Richmond v FC of T

Members:
Boyle DP

Tribunal:
Administrative Appeals Tribunal, Perth

MEDIA NEUTRAL CITATION: [2023] AATA 1915

Decision date: 27 June 2023

Boyle (Deputy President)

THE APPLICATION

1. By application lodged with the Tribunal on 22 March 2021,[1] T1. the Applicant seeks the review a decision of the Respondent dated 16 February 2021[2] T19. disallowing the Applicant's Notice of Objection dated 2 April 2020[3] T5/T6. to the income tax assessment issued by the Respondent for the year ended 30 June 2018 ( Objection Decision ).

2. By his Objection, the Applicant objected to the Respondent's disallowance of a deduction for a $1,500,000 payment made by the Applicant in July 2017 and the related $78,890 duty paid to the Government of Western Australia Office of State Revenue ( OSR ).[4] Total deduction claimed $1,578,890.

3. In the Reasons for Decision ,[5] T2. the Respondent advised that the payment was not allowed as a deduction as it did not satisfy the requirements of s 8-1 or Division 40 of the Income Tax Assessment Act 1997 (Cth) ( ITAA 97 ).

Jurisdiction

4. The Objection Decision is an objection decision as that term is defined in s 14ZY(2) of the Taxation Administration Act 1953 (Cth) ( TAA ) and is a reviewable objection decision, as that term is defined in s 14ZQ of the TAA. It is, therefore, a decision which is reviewable by the Tribunal under s 14ZZ(1)(a)(i) of the TAA.

5. The application for review was in appropriate form and was lodged with the Tribunal within the time prescribed by s 29 of the Administrative Appeals Tribunal Act 1975 (Cth) as amended by s 14ZZC of the TAA.

6. I am satisfied that the Tribunal has the power to review the Objection Decision.

BACKGROUND

7. The following facts are taken from the Reasons for Decision and are not in dispute.

8. The Applicant was, at the relevant time, a 10% owner of Western Australian Mining Lease ML 52/597 ( Tenement ) and Thundelarra Ltd, now known as Ora Gold Ltd, owned the other 90%.

9.

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On 21 March 2014, Thundelarra (as it was then known) and the Applicant entered into a joint venture ( Thundelarra JV ) agreement ( Thundelarra JVA ), in relation to the Tenement.

10. On 16 June 2016, Thundelarra entered into a conditional farm-in agreement with Sandfire Resources Ltd for Sandfire to acquire a 75% interest in the Thundelarra JV. Clause 6(a) of the Thundelarra JVA required Thundelarra to offer that interest to the Applicant prior to selling it to a third party.

11. By letter dated 19 June 2017 ( Offer Letter ),[6] T8. with an attached Schedule 1 headed Farm-In Agreement terms and conditions, Thundelarra made an offer to the Applicant for the Applicant to acquire the 75% interest in the Thundelarra JV from Thundelarra through a farm-in agreement ( FIA ) in the terms of the conditional farm-in agreement with Sandfire, which included the terms in Schedule 1.

12. Relevant provisions of the FIA (constituted by the Offer Letter and Schedule 1) included the following terms:

13. On 18 July 2017, the Applicant accepted the offer and paid Thundelarra the $1,500,000 (plus GST). The Applicant claimed the tax deduction of $1,578,890 (see [2] above) to which these proceedings relate.

14. On 19 December 2018, the Applicant provided notice to Thundelarra that he had satisfied the Minimum Expenditure Condition (see [12(b)] above).

15. By letter dated 22 January 2019, the Applicant through his solicitors, Kavanagh Legal,[7] T10. confirmed that he had the Earn-in Option (see [12(c)] above) and that he intended, until he served a withdrawal notice on Thundelarra, to undertake further work on the Tenement.

THE ISSUES FOR DETERMINATION

16. The Respondent identified the issue as, generally, being whether the assessment was excessive or otherwise incorrect and, if so, what it should have been[8] Citing s 14ZZK of the TAA Act (Respondent’s SFIC para 18). which, in turn, requires determination of whether:

17. The Applicant, in effect, identified the same issues for determination.[10] Applicant’s SFIC paras 22 and 23.

18.

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I agree that the issues as identified in [16] above are the issues for determination in these proceedings.

THE LEGISLATIVE FRAMEWORK

19. Section 8-1 of the ITAA 97 relevantly provides:

20. Relevant to the Applicant's alternative claims for deductions under Division 40 of ITAA 97:

21. Section 40-30 relevantly provides:

THE HEARING

22. The application was heard on 27 October 2022. The Applicant was represented by Dr M Robson and the Respondent was represented by Ms J Watson. The Applicant's witness statement dated 27 October 2021[11] A1. and the Applicant's supplementary witness statement dated 11 October 2022[12] A2. were admitted into evidence. The Applicant was not called to give evidence and the Respondent did not require his cross-examination on his witness statements. In addition to the Applicant's witness statements, I had before me the Reasons for Decision and Relevant Documents filed by the Respondent pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth), the parties' respective statements of facts, issues and contentions and the parties' respective outlines of submissions.

THE PARTIES' SUBMISSIONS

The Applicant

23. The Applicant's amended submissions dated 24 October 2022 were to the following effect.

Deductions under s 8-1 of the ITAA 97

Alternate argument - Deduction under Division 40 of the ITAA 97

The Respondent

24. The Respondent's amended outline of submissions dated 26 October 2022 were to the following effect:

What was the $1,500,000 Payment for?

Response to Applicant's submission that $1,500,000 payment was in the nature of a revenue expenditure

Division 40 ITAA 97

CONSIDERATION

25. The facts, perhaps with the exception of the Applicant's subjective intent in making the $1,500,000 payment, are not in dispute. In that regard I note Dr Robson in opening advised that:[35] Transcript at 2-3.

…there was a concern about whether the evidence in the supplementary witness statement of 11 October this year might have been for the purpose of subjective intention being put into evidence and it's not at all for that purpose, we agree with the Commissioner's submissions on that. It is simply to ensure the [T]ribunal was aware of certain information that was provided to the [A]pplicant (indistinct).

26. The issues are to be determined by the legal effect of the Thundelarra JVA, the FIA and the proper characterisation of the $1,500,000 payment made by the Applicant pursuant to the FIA on 18 July 2017.

27. The Applicant at para 7 of his amended submissions refined the primary issue for determination, correctly in my view, to come down to:

It is significant in this matter to consider the Red Bore Joint Venture Agreement (Thundelarra JVA dated 21 March 2014 (Document T7) and the Farm-in Agreement date 18 July 2017 (Document T8) to properly characterise whether the Applicant's outgoings were of a revenue or capital character.

28. Both parties approached the matter on the basis of the issue being largely determined by the proper characterisation of the $1,500,000 payment, in particular, whether the payment was on revenue account or on capital account. A deduction cannot be claimed under s 8-1 of the ITAA 97 for a loss or outgoing that is capital or of a capital nature:[36] s 8-1(2)(a): see [19] above

29. As noted by the Respondent, the seminal statement on that issue is that of Dixon J in Sun Newspapers wherein his Honour at 359 stated:

The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure, or organization set up or established for the earning of profit and the process by which such an organization operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit or loss.

And at 360:

As general conceptions it may not be difficult to distinguish between the profit yielding subject and the process of operating it. In the same way expenditure and outlay upon establishing, replacing and enlarging the profit-yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied

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continually out of the returns or revenue. The latter can be considered, estimated and determined only in relation to a period or interval of time, the former as at a point of time. For the one concerns the instrument for earning profits and the other the continuous process of its use or employment for that purpose.

And at 363:

There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment.

30. In relation to the recurrence of expenditure being indicative of whether an expense is of a capital or income nature, Dixon J observed at 361-2:

In the attempt, by no means successful, to find some test or standard by the application of which expenditure or outgoings may be referred to capital account or to revenue account the courts have relied to some extent upon the difference between an outlay which is recurrent, repeated or continual and that which is final or made "once for all", and to a still greater extent upon a distinction to be discovered in the nature of the asset or advantage obtained by the outlay. If what is commonly understood as a fixed capital asset is acquired the question answers itself. But the distinction goes further. The result or purpose of the expenditure may be to bring into existence or procure some asset or advantage of a lasting character which will endure for the benefit of the organization or system or "profit-earning subject." It will thus be distinguished from the expenditure which should be recouped by circulating capital or by working capital.

…

But the idea of recurrence and the idea of endurance or continuance over a duration of time both depend on degree and comparison.

…

Recurrence is not a test, it is no more than a consideration the weight of which depends upon the nature of the expenditure.

…

Again, the cases which distinguish between capital sums payable by instalments and periodical payments analogous to rent payable on revenue account illustrate the fact that rights and advantages of the same duration and nature may be the subject of recurrent payments which are referable to capital expenditure or income expenditure according to the true character of the consideration given, that is, whether on the one hand it is a capitalized sum payable by deferred instalments or on the other hire or rent accruing de die in diem, or at other intervals, for the use of the thing…

31. At page 360 of Sun Newspapers, Dixon J also noted that capital could be intangible:

But in spite of the entirely different forms, material and immaterial, in which it may be expressed, such sources of income contain or consist in what has been called a "profit-yielding subject," the phrase of Lord Blackburn in United Collieries Ltd. v. Inland Revenue Commissioners.

(citation omitted)

32. In Hallstroms Dixon J at 646-7 expanded on his observations on the distinction between capital and income expenditure as follows:

I shall endeavour to apply what I conceive to be the principles that determine whether an outgoing is on account of capital or of revenue. As a prefatory remark it may be useful to recall the general consideration that the contrast between the two forms of expenditure corresponds to the distinction between the acquisition of the means of production and the use of them; between establishing or extending a business organization and carrying on the business; between the implements employed in work and the regular performance of the work in which they are employed; between an

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enterprise itself and the sustained effort of those engaged in it.

And at 468:

This appears to me to go to the character and organization of the profit-earning business and not to be an incident in the operations by which it is carried on. I think that it is an affair of capital.

…

What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view, rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process.

33. The method by which a payment or payments is or are made is also not determinative of whether an expenditure is to capital or revenue account. In Colonial Mutual Fullagar J considered the terms of the contract in question as follows:[37] Colonial Mutual pp 450-451, 454.

The essence of the contract of 16th February 1934, so far as the company and Just Brothers are concerned, is that Just Brothers agree to transfer their land to the company in consideration of a promise by the company to pay to them for a period of fifty years from 1st January 1935 or from the completion of the building, whichever is the later, an amount equal to ninety per cent of all rents as and when received from lessees or tenants of three shops and a basement in the new building. The document, of necessity, contains a number of subsidiary provisions.

…

The provisions which I have mentioned were, of course, designed to ensure that the premises whose rental was to provide the measure of the company's obligation should come into existence and be let as advantageously as possible, and to prescribe the time and manner of the performance of the company's obligation. But the whole essence and substance of the contract is, as I have said, that the company is to acquire the land…

…

it is incontestable here that the moneys are paid in order to acquire a capital asset. The documents make it quite clear that these payments constitute the price payable on a purchase of land, and that appears to me to be the end of the matter. It does not matter how they are calculated, or how they are payable, or when they are payable, or whether they may for a period cease to be payable. If they are paid as parts of the purchase price of an asset forming part of the fixed capital of the company, they are outgoings of capital or of a capital nature. It does not indeed seem to me to be possible to say that they are incurred in the relevant sense in gaining or producing assessable income or in carrying on a business - any more than payment of a lump sum would have been so incurred if the purchase price had been a lump sum payable on transfer. The questions which commonly arise in this type of case are (1) What is the money really paid for? - and (2) Is what it is really paid for, in truth and in substance, a capital asset?

34. The Applicant relies on MT 2012/2. The parties agree, correctly in my view, that the FIA was a deferred transfer farm-out arrangement for the purposes of MT 2012/2. The Applicant argues that the $1,500,000 payment was for the grant of a right of exclusive use and access and that paras 22-25 of MT 2012/2 make clear that that is on revenue account.[38] Applicant’s amended submissions para 19. As the Respondent correctly points out, insofar as those paragraphs of MT 2012/2 refer to payment for the grant of such rights as being on revenue account, they are referring to the revenue account of the farmor, not the farmee. Paragraph 25 of MT 2012/2 provides:

The grant of the exclusive use and access rights is treated in this Ruling as being on revenue account. The payments received from the farmee in return for the grant of these rights are the revenue from the exploitation of an asset of the farmor, being the mining tenement it holds.

35. The fact that MT 2012/2 treats the receipt of payment for the grant of a right of exclusive use and access to be on the farmor's revenue account does not mean that the payment made by the farmee is to be

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on the farmee's revenue account.[39] see Williams ACJ in Colonial Mutual at p 442. That issue is determined by the application of the principles applied in the cases referred to above in determining whether a payment is treated as being on revenue account or capital account.

36. The Applicant's argument is also reliant on the payment in question being for the grant of an exclusive right to use and access. In that regard the Applicant refers to para 46 of MT 2012/2 which provides:

The farmee can deduct expenditure incurred on acquiring the exclusive use and access rights under section 8-1 of the ITAA 1997 if the requirements of section 8-1 of the ITAA 1997 are satisfied. The deduction is allowed in the income year in which the expenditure is incurred.

37. The Applicant also argues that cost of exploration, which is not incurred on exploration or prospecting for the purposes of s 40-730(1) of the ITAA 97, is deductible by a farmee, citing para 72 of MT 2012/2 which provides that:

Expenditure by the farmee that relates to exploration by the farmee but which is not incurred on exploration or prospecting for the purposes of subsection 40-730(1) of the ITAA 1997 is deductible under section 8-1 of the ITAA 1997 if it is of a revenue character and the other requirements of section 8-1 of the ITAA 1997 are satisfied. An example is salary or wages of employees involved in general administration work for the farmee. The deduction is allowed in the income year in which the expenditure is incurred.

38. In relation to the Applicant's argument that the $1,500,000 payment was for the grant of a right of exclusive use and access, cl. 1(i) of Schedule 1 provided that "During the Earn-in Period [the Applicant] has the sole and exclusive right to access and explore the Tenement and to determine the nature and content of exploration programs and budgets". The Earn-in Period was defined in cl. 1(h) as the period when the Applicant was sole funding Exploration Expenditure. The right to sole fund the Exploration Expenditure arose under cl. 1(d) of Schedule 1 after the Applicant satisfied the Minimum Expenditure Condition which was defined in cl. 1(c) as being expending $1,500,000 on Exploration Expenditure within 18 months after satisfaction or waiver of the Condition Precedent. The Condition Precedent was defined is cl. 2(1)(ii) of Schedule 1 as being the Applicant not exercising his pre-emptive right to acquire Thundelarra's interest in the JV. The Applicant did in fact exercise that pre-emptive right.

39. There was no evidence that the Applicant satisfied the Minimum Expenditure Condition or otherwise acquired the right to sole fund the Exploration Expenditure. At para 30 of his witness statement A1, the Applicant referred to his "preparedness to match the $1.5 million payment Thundelarra was seeking from Sandfire to allow that access".

40. At para 31 of his witness statement A1, the Applicant also stated that he was prepared to pay the $1.5 million "in pursuing the discovery of mining information by its disclosure to me through Thundelarra's obligations under the 19 June 2017 Offer Letter."

41. At para 32 of his witness statement, the Applicant said that through receipt of mining royalties from other mining rights, he was "now in a position to fund the $1.5 million demanded by [Thundelarra] and to also make a commitment to spending large amounts on exploring or prospecting to discover a resource " (emphasis added).

42. It may well have been the case that the Applicant was prepared to spend large amounts on exploring or prospecting on the Tenement, however, there is no evidence that he satisfied the Minimum Expenditure Condition to acquire the sole and exclusive right to access and explore the Tenement pursuant to cl. 1(i) of Schedule 1. In any event, even on the Applicant's own evidence, it is clear that the $1,500,000 payment made by the Applicant for which he claims the deduction, was the payment required by para 3(a) of the Offer Letter. It was not, and is not claimed by the Applicant to be, Exploration Expenditure necessary for the Applicant to satisfy the Minimum Expenditure Condition to acquire the sole and exclusive right to access and explore the Tenement and to determine the nature and content of exploration programs and budgets under cl. 1(i) of Schedule 1. Even if the acquisition of such rights

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satisfied the requirements of para 46 of MT 2012/2 para (see [36] above), the Applicant simply did not acquire any such rights by the $1,500,000 payment for which he claims the deduction.

43. Similarly, the $1,500,000 payment made by the Applicant pursuant to para 3(a) of the Offer Letter was not expenditure incurred by the Applicant in exploration of the Tenement for the purposes of para 72 of MT 2012/2 (see [37] above).

44. Neither para 46 nor para 72 of MT 2012/2 applies in the present case.

45. I also do not accept what appears to be a broader argument raised by the Applicant that there is a "requisite nexus between the incurrence of the $1,578,890 and the carrying out of the Applicant's broad business activities which derive income".[40] Applicant’s SFIC para 36 and amended submissions para 25. The Applicant's argument relies on the payment in question being an expense incurred to access to the Tenement or to acquire information. For the reasons set out above, I do not accept the Applicant's characterisation of the $1,500,000 payment as being a payment to secure access to the Tenement, either for the purposes of para 72 of MT 2012/2 or more generally or as a payment to acquire information. It was certainly not money expended in exploring or prospecting on the Tenement. The fact that the Applicant may incur costs in his other activities in exploring and prospecting is irrelevant to the proper characterisation of the payment made pursuant to para 3(a) of the Offer Letter.

46. As noted by the Respondent, it was only in the Objection that the Applicant first referred to the payment of the $1,500,000 as being an Access Expenditure (see [24(b)] above). It seems that by defining the payment as an "Access Expenditure", the Applicant has sought to convert a payment which, under the terms of the FIA does not entitle the Applicant to sole or exclusive access, to a payment to which some access rights attach. The FIA did have provision for sole and exclusive access, however, that right did not arise on that payment being made, but rather on that payment being made plus a further $1,500,000 being spent on Exploration Expenditure within 18 months and other conditions being met. As set out above, there is no evidence that that Minimum Expenditure Condition was satisfied and the right to exclusive access under cl.1(i) of Schedule 1 acquired.

47. In para 37 of the Applicant's SFIC, the Applicant claims that on the payment of the $1,500,000 he acquired the right to access the Tenement. It may have been the case that the Applicant did access the Tenement (noting that he would have had that right by reason of his existing 10% interest in the Thundelarra JV in any event) and may have carried out exploration or prospecting to prove the resource on the Tenement, however, that does not cause the payment to be a payment for exclusive access for the purposes of para 46 of MT 2012/2 nor for the payment to be treated as an expense incurred in gaining or producing assessable income or incurred in carrying on a business.

The proper characterisation of the $1,500,000 payment

48. As set out above, the $1,500,000 payment for which the deduction was claimed was made pursuant to para 3(a) of the Offer Letter which, with Schedule 1, formed the FIA. Relevantly the Offer Letter provided:

49. The offer accepted by the Applicant was for the acquisition of a 75% interest in the Thundelarra JV through the FIA. The cost of acquiring that interest was, firstly the payment of the $1,500,000 under para 3(a) of the Offer Letter and thereafter the expenditure of a further $1,500,000 on exploration and compliance with the other requirements of the FIA. The payment of the $1,500,000 under para 3(a) of the FIA:

50. The $1,500,000 payment made by the Applicant pursuant to para 3(a) of the Offer Letter was on capital account. The fact that under the FIA the Applicant may have acquired some right to access (the conditions for which

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were not met) or that he may have been entitled to receive certain information (which he was already entitled to under the Thundelarra JVA and had already received, in part at least), does not alter the fundamental character of the payment as being for the purchase (eventually) of a 75% interest in the income producing asset, the Thundelarra JV/Tenement. Insofar as the Applicant may have acquired those rights to access and information under the FIA, they were ancillary to and for the purpose of facilitating the sale of the interest in the Thundelarra JV to the Applicant, a purchase which is inherently of a capital nature.

51. The Applicant is not entitled to the deduction claimed under s 8-1 of ITAA 97.

Is the Applicant entitled to a deduction under Division 40 of ITAA 97?

Section 40-25

52. The Applicant's argument for a deduction under this provision is set out in [24(v)-(z)] above. The Respondent rejects that argument on the basis that the rights acquired do not constitute MQPR or an interest in a MQPR within the meaning of s 995-1 of ITAA 97 (see [24(w)] above).

53. The Respondent argues that the Applicant's claim is based on a mischaracterisation of the $1,500,000 payment. It did not, according to the Respondent, result in the Applicant acquiring a depreciating asset as defined in s 40-30 of ITAA 97. The Respondent argues that the $1,500,000 payment was a payment to conditionally earn an option to acquire an interest in the Thundelarra JV. That, according to the Respondent, falls short of an interest in the Tenement. Any increased interest in the Tenement would only arise once the option was earnt and exercised by the Applicant. That did not occur and will not occur as the Applicant has relinquished any entitlement to the option and no longer has an interest in the Thundelarra JV at all.

54. I agree with the Respondent's analysis of the legal effect of the FIA and the $1,500,000 payment. The payment and the legal consequences of that payment under the FIA did not result in the Applicant having a depreciating asset in the form of MPQR as defined in s 40-30(2)(a) of the ITAA 97.

55. Insofar as the Applicant seeks to rely on the $1,500,000 payment as being a payment which resulted in the Applicant holding MPQI (the Applicant makes no submission on the value of such MPQI), I accept the Respondent's argument that that mischaracterises the payment and what was acquired by the payment. The payment was payment to conditionally earn an option to acquire an (increased) interest in the Thundelarra JV. As the Respondent also points out, irrespective of the Applicant's assertion that a reason for entering into the FIA was to obtain information which he claims had been withheld from him by Thundelarra (A1 at para 26), the Applicant was already entitled to that information under the Thundelarra JVA and had, some 12 days before executing the FIA, received some of the information to which he was entitled under the Thundelarra JVA.

56. The Applicant did not, at the relevant time, hold a depreciating asset in the form of MPQR or MPQI for the purposes of s 40-25 of the ITAA 97 as claimed by the Applicant.

Section 40-730

57. The Applicant relies on the $1,500,000 payment acquiring MPQI as being included by s 40-730(4)(d) in the definition of exploration and prospecting.[42] Applicant’s amended submissions para 48. The Applicant concedes that s 40-730(3) prevents a taxpayer from deducting expenditure under s 40-730(1) to the extent that it forms part of the cost of a 'depreciating asset'. Accordingly, deduction under this subsection is in the alternative to a deduction under s 40-40.

58. For reasons that I have set out above (see [51] and [56]), I do not accept the Applicant's characterisation of the $1,500,000 payment as being for the acquisition of information, including information which could be considered MPQI. The Applicant is not entitled to a deduction under s 40-730 as claimed in the alternative.

Section 40-880

59. On 26 October 2022 (the day before the hearing), that Applicant sent an email to that Respondent and the Tribunal advising that he "will not press his submissions concerning s 40-880 at paras 69-71 of the Applicant's amended submissions". That statement falls short of the Applicant withdrawing the claim for a deduction under s 40-880. Accordingly, I

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address the Applicant's entitlement to a deduction under that section as follows.

60. The Applicant claims a deduction under this section for a deduction over five years for capital expenditure if the expenditure is, amongst other things, not otherwise taken into account (s 40-880(1)(a)).

61. The Applicant argues that, by the payment, he secured certain rights to access and explore the Tenement, that he is in the business of exploration and prospecting and that the payment is deductable under s 40-880(4).

62. The Applicant's argument under s 40-880 fails for two reasons. The first is that it again mischaracterises the $1,500,000 payment as being for the purchase of certain access rights and/or information. The correct characterisation is that in [51] and [56] above.

63. The Applicant's argument also falls foul of s 40-880(5) which provides that:

You cannot deduct anything under this section for an amount of expenditure you incur to the extent that:

  • (a) it forms part of the * cost of a * depreciating asset that you * hold, used to hold or will hold;
  • …
  • (f) it could, apart from this section, be taken into account in working out the amount of a * capital gain or * capital loss from a * CGT event;

64. For the reasons given by the Respondent set out in [24(dd) and (ee)] above, the Applicant acquired a CGT asset, or entered into a contract to obtain a right to acquire a CGT asset when he entered into the FIA and the payment of the $1,500,000, the duty on that payment and the GST on that payment can be taken into account in working out the capital loss or gain from the CGT event as described in Division 104 of the ITAA 97.

65. Accordingly, the Applicant is not entitled to a deduction under s 40-880 of the ITAA 97.

DECISION

66. The Applicant has failed to establish an entitlement to a deduction on any of the bases put forward by him and, accordingly, has failed to discharge the onus of proof under s 14ZZK of the TAA to prove that the assessment was excessive or otherwise incorrect. Accordingly, the decision of the Respondent dated 16 February 2021 disallowing the Applicant's objection dated 2 April 2020 is affirmed.

Footnotes

[1] T1.
[2] T19.
[3] T5/T6.
[4] Total deduction claimed $1,578,890.
[5] T2.
[6] T8.
[7] T10.
[8] Citing s 14ZZK of the TAA Act (Respondent’s SFIC para 18).
[9] Respondent’s SFIC para 19.
[10] Applicant’s SFIC paras 22 and 23.
[11] A1.
[12] A2.
[13] Miscellaneous taxes: application of the income tax and GST laws to deferred transfer farm-out arrangements (18 April 2012)
[14] ITAA 97 s 995-1.
[15] ITAA 97 s 40-730(8).
[16] Citing TR 2017/1 paras 7 and 48.
[17] Citing TR 2017/1 par 18 and Commissioner of Taxation v Ampol Exploration Ltd (1986) 13 FCR 545 , 562 (Lockhart J) .
[18] Citing TR 2017/1 para 150-156.
[19] Citing MT 2012/2 para 72.
[20] Citing MT 2012/2 paras 46 and 72.
[21] Citing TR 2017/1 paras 202 and 203 and Goodman Fielder Wattie Ltd v Commissioner of Taxation (1991) 29 FCR 376 , 390 .
[22] Citing Thomas v Sorrell (1673) Vaughn 30 ; 124 ER 1098 .
[23] King v David Allen & Sons, Billposting Ltd (1916) 2 AC 54 ; Claude Neon Ltd v Melbourne and Metropolitan Board of Works (1969) 43 ALJR 69 .
[24] Citing Commissioner of Taxation v Bargwanna [2009] FCA 620 , [28] (Edmonds J) and the cases cited therein. See also TR 2017/1 Appendix 1 at [147].
[25] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 (Mason J).
[26] Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Ltd [2015] VSCA 286 at [135] ).
[27] (1939) 61 CLR 337 at 359-363 .
[28] (1959) 101 CLR 30 .
[29] (1946) 72 CLR 634 at 647 .
[30] Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1953) 89 CLR 428 at 454 per Fullagar J.
[31] See Rebecca Rizkallah v Commissioner of Taxation [2022] AATA 3081 at [68] – [69] .
[32] T9.
[33] T10.
[34] A2.
[35] Transcript at 2-3.
[36] s 8-1(2)(a): see [19] above
[37] Colonial Mutual pp 450-451, 454.
[38] Applicant’s amended submissions para 19.
[39] see Williams ACJ in Colonial Mutual at p 442.
[40] Applicant’s SFIC para 36 and amended submissions para 25.
[41] (1926) AC 205 .
[42] Applicant’s amended submissions para 48.

 

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