The Full Federal Court has, by majority (Davies J dissenting), dismissed a taxpayer’s appeal and held that payments it made to the State of Victoria re its acquisition of electricity assets were not deductible.
The taxpayer had appealed from the decision of Gordon J in SPI PowerNet Pty Ltd v FCT [2013] FCA 924 which had held that the taxpayer was not entitled to allowable deductions under s 8-1 of the ITAA 1997 for payments it made to the State of Victoria pursuant to an Order of the Governor in Council made under s 163AA of the Electricity Industry Act 1993 and consequent upon its acquisition of assets, including the Transmission Licence from Power Net Victoria.
The primary judge rejected taxpayer’s claim on 2 alternative bases:
- The s 163AA imposts were not a cost of the taxpayer deriving its income, but were payments out of the taxpayer’s profits after the calculation of its taxable income. The imposts did not satisfy either limb of s 8-1(1).
- While it was strictly unnecessary to consider this aspect of the claim, the s 163AA imposts were outgoings of capital or of a capital nature.
Edmonds J said he disagreed with the first of these alternative bases but agreed with the second, that deductibility was denied by s 8-1(2)(a).
McKerracher J considered the primary judge was correct in concluding that the imposts were not deductible, but accepted the taxpayer’s submission that the imposts would otherwise have qualified for general deduction as an outgoing necessarily incurred for the purpose of gaining assessable income.
(SPI PowerNet Pty Ltd v FCT [2014] FCAFC 36, Full Federal Court, Edmonds, McKerracher and Davies JJ, 7 April 2014.)
[LTN 67, 8/4/14]