The Federal Court has dismissed a taxpayer’s appeal from the decision in AAT Case [2012] AATA 579, Re Nelson and FCT in which the AAT confirmed the taxpayer was not carrying on a business of primary production during the 2004-2009 years of income on a 500 acre property in Queensland he purchased and that therefore he was not entitled to deductions in respect of improvements he made to the property and other expenses he incurred, including the depreciation of assets.

In doing so, the AAT relied primarily on the criteria in Taxation Ruling TR 97/11 (Income tax: am I carrying on a business of primary production?) to find that no such business was being carried on as the activities were still in the preparatory stages of the business in the years in question.

In dismissing the taxpayer’s appeal, the Federal Court found that while the AAT took a “shorthand” approach by relying heavily on the Ruling for the meaning of “carrying on a business”, and that it perhaps should have more closely considered specific legal principles, nevertheless it found it was unable to identify any legal error in the AAT’s approach. In regard to this matter, the Court found

  • the AAT was fully cognisant of the task before it;
  • that it recognised the Ruling reflected legal principles articulated in many relevant cases in this area of law;
  • that it realised it was not required to rigidly adopt the principles explained in the Ruling; and
  • that the case required determination on its peculiar facts.

Accordingly, the Court found it was open to it to conclude that the activities of the taxpayer were preparatory to the carrying on of a business, rather than incidental to the carrying on of a business – particularly as the Ruling contains many principles which have been endorsed by the Courts to guide determination of whether a taxpayer is, in fact, “carrying on a business”.

(Nelson v FCT [2014] FCA 57, Federal Court, Collier J, 11 February 2014.)

[LTN 35, 21/2/14]