Coshott vs Commissioner of Taxation

In September 2014, the Administrative Appeals Tribunal held that a payment of $350,000 to Mrs Coshott as consideration to release Mr Vardas from all claims against him, was encapsulated by capital gain tax (CGT) event C2 - the disposal of an intangible asset.

If the tribunal found the existence of a CGT event, Mrs Coshott claimed that any arising gain should be offset by legal costs incurred during the dispute in question.  The tribunal refused to consider the intricate details of the CGT asset's cost base because in their view her record keeping was unsatisfactory, and hence could not be used to reduce a capital gain. 

In May 2015 the full federal court ruled that the tribunal failed to discharge its review function and that the matter should be remitted to the tribunal for a proper review of the cost base. 

Appealing from the tribunal to the federal court must be done so on a question of law, which in this case was:  "whether a failure to maintain adequate records in accordance with s 121-20 of the Income Tax Assessment Act 1997 (Cth) necessarily constitutes a failure to meet the onus of proof imposed on the taxpayer under s 14ZZK of the Taxation Administration Act 1953 (Cth)".

The question posed will provide an interesting debate in the tribunal when it is heard again later this year. 

Highlights from the judgment

"It may be that there was a degree of lack of clarity in the full identification of the costs by way of overlap and otherwise, but this did not relieve the Tribunal of a responsibility to examine and consider the material that had been put before it, and to deal with that matter in its reasons, including whether the material established at least a minimum figure for costs. "  (p 9)

"With the utmost respect to the Tribunal, on the basis of that material, we consider that there is a prima facie failure to discharge its review function in relation to the assessment of the incidental costs incurred by the taxpayer in the second element of the costs base of a CGT event, that is, in the determining a cost base."  (p 8)

"It is unnecessary to delay today’s matter by dealing with the propositions involved in Mr Lloyd’s submissions. There are other questions of law that could be posed, and the question as to whether that is a question of jurisdiction in the conditional sense, or a question of power, is a question for another day and another case. One could equally identify a question here as to whether, on the material placed before the Tribunal, and in the light of the reasons of the Tribunal, the Tribunal can be seen to have lawfully exercised its function of review."  (p 5)

The cases are here:

Full Federal Court [2015] FCAFC 71:  http://www.austlii.edu.au/au/cases/cth/FCAFC/2015/71.html

Administrative Appeals Tribunal [2014] AATA 622:  http://www.austlii.edu.au/au/cases/cth/AATA/2014/622.html