The Commissioner amended the taxpayer’s assessment to include the amount of the redundancy payment as assessable income, contending that because the taxpayer was a director of the company, the payment was not in consequence of termination of employment.

The AAT disagreed with the Commissioner, finding that the payment was a bona fide redundancy payment paid as a result of the closure of the taxpayer’s business.

Tip: The facts and circumstances of each case will determine whether or not a taxpayer has received a bona fide redundancy.

Black Hole Expenditure

The Tax Office recently released a series of interpretive decisions which consider the principles surrounding the availability of deductions for certain ‘black hole’ expenditure.

Broadly, a taxpayer is entitled to a deduction over five income years for certain black hole expenditure, subject to limitations and exclusions. For example, expenditure that forms part of the cost of a depreciating asset or a CGT asset is excluded.

The taxpayer conducted a bus charter service, which involved acquiring buses. The taxpayer sought to purchase a bus, and in doing so incurred expenditure on airfares and tyres. Upon inspection of the bus, the taxpayer decided not to purchase it, and abandoned the tyres it had already purchased. Consequently, the taxpayer sought to claim a deduction as black hole expenditure for these costs.

The Tax Office held that:

· the costs incurred in relation to purchasing buses were an integral part of the taxpayer’s bus charter business;

· the airfares and tyres were not excluded from black hole expenditure deductions under the depreciating asset exclusion on the basis that the taxpayer never held the bus and therefore depreciation would not be available;

· the airfares were not excluded from black hole expenditure deductions under the CGT asset exclusion as the taxpayer did not purchase the bus; and

· the tyres were excluded from black hole expenditure under the CGT asset exclusion as the tyres themselves constituted a CGT asset.

In conclusion, the Tax Office found that the taxpayer was only entitled to a black hole expend-
iture deduction for the airfares.

Tip: Eligible black hole expenditure will be deductible over five years where it is related to the activities of the business.

 

 

Entitlement to an ABN

The AAT recently set aside a decision by the Australian Business Register to retrospect-
ively cancel an entity’s Australian Business Number (ABN).

In this case, the Registrar had cancelled the entity’s ABN for the period from July 2000 to 2004 on the basis that the entity was not carrying on an enterprise as there was no reasonable expectation of profit or gain. As a result of canceling the ABN, the entity would not have been entitled to approximately $25,000 worth of GST input tax credits.

The AAT set aside the decision of the Registrar and substituted a decision canceling the ABN from 31 December 2004.

The AAT held, based on the facts, that the applicant was carrying on an enterprise as shown by the sales figures on the Business Activity Statement (BAS). The AAT found that the correct time for determining whether an indiv­idual has a reasonable expectation of profit or gain is at the time that the business commences and not with hindsight when a business is subsequently unprofitable.