The Full Federal Court has unanimously dismissed the taxpayer’s appeal on the substantive issue from the decision in AAT Case [2012] AATA 404, Re Sanctuary Lakes Pty Ltd and FCT. In that case, the AAT confirmed that a taxpayer was not entitled to deductions for over id=”mce_marker”8m in relation to a range of outgoings incurred in connection with the restructuring of the development of a “golf course and resort style living” complex. This was essentially because the Full Court found that the taxpayer had not demonstrated that the AAT had erred in law (except in relation to one main matter) in relation to its general finding that there was not the relevant nexus between the outgoings and the derivation of assessable income.
In relation to the main matter where the Full Court found that the AAT had erred in law (namely, that the membership interests in the golf club had become trading stock of the taxpayer and that, prima-facie, the taxpayer would have been entitled to a deduction for their loss on sale but for its inability to prove the market value at which they had been acquired), the Full Court held that the membership interests had not become trading stock as the taxpayer was not carrying on business at the relevant time.
But, in any event, the Full Court stated that if on hearing an appeal, the Court finds an error of law in the AAT’s reasons, but nevertheless considers that the decision was clearly correct on the material before the AAT, then it was open to the Court to dismiss the appeal (which it did on this and another issue).
At the same, by majority, the Full Court dismissed the Commissioner’s claim that the AAT had erred in law in reducing shortfall penalties in the 2003 income year to zero. The AAT had done so on the basis of finding that it was not unreasonable for the taxpayer to believe that it was entitled to a deduction in relation to planning regulation obligations in that year, and that therefore the remission of the penalty was justified in the circumstances. The majority of the Full Court agreed that the taxpayer had given appropriate consideration to its finding that the taxpayer had a reasonably arguable position.
(Sanctuary Lakes Pty Ltd v FCT [2013] FCAFC 50, Full Federal Court, Edmonds, Greenwood and Griffiths JJ, 24 May 2013.)
[LTN 99, 24/5/13]