision the issue of penalties did not arise as it was held that the entire amount was deductible in the year of income in which the contract was signed.
While in the Malouf case penalty did not arise because the taxpayer was successful in his case Justice Allsop made obiter comment that the imposition of penalty was not legally warranted.
Therefore, consideration of the imposition and remission of tax shortfall penalty is based on an evaluation of all the circumstances surrounding the making of a false or misleading statement. It takes into account the individual circumstances of the taxpayer and has regard for the efforts taken by the taxpayer or their agent to comply with their tax obligations.
The Commissioner has identified a number of investors who, based on evidence provided, he considered took reasonable care in their decision to claim the original income tax deduction. These investors have received a remission of tax shortfall penalty to nil.
In relation to all other investors, and pending the outcome of the final court appeal process, the Commissioner will deal with penalty remissions on an individual basis.
For more information, contact our hotline on 1300 559 952.
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