Home – New Forums Money matters ATO BS – Commissioner of Taxation v Eichmann [2019] FCA 2155 (20 December 2019) Reply To: ATO BS – Commissioner of Taxation v Eichmann [2019] FCA 2155 (20 December 2019)

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James Millar
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bb1, post: 268695, member: 53375 wrote:
[USER=5318]@JamesMillar[/USER] just because many business’s have being doing it in the past it doesnt mean that it is a legitimate deduction, thankfully our laws don’t work on precedence, but more the correct interpretation.

”In short the ATO has successfully won a case on appeal to deny a small business access to a tax concession that they were legitimately entitled to (like many before them). ”

This whole statement is actually wrong, if they were legitimately entitled to it, the courts would have found against the ATO, it just means that accountants and business have being misinterpreting the laws all along. We as tax payers should be glad that this individual has thought a private ruling, and as such with a bit of luck the ATO will go for all the business’s that have being claiming something they should not have, which the courts have agreed.

Unfortunately some of these laws are open to a wide interpretation and I am optimistic on appeal this will be reversed (which does happen regularly). Keep in mind Bert that the first court of effective appeal (AAT) found against the ATO interpretation and in favour of the taxpayer and their accountant.

The law simply says that you must be using the asset in carrying on your business. It does not say that the asset must be integral to onsite operations. It does not say that storage facilities for business equipment are not integral. For now most objective commentators within the industry are of the view that this is a flawed second appeal decision. The Judge acknowledges in his judgment that there are no explanatory materials that came with that piece of law (which means one man is interpreting based entirely on his view – is that wise for something that has far reaching implications potentially extending into general income tax deductions – see below).

One indication to me is that the ATO probably realise they got lucky is that they do not seem to reversed income tax deductions that the business had claimed over the years for operating the storage site. The income tax deduction section 8(1)(b) contains a near identical test being

1) You can deduct from your assessable income any loss or outgoing to the extent that:
it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

The ATO have effectively contended that this asset (and presumably therefore and associated costs) was not used as an integral asset to carrying on the business. If that was the case all of these deductions should be reversed as well. And from there many other deductions that are not integral. Is an mobile phone now considered not integral enough to carrying on business if you are a bricklayer? A bricklayer doesn’t need a phone to lay the actual bricks so by the same logic its not really integral to brick laying operations (but of course it is important for communicating).

Bert I think I agree with your sentiment in that our justice system appoints adjudicators and their decision is “the decision” (which we must follow). However in all forms of law they often make flawed decisions (incorrect facts, incorrect interpretation, bias) which is why you will often see dissenting judgments in a full court with several judges. The regularly disagree with each other. When the law is unclear the courts are required to give effect to the intention, purpose or objects of the law. The broader purpose of that law is to allow small business entities to claim a concession. The specific intent of the subsection is to limit that concession to active assets which are those simply used in carrying on the business. There is no further explicit or implied spectrum of degree of carry on business. Reading it in plain English I fee the Judge has made an error – but as you rightly point out – for now the law stands as interpreted by that single Judge.

Watch this space.

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