The AAT has affirmed the Commissioner’s objection decisions denying a taxpayer’s claims for reduction of a capital gain on the disposal of a property.
In the year ended 30 June 1989, the taxpayer acquired 14.508 hectares of unimproved land, zoned “Rural”, situated in Wanneroo in Western Australia (Property) with the intention of developing it for use as a turkey farm.
However, as a result of what the taxpayer said was “planning (resumption) and environmental obstacles, beyond his control”, the Property was ultimately never used as a turkey farm. Instead, it was rezoned to “Special Rural”, subdivided and sold by the taxpayer in the years ended 30 June 2007 to 30 June 2010, resulting in the realisation of a CGT asset.
The taxpayer’s objections to assessments totalling just over $870,000 for the 2007 to 2010 years were disallowed and the matter came before the Tribunal. The Tribunal had to consider whether:
- the taxpayer’s gross capital gain for the year ended 30 June 2007 (from the disposal of part of the Property in Lots) should be reduced by $222,576, which the taxpayer argued was a net capital loss he incurred in the year ended 30 June 1998 (or a subsequent year) and carried forward to the year ended 30 June 2007 in respect of a payment made by the taxpayer as a guarantor of a tax debt owed by a related company;
- the taxpayer’s gross capital gain for the year ended 30 June 2009 should be reduced by $340,740, which the taxpayer argued should have been included in the cost base of Lot 300. Lot 300 was a result of the subdivision of the Property. Lot 300 was compulsorily acquired by the City of Wanneroo in the 2009 year; and
- the taxpayer was entitled to deductions totalling id=”mce_marker”,894,147 in the years ended 30 June 2007, 2008 and 2010 under s 51(1) of the ITAA 1936 or s 8-1(1) of the ITAA 1997, as applicable, for revenue expenses (interest, land tax and council rates) the taxpayer claimed to have incurred in the years ended 30 June 1990 to 2010 inclusive resulting in deductions in, or “tax losses” carried forward to, the years ended 30 June 2007, 2008 and 2010.
After reviewing the matter, the Tribunal affirmed the Commissioner’s objection decisions. [NO REASONS given in this summary – see FJM Notes below.]
(Re Applicant and FCT [2015] AATA 244, AAT, Walsh SM, File Nos: 2013/6115 – 6118, 23 April 2015.)
[LTN 77, 24/4/15]
No carry forward capital loss – FJM note
The Applicant claimed the capital loss arose when the debt owed by his related company (OCS) ended without being paid resulting in no capital proceeds and a capital loss.
The Commissioner’s submissions (which the AAT accepted – see para [54] were) were that far from the Applicant ceasing to have a debt owed by OCS on making the tax payment (on 16 Dec 2004), the debt from OCS didn’t arise until he made the tax payment on behalf of OCS (under the ‘Deed of Acknowledgment, Guarantee and Indemnity’, under which OCS indemnified the Applicant for the tax paid on its behalf). OCS was in insolvent administration from 10 July 2001 to 3 June 2010 and was deregistered on 30 June 2011. The Commissioner submitted that it was not until OCS was deregistered that the debt ceased to exist and the capital loss arose (too late for relief in the relevant 2007 to 2010 years).
And for good measure, the Commissioner also submitted that the debt that the Applicant acquired was a ‘personal use’ asset on which capital gains and losses are disregarded (under s108-20(1) ITAA97). This was because the debt did not arise in the course of deriving assessable income or in the course of carrying on a business for that purpose (s108-20(2)). The Tribunal agreed with these submissions too (see para [63]).
No increase in cost base for Lot 300 – FJM Note
The Applicant Taxpayer claimed legal fees and planning fees (on top of a share of the cost base for the whole land) as his basis for submitting that the cost base should be boosted by the $340,740 amount.
But the Commissioner submitted that these fees had already been apportioned to Lots 11 & 15, which had also been compulsorily resumed, and that they could not be claimed again (or that there was no evidence as to what a ‘reasonable’ basis for splitting the cost base between these 3 lots would be – as required by s112-30(1)). The Tribunal agreed with these submissions (see para [76]).
No deduction for holding costs – FJM Note
The Applicant Taxpayer’s contention was that he incurred revenue expenses (interest, land tax and council rates) totaling id=”mce_marker”,894,147 during the years between the acquisition of the Property in 1989 and the sale of the final lot in the year ended 30 June 2010 and that these gave rise to deductions based on his intention to carry on a turkey farm, until that was frustrated by planning problems (relying on Steele’s case about deductions incurred to derive future income and Brown’s case about deductions being available after that business finished).
However, the facts were that the Applicant Taxpayer did not settle the purchase until March 1990 and only one month later (April 1990) the Applicant Taxpayer engaged planning consultants to have the land rezoned from ‘Rural’ to ‘Special Rural’ (which does not permit turkey farming). In June 1992 new planning consultants applied for the land to be rezoned ‘Special Rural’ and it was so rezoned in June 1998. The Commissioner argued that the intention to carry on a turkey farming business (and thus the relevant income earning nexus with incurring these expenses) was severed from this June 1992 date when the Taxpayer applied for re-zoning that excluded turkey farming. The Tribunal agreed (see para [92]). And for good measure, the Commissioner also challenged whether the Taxpayer had discharged his onus of proof that these holding cost amounts had all been incurred at all. The Tribunal agreed with these submissions also (see para [113]). And finally, the Taxpayer could not show that any carry forward losses actually established had not been ‘utilised’ (para [118]).