Tax office lose scheme case
TheAustralianTaxation Office(ATO) has lost a court action brought by investors in a tax-effective scheme when the Federal Court ruled they entered into the scheme for the main purpose of obtaining a retirement income stream.
The investors were two solicitors involved with the Australian Horticultural Project Number 1, who had claimed management and licence fees worth nearly $10,000, as well as a guaranteed return fee of 0.5 per cent of the sum invested.
In making its judgement, the court stated the fees were all deductible, because they were of reasonable size and did not exceed those expected under an arm’s length transaction. The court also ruled the projected income, though it did not eventuate, did not mean that the investment was unreasonable when it was made.
The court determined this by stating that the investors were carrying on a business since they owned the units within the project, which were maintained by the scheme manager. The court said this made the project a commercial enterprise and at the time of investment it was reasonable for investors to consider it as a viable project.
The court found the scheme contravened elements of the Part IVA anti-tax avoidance measures because the tax deductibility of the outgoings was a central part of the arrangement.
However, it ruled the overall scheme was in line with investors seeking to generate income rather than looking for tax benefits.
AUTHOR
Jason Spits
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