In a test case decision handed down on Thur 3.4.2014, the Full Federal Court has set aside a decision of the AAT that an amount received by a taxpayer was an assessable recoupment and remitted the matter to the Tribunal for re-determination.
- Four entities collectively formed a partnership, whose business included the acquisition, development and management of retirement village facilities.
- The taxpayer held an interest in the business and assets of the partnership through one of the 4 entities forming the partnership.
- In June 1999, the partnership entered into an agreement with 2 other entities (Cresthaven and GDK), whereby Cresthaven was appointed to act as bare nominee for the partnership and GDK was appointed to manage the partnership’s business.
- Shortly thereafter, Cresthaven entered into a contract to buy a retirement village in Victoria from Primelife. Cresthaven paid a deposit of $6.5m, of which the taxpayer’s share was $55,500. The balance of the purchase price was payable on settlement, which was conditional on Primelife completing certain works.
- As a result of events in 2006 (including the settlement of proceedings brought by the partnership against the vendor of the retirement village, with the vendor agreeing to repay the deposit plus interest), the partnership was eventually repaid most of the deposit, of which the taxpayer’s share was $47,927.
The issue to be decided was whether that amount was assessable in the hands of the taxpayer. The Tribunal, in AAT Case [2013] AATA 93, Re Batchelor v FCT, had found that the taxpayer received the amount in her capacity as a partner in a business and in consequence of the settlement of a dispute concerning a failed development of a retirement village.
The Full Federal Court found that the Tribunal made an error of law in concluding, on the basis of what the Court said was the inadequate and deficient facts and evidence, that the receipt by the taxpayer was a recoupment “by way of insurance or indemnity”. It therefore set aside the Tribunal’s decision and remitted the matter to the Tribunal for redetermination.
(Batchelor v FCT [2014] FCAFC 41, Full Federal Court, Edmonds, Pagone and Wigney JJ, 3 April 2014.)
[LTN 64, 3/4/14]