It is safe to say that the Federal Court were disappointed with the AATs decision to allow individuals facing massive tax liabilities to give evidence via video link from Mauritius, after they had fled the country before court proceedings commenced due to a fear of being convicted of a crime.
Quotes from the judgement are telling.
I see no objective basis at all for a conclusion by the AAT that cross-examination by the Commissioner would not be impeded. It was inevitable that the Commissioner’s ability to cross-examine (about matters in issue, credit and more generally) would be impeded, perhaps seriously. That is one of the things which it was necessary to assess. I accept the Commissioner’s submission that this was a necessary matter to take into account. I shall return to it also. (p 81)
For example, had it been apparent that a refusal to return to Australia was based on a desire to avoid arrest on an outstanding warrant for some crime of violence, it is unthinkable that the AAT would regard it as appropriate to assist in that endeavour or to give it any weight. No different position could be taken in relation to a “white collar crime”. Nor, in my view, could a taxpayer be assisted to avoid arrest for a criminal offence arising out of alleged participation in a tax fraud. I do not see that it could make a difference that an arrest was merely a real possibility which a taxpayer wished to avoid. (p 93)
Different considerations might arise if a party needed to obtain the evidence of an overseas witness who would not come to Australia – possibly. But where a party to proceedings in the AAT puts a request to give video evidence on the basis that the party wishes to avoid any possibility of legitimate action by taxation, regulatory or prosecuting authorities in Australia, I do not see how such a matter (which remains the declared position of the taxpayers regardless of the position of the Commissioner about DPOs) could normally be relied upon as relevant, much less decisive, by the AAT. (p 99)
The consequence of the AAT’s reasoning upon the rights of the Commissioner to crossexamine was, in my view, profound. The AAT could not expect to exert more than the most basic procedural influence over the conduct of a party giving evidence from Mauritius. The possibility of effective cross-examination on documents, for example, must be regarded as effectively illusory. The ability to cross-examine on credit would be no more effective. Although there can be no suggestion that jurisdictional error is fairly or safely to be deduced only from a preference for a different procedural course, in my view, the restraint upon the ability of the Commissioner to answer the taxpayers’ case, and present his own, was so fundamentally affected that the Commissioner was denied procedural fairness. (p 102)
In my view, therefore, the AAT took into account an irrelevant matter, and failed to take into account a relevant matter, as well as failing to give procedural fairness to the Commissioner. (p 106)
Additionally, and in any event, any conclusion that the Commissioner’s position was forensically unaffected by the decision to allow the taxpayers to give effectively noncompellable, unsupervised, evidence from Mauritius at their ongoing discretion was unsustainable. That would, in the circumstances of the present case at least, deny the Commissioner any fair opportunity of cross-examination on matters potentially critical to an assessment of the taxpayers’ cases. In my view, that was a denial of procedural fairness and a breach of s 39(1) of the AAT Act. It went well beyond a legitimate exercise of discretion in the taxpayers’ favour. As in Hayes, the prejudice would be incurable. (p 111)
Case
[2015] FCA 320
Commissioner of Taxation vs John Seymour, Jeanette Seymour and Administrative Appeals Tribunal
http://www.austlii.edu.au/au/cases/cth/FCA/2015/320.html
Thursday, April 30, 2015
Wednesday, April 29, 2015
Lessons from the AAT (23 April 2015)
Applicant 6115 of 2013 vs Federal Commissioner of Taxation
Due to council zoning restrictions the taxpayer was unfortunately set-back in his attempt to build a poultry farm upon purchasing the land in 1990. He was informed of the council's environmental concerns prior to the finalization of the land purchasing contract, but ventured on regardless of the expected complexities.
From this point forward the tribunal member informs readers that the evidence suggests the taxpayer's key purpose for holding the land was for the purpose of subdivision and an eventual sale at a future date. The taxpayer was eventually successful in his endeavor, selling the subdivided blocks between 2005 and 2008. The taxpayer was disappointed that the Commissioner disallowed the inclusion of legal and brokering costs in the cost of purchasing the land (the 'cost base') because the taxpayer failed to apportion those costs correctly. However, the key focus of this case was on the regular expenses incurred in maintaining the operation of land including interest expenses, losses on forfeited loans and various legal expenses he incurred during the 15 year period in question.
Section 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 97) provides that you can deduct expenses that are incurred gaining or producing assessable income. Holding passive investments such as a block of land produce no assessable income on a frequent basis, therefore the taxpayer required a better story.
Case law has established that prior to gaining assessable income, taking actions to build up an income producing business shows intent to produce assessable income, which is deemed acceptable under s 8-1 and therefore expenses are deductible in such cases. The taxpayer's argument was that for the entire 15 year period, he intended to commence a turkey farming business at the first available opportunity. For reasons explained at length during the judgement, the tribunal rejected this proposition and went as far as labeling the taxpayer as an unreliable and evasive witness.
The other main point of contention concerned a loan from the taxpayer to a company (OCS) in which he held shares in and was a director. The tribunal agreed with the taxpayer that when OCS deregistered, GCT event C2 occurred (cancellation of an intangible asset) to the forfeited loan. However, the tribunal referred the taxpayer to s 108-20(1) which provides that in working out a capital gain any loss made from a "personal use asset" is disregarded. They concluded that the debt did not arise in the course of producing assessable income or from carrying on a business and therefore the net loss from CGT event C2 was to be disregarded and the taxpayer was unable to claim that back against income he eventually made from selling land in Wanneroo at a different point in time.
The tribunal found in favor of the Commissioner on every point in this case. The senior tribunal member was unimpressed by the taxpayer's evasive nature and unreliability in cross examination.
Lessons from the AAT this week
- If you want to claim general deductions on land you plan to sell, it must be done in the course of carrying on a business, and is best not done in retrospect.
- If you want to include expenses in the cost base of a CGT asset, keep records and apportion them correctly.
- Loaning money to a related party and then cancelling the loan is unlikely to be seen as part of an income producing activity.
If you are planning on undertaking any of the above activities see a tax specialist beforehand to ensure that you are taking a course of action that matches your motives.
The case [2015] AATA 244: http://www.austlii.edu.au/au/cases/cth/AATA/2015/244.html
Tuesday, April 28, 2015
Ward vs Federal Commissioner of Taxation
The Administrative Appeals Tribunal (AAT) added additional words to the ordinary meaning of the term "determination", in order to make a determination in favour of a taxpayer seeking objection rights in Ward vs the Federal Commissioner of Taxation (FCT).
The Case [2015] AATA 138: http://www.austlii.edu.au/au/cases/cth/AATA/2015/138.html
Section 292-465 of the Income Tax Assessment Act 1997 (ITAA 1997) allows the Commissioner to waive any penalties lodged against a taxpayer if they breach the limit one is allowed to contribute to superannuation in a financial year. The same section also provides that a taxpayer can object to a determination made by the Commissioner under that section. Such an objection could be lodged in the AAT or Federal Court, where a judge would decide whether or not it was reasonable for the Commissioner to act in the way he did.
Section 292-465 is constructed in a way that allows the Commissioner to make a determination to waive a penalty for over-contributing to superannuation, but it fails to mention how the Commissioner might reject such a request and determine that a taxpayer is still required to pay the penalties levied against them. The latter scenario is hardly a "determination" under the ordinary meaning of that term. A hardline textualist would argue that the Commissioner is simply ignoring a taxpayer's plea, no determination occurs.
A broader thinking individual would argue however, that a decision not to make a determination, is itself a determination. A football referee determining that a player has dived in the penalty box has no need to blow his whistle. In fact it is the act of not awarding a penalty that makes his decision clear to both teams. This is where the AAT stand on the issue (regarding s 292-465).
An explanatory memorandum of the bill introducing the provisions in question clearly states that the legislature was intended to give taxpayers a right to object "on the grounds that they are dissatisfied with the Commissioner's determination or the Commissioner's decision not to make a determination".
The tribunal members note that the alternate view (a strict textualist approach to the provision) leads to a conclusion where only taxpayers who have received a favorable determination from the Commissioner can object to his decision! Such a conclusion is "manifestly absurd" in the eyes of the AAT. An absurd provision can be clarified by the judiciary under the Acts Interpretation Act 1901, to give the word "determination" a meaning that offers s 292-465 a sensible construction.
The tribunal members note that the alternate view (a strict textualist approach to the provision) leads to a conclusion where only taxpayers who have received a favorable determination from the Commissioner can object to his decision! Such a conclusion is "manifestly absurd" in the eyes of the AAT. An absurd provision can be clarified by the judiciary under the Acts Interpretation Act 1901, to give the word "determination" a meaning that offers s 292-465 a sensible construction.
The Commissioner's argument was sneaky at best, against the interests of his fellow citizens at worst. That is why it is welcoming news that the AAT has affirmed the rights of taxpayers to object to a tax office "non determination" in regard to a superannuation over-contribution.
The Case [2015] AATA 138: http://www.austlii.edu.au/au/cases/cth/AATA/2015/138.html
Friday, April 24, 2015
The Trustee for SBM Trust vs Federal Commissioner of Taxation
The Administrative Appeals Tribunal (AAT) has concluded that GST credits from pre-2009 cannot be claimed on post-2009 GST returns (or business activity statements) if they fall outside the four year time limit imposed by a legislature change in 2009.
[2015] AATA 174
A Straightforward Case
The Deputy President of the AAT was delighted to inform us that "the facts of this case are straightforward, and not in dispute."
The taxpayer unfortunately didn't claim eligible input tax credits in a 2005 business activity statement (BAS). They therefore included the amounts in a 2012 BAS upon realization of this error.
The four year time frame for GST return amendments was introduced in 2009. The question before the AAT was whether or not the amendments are out of time, with regard had to the fact that there was no time limit in 2005 when the returns were lodged.
The Law
Section 29-10 of the GST Act provides, that if a GST return for a tax period does not take into account an input tax credit attributable to that tax period, the credit is attributable to the first period for which you give the Commissioner a return that does consider the amount.
The Decision
With the above in mind, the Deputy President had little option but to side with the Commissioner of Taxation. The Commissioner argued that the first notification of these credits was received in 2012, therefore the period they were attributable to was in 2012 and hence the post-2009 time limit applies and the taxpayer was out of time to claim them.
All post-2009 GST returns are subject to the four year time limit (with few exceptions), therefore credits from 2005 could not be claimed on those business activity statements. The AAT were somewhat unkind to the taxpayer, who was arguing fervently for his seven year old GST credits:
All post-2009 GST returns are subject to the four year time limit (with few exceptions), therefore credits from 2005 could not be claimed on those business activity statements. The AAT were somewhat unkind to the taxpayer, who was arguing fervently for his seven year old GST credits:
"The taxpayer's submissions cannot be sustained. In particular, the submission that clause 19 in Schedule 1 to the 2010 amending Act "can also be interpreted as applying only to acquisitions post 12 May 2009" is without merit. There is no justification for restricting the clear words of the clause in that way."
[2015] AATA 174
Thursday, April 23, 2015
Bond vs Federal Commissioner of Taxation
On 17 March 2015 the Federal Court decided whether esteemed Qantas pilot Mr Bond had received a termination payment in compensation for an injury, or whether the golden handshake received was in the order of something much more generous than 'compensation'.
From what we can infer from the judgement, Mr Bond's injury was linked to increasing medical issues accumulating later in his career, probably linked to the aging process. The case rested on whether or not a payment in the order of $500,000 was a fair reimbursement to Mr Bond with regard to his injuries. A case that had the potential to delve into a long winded dispute about fundamental temporal principals of human biology was quickly answered in the negative by judge Mansfield in the space of 119 paragraphs - in which the world record for highest usage of the term "LOL" in a court judgement was considerably beaten. In summary, Mr Bond did not receive his employee termination payment in compensation for any injury sustained while working, he had in fact received a payment in respect of his retirement, a payment he would have received injured or not.
Background
Mr Bond was a pilot of Qantas for over 15 years. Pilots in his category of service were eligible to access an insurance scheme to cover themselves in the case of them losing their pilot license with the Civil Aviation Safety Authority (CASA). Judge Mansfield informs us that Qantas pilots were eligible to access “loss of licence (LOL) insurance” under which Mr Bond was entitled to a LOL payment if he lost his licence for medical reasons.
The question arises as to whether or not the eventual insurance payment to Mr Bond was in fact an employee termination payment (ETP) under s 82-130 after he lost his license due failing to pass a medical for two years.
The Law
An ETP includes any payment made to you in result of the termination of your employment, received within 12 months of termination (s 82-130).
Section 82-135 provides that the payment is not an ETP if it is received in respect of personal injury to you, so far as the payment is reasonable and its likely effect on your capacity to derive income from personal exertion.
If a termination payment is exempted by s 82-135 it is generally not taxable.
The Decision
Firstly, Judge Mansfield concluded that the LOL insurance payout was in fact an ETP and that it had been triggered by failing a medical whilst Mr Bond was employed by Qantas.
However, Judge Mansfield concluded the LOL payment was not covered by s 82-135 because the payment was not made in consideration of any personal injury. He took guidance from Scully in the federal court where it was determined that any consideration made in compensation for injury must involve some kind of measurement or calculation in order to determine a fair value for the loss of a worker's income. Judge Mansfield summarized the payment as follows:
"I do not think it can be said that the amount of the Capital Benefit is “for or in respect of” Mr Bond’s condition or can be assessed to be reasonable having regard to the nature of the injury and its likely effect on the capacity to derive income from personal exertion, in the way that “reasonable” is explained in Scully at [30]. For a pilot, the Capital Benefit is the same for any illness or injury causing loss of licence for any age up to age 54, although it then drops significantly for each year after that age. It is the same for all senior officers, whether Captains, First or Second Officers, or Flight Engineer Officers. It is the same irrespective of the nature of the injury, although the nature of the injury and consequential disability must be relevant to the ongoing capacity to derive income. It is the same whether the relevant employee is or is nor re-employed, and irrespective of the actual earnings in any new position."
Conclusion
Termination payments for injury are (1) required to be reasonable and (2) must be calculated with some connection to the injury. In the case of Qantas pilots, their LOL insurance policy fails this test because the payment is made according to a pre-determined formula with too little regard to individual circumstances.
This should not come as a surprise. The law was clearly designed to make it hard for high income earning employees to claim a tax free golden handshake. It does however raise an interesting question, how would you fairly compensate someone for lost income as a result of the natural biological aging process? (to the point where it satisfies s 82-135)
LOL
Judge Mansfield used the term 127 times during the judgement, surely a new world record.
[2015] FCA 245
http://www.austlii.edu.au/au/cases/cth/FCA/2015/245.html
From what we can infer from the judgement, Mr Bond's injury was linked to increasing medical issues accumulating later in his career, probably linked to the aging process. The case rested on whether or not a payment in the order of $500,000 was a fair reimbursement to Mr Bond with regard to his injuries. A case that had the potential to delve into a long winded dispute about fundamental temporal principals of human biology was quickly answered in the negative by judge Mansfield in the space of 119 paragraphs - in which the world record for highest usage of the term "LOL" in a court judgement was considerably beaten. In summary, Mr Bond did not receive his employee termination payment in compensation for any injury sustained while working, he had in fact received a payment in respect of his retirement, a payment he would have received injured or not.
Background
Mr Bond was a pilot of Qantas for over 15 years. Pilots in his category of service were eligible to access an insurance scheme to cover themselves in the case of them losing their pilot license with the Civil Aviation Safety Authority (CASA). Judge Mansfield informs us that Qantas pilots were eligible to access “loss of licence (LOL) insurance” under which Mr Bond was entitled to a LOL payment if he lost his licence for medical reasons.
The question arises as to whether or not the eventual insurance payment to Mr Bond was in fact an employee termination payment (ETP) under s 82-130 after he lost his license due failing to pass a medical for two years.
The Law
An ETP includes any payment made to you in result of the termination of your employment, received within 12 months of termination (s 82-130).
Section 82-135 provides that the payment is not an ETP if it is received in respect of personal injury to you, so far as the payment is reasonable and its likely effect on your capacity to derive income from personal exertion.
If a termination payment is exempted by s 82-135 it is generally not taxable.
The Decision
Firstly, Judge Mansfield concluded that the LOL insurance payout was in fact an ETP and that it had been triggered by failing a medical whilst Mr Bond was employed by Qantas.
However, Judge Mansfield concluded the LOL payment was not covered by s 82-135 because the payment was not made in consideration of any personal injury. He took guidance from Scully in the federal court where it was determined that any consideration made in compensation for injury must involve some kind of measurement or calculation in order to determine a fair value for the loss of a worker's income. Judge Mansfield summarized the payment as follows:
"I do not think it can be said that the amount of the Capital Benefit is “for or in respect of” Mr Bond’s condition or can be assessed to be reasonable having regard to the nature of the injury and its likely effect on the capacity to derive income from personal exertion, in the way that “reasonable” is explained in Scully at [30]. For a pilot, the Capital Benefit is the same for any illness or injury causing loss of licence for any age up to age 54, although it then drops significantly for each year after that age. It is the same for all senior officers, whether Captains, First or Second Officers, or Flight Engineer Officers. It is the same irrespective of the nature of the injury, although the nature of the injury and consequential disability must be relevant to the ongoing capacity to derive income. It is the same whether the relevant employee is or is nor re-employed, and irrespective of the actual earnings in any new position."
Conclusion
Termination payments for injury are (1) required to be reasonable and (2) must be calculated with some connection to the injury. In the case of Qantas pilots, their LOL insurance policy fails this test because the payment is made according to a pre-determined formula with too little regard to individual circumstances.
This should not come as a surprise. The law was clearly designed to make it hard for high income earning employees to claim a tax free golden handshake. It does however raise an interesting question, how would you fairly compensate someone for lost income as a result of the natural biological aging process? (to the point where it satisfies s 82-135)
LOL
Judge Mansfield used the term 127 times during the judgement, surely a new world record.
[2015] FCA 245
http://www.austlii.edu.au/au/cases/cth/FCA/2015/245.html
Monday, April 20, 2015
Mr Anderson vs Federal Commissioner of Taxation
In Mr Anderson v the Commisioner of Taxation the tribunal was asked to decide whether the trustee of the Anderson Family Trust was liable for GST for the period in which two properties on its books were sold. The period in question was October-December 2009.
Background
The Anderson Family Trust took out loans with a property development company to finance a property development. It just so happens that the property development company in question was also contracted to perform developments for the Anderson Family Trust!
In July 2009 the property development company put the Anderson Family Trust on notice by telling them they had 28 days to catch up on loan payments, if the demand was not met they threatened to take ownership of the securities subject to this loan. The loan security was in fact personal property of Mr Anderson and not the two properties that the loan was financing.
Mr Anderson was trustee of the Anderson Family Trust and when the properties were sold by 18 November 2009, the ATO expected the GST liability on sale (10% of sale - 10% of cost base and associated expenses) to be included in the 31 December quarter Business Activity Statement.
Instead, Mr Anderson gave all the proceeds to his angry creditors and claimed that he never sold the properties on behalf of the trust. Mr Anderson claims that after the angry letter he received in July 2009 and after he failed to catch up on payments, all legal ownership of the properties became that of the property development company.
The Commissioner of Taxation rejected this claim, saying that under law the properties were never transferred out of the Anderson Family Trust.
Questions of Fact
The tribunal needed to decide whether or not the properties were transferred from the trust in order to determine who was liable to the GST on sale of the properties.
The tribunal found that the properties could not have been transferred for two reasons. The first reason being that security for the loan was personal Property of Mr Anderson, any property being chased by creditors was not property of the trust.
Secondly, Mr Anderson contended that the creditors forced him to sell the properties in question, and hence they were either in control on the properties or in control of the trust. The judge rejected that the properties had been transferred to control of the property developers, irrespective of how much pressure they put on him.
Questions of Law
In regard to the latter point (about control of the trust), the judge noted that tax legislation narrowly defines a controlling entity:
Background
The Anderson Family Trust took out loans with a property development company to finance a property development. It just so happens that the property development company in question was also contracted to perform developments for the Anderson Family Trust!
In July 2009 the property development company put the Anderson Family Trust on notice by telling them they had 28 days to catch up on loan payments, if the demand was not met they threatened to take ownership of the securities subject to this loan. The loan security was in fact personal property of Mr Anderson and not the two properties that the loan was financing.
Mr Anderson was trustee of the Anderson Family Trust and when the properties were sold by 18 November 2009, the ATO expected the GST liability on sale (10% of sale - 10% of cost base and associated expenses) to be included in the 31 December quarter Business Activity Statement.
Instead, Mr Anderson gave all the proceeds to his angry creditors and claimed that he never sold the properties on behalf of the trust. Mr Anderson claims that after the angry letter he received in July 2009 and after he failed to catch up on payments, all legal ownership of the properties became that of the property development company.
The Commissioner of Taxation rejected this claim, saying that under law the properties were never transferred out of the Anderson Family Trust.
Questions of Fact
The tribunal needed to decide whether or not the properties were transferred from the trust in order to determine who was liable to the GST on sale of the properties.
The tribunal found that the properties could not have been transferred for two reasons. The first reason being that security for the loan was personal Property of Mr Anderson, any property being chased by creditors was not property of the trust.
Secondly, Mr Anderson contended that the creditors forced him to sell the properties in question, and hence they were either in control on the properties or in control of the trust. The judge rejected that the properties had been transferred to control of the property developers, irrespective of how much pressure they put on him.
Questions of Law
In regard to the latter point (about control of the trust), the judge noted that tax legislation narrowly defines a controlling entity:
"The applicant in this case is a natural person...that means he could only be regarded as an incapacitated entity if he has a representative. That expression is itself narrowly defined in s 195.1. None of the definitions assist the applicant. The applicant relies in particular on the reference in sub-section (ca) to "a controller (within the meaning of s 9 of the Corporations Act 2001 (Cth))" (emphasis added). Section 9 defines a controller as follows:
The definition refers to the property of a corporation, whereas the applicant is an individual. It follows the definition does not fit."
The judge remarks "anyone whose knowledge of trusts is uncontaminated by knowledge of the tax laws would find that a startling proposition" but then proceeds to quote s 184.1(2) of the GST Act: "The trustee of a trust...is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees, at any given time." The distinction is clear and the judge affirmed this. The question then arose, who was the trustee of the Anderson Family Trust who was liable to pay GST on the sale of these properties? The ATO have narrowed it down to Mr Anderson or his mother, they decided not to take this point up in court as it requires further investigation. Mr Anderson The judge, undoubtedly a fan of The Matrix failed to use the term Mr Anderson as many times as Agent Smith in the 1999 film (24 vs 29), but he came close... https://www.youtube.com/watch?v=XooISvoZ_rs The case [2015] AATA 167: http://www.austlii.edu.au/au/cases/cth/AATA/2015/167.html |
Tuesday, April 14, 2015
Ting vs Federal Commissioner of Taxation
In February 2015 the Administrative Appeals Tribunal (AAT) considered whether or not a high school teacher could deduct the upfront expenses of his postgraduate diploma in management from his taxable income. The course included subjects like financial accounting and marketing.
Classes of 30 children require a lot of managing, but not enough to satisfy the Commissioner of the need to acquire management qualifications from the University of Melbourne's business school in order to produce assessable income.
Background
Mr Ting claimed $20,000 of self education deductions against $70,000 of income in his 2013 income tax return. The expenses claimed were for six units undertaken at the University of Melbourne during the relevant financial period.
Following an audit, the ATO issued a notice of amended assessment to Mr Ting in respect of the 2013 year of income, disallowing the deduction in question, with accompanying administrative penalties for failing to take reasonable care .
The Law
Section 8-1 of the ITAA 1997 deals with deductible expenses:
Mr Alpins, deputy president of the AAT discussed the implications of case law dealing with the deductibility of self education expenses incurred in producing assessable income to eventually conclude that basic statutory requirements of s 8-1 should not be overlooked in favour reading about how case law interprets the section in any particular way. Hence, the case turned on whether or not the expenses were deductible under the plain definition of the law.
The Decision
In the words of the deputy president, the expenses were not deductible under s 8-1 because the taxpayer's income earning activities did not "require skills in financial reporting, nor in marketing, or were they likely to increase his income".
The judge affirmed administrative penalties because the taxpayer had not sought appropriate advice when preparing the return.
A Lesson to Self Educators
The taxpayer's main downfall was claiming throughout most of the audit and objection process that he endeavored on obtaining a marketing degree because he aspired to be promoted to a senior teaching role at his place of employment in the future and one day to become a school principal. The deputy president ruled that any deduction claim based solely on prospects of promotion could not be allowable on the basis that it does not assist a taxpayer producing assessable income, instead it assists him obtaining a different job in which income is produced differently to the job in which the taxpayer is claiming deductions against in that income year.
[2015] AATA 166
http://www.austlii.edu.au/au/cases/cth/AATA/2015/166.html
Classes of 30 children require a lot of managing, but not enough to satisfy the Commissioner of the need to acquire management qualifications from the University of Melbourne's business school in order to produce assessable income.
Background
Mr Ting claimed $20,000 of self education deductions against $70,000 of income in his 2013 income tax return. The expenses claimed were for six units undertaken at the University of Melbourne during the relevant financial period.
Following an audit, the ATO issued a notice of amended assessment to Mr Ting in respect of the 2013 year of income, disallowing the deduction in question, with accompanying administrative penalties for failing to take reasonable care .
The Law
Section 8-1 of the ITAA 1997 deals with deductible expenses:
"(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income"
The Case
Mr Alpins, deputy president of the AAT discussed the implications of case law dealing with the deductibility of self education expenses incurred in producing assessable income to eventually conclude that basic statutory requirements of s 8-1 should not be overlooked in favour reading about how case law interprets the section in any particular way. Hence, the case turned on whether or not the expenses were deductible under the plain definition of the law.
The Decision
In the words of the deputy president, the expenses were not deductible under s 8-1 because the taxpayer's income earning activities did not "require skills in financial reporting, nor in marketing, or were they likely to increase his income".
The judge affirmed administrative penalties because the taxpayer had not sought appropriate advice when preparing the return.
A Lesson to Self Educators
The taxpayer's main downfall was claiming throughout most of the audit and objection process that he endeavored on obtaining a marketing degree because he aspired to be promoted to a senior teaching role at his place of employment in the future and one day to become a school principal. The deputy president ruled that any deduction claim based solely on prospects of promotion could not be allowable on the basis that it does not assist a taxpayer producing assessable income, instead it assists him obtaining a different job in which income is produced differently to the job in which the taxpayer is claiming deductions against in that income year.
[2015] AATA 166
http://www.austlii.edu.au/au/cases/cth/AATA/2015/166.html
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