The Full Federal Court has dismissed a taxpayer’s appeal against a Federal Court decision that he was not carrying on a business of primary production in the relevant years and was therefore not entitled to deductions in respect of improvements he made to the property.
The taxpayer had appealed the decision of Collier J (in Nelson v FCT [2014] FCA 57), which had dismissed his appeal from the AAT (in [2012] AATA 579 Re Nelson and FCT) affirming the Commissioner’s decision to disallow his objection.
The objection was against the disallowance of his deduction claims for expenditure incurred in a “primary production” business in the income years ended 30 June 2004 to 30 June 2009 inclusive.
[The AAT] confirmed [the Commissioner’s objection decision] holding that the taxpayer was not carrying on a business of primary production during the 2004 to 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.
[The Federal Court held that the AAT was not made a mistake in law in how it applied the law and upheld the AAT’s decision.]
In the current appeal, the Commissioner however objected to the competency of the taxpayer’s appeal on the ground that the notice of appeal did not raise any relevant question of law that would have enlivened the jurisdiction of the Court under s 44 of the Administrative Appeals Tribunal Act 1975 to hear and determine an appeal from the Tribunal.
Th[is] Court considered that most of the taxpayer’s grounds of appeal did not raise questions of law, but rather sought to challenge the findings of fact on which the Tribunal based its decision that the activities carried out by the taxpayer did not amount to the carrying on of a business. After reviewing the matter, the Full Federal Court dismissed the taxpayer’s appeal. The Court said the taxpayer was not denied the opportunity to present his case before the Tribunal and there was no breach of s 39 of the AAT Act.
(Nelson v FCT [2014] FCAFC 163, Full Federal Court, Greenwood, Rares and Davies JJ, 2 December 2014.)
FJM Note on Case
It is not immediately obvious why deductions would only be allowed if the taxpayer were carrying on a business but it transpired that the Taxpayer had not earned any income from its activities on this property and it appears that it was accepted that s8-1 deductions would not be available under the first limb (incurred to gain or produce assessable income) and thus could only be deducted under the second limb (necessarily incurred in a business carried on for the purpose of gaining or producing assessable income). The initial decision of the AAT was that the Taxpayer’s activities were merely preparatory to carrying on a business.
[LTN 234, 3/12/14]