Block & Ors v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (WT 2006/754-770)
Judgment date: 26 October 2007
Date published: 15 February 2011

Summary of decision:

Overview of facts:
1. The first applicant (the partnership) was formed in 1996. | 2. The second and third applicants are the partners in the partnership. | 3. The partnership had carried on horse racing and breeding and sheep breeding activities since 1996 on a property owned by the partners. | 4. The partnership registered for GST and lodged business activity statements for the tax periods ended 31 December 2001 to 30 September 2005. | 5. The partnership's activities incurred significant losses. | 6. The partners claimed deductions for their respective shares of the partnership losses in their individual tax returns. | 7. The Commissioner considered that the partnership's activities did not amount to carrying on a business or an enterprise for GST purposes. | 8. Consequently, the Commissioner disallowed income tax deductions claimed by the partners for their shares of the partnership losses, cancelled the GST registration and issued assessments of net amounts for the relevant tax periods. | 9. Objections were lodged by the applicants and disallowed by the Commissioner. The applicants applied for review of the objection decisions. | 10. The Tribunal accepted the evidence given by the third applicant and found that the partnership conducted its activities in a businesslike and commercial manner, preparing and maintaining all appropriate books and records and engaging accountants to prepare the tax returns and accounts for the business. The Tribunal had regard to a range of other matters which included substantial improvements made to the property and the partners' history and experience relevant to the industry. | 11. While the partnership incurred significant losses, the Tribunal accepted that these were the result of capital costs in setting up the business, the subsequent restructuring of the business and a series of unforeseeable setbacks. | 12. The objection decisions were therefore set aside. | Issues decided by the court or tribunal | 1. The first applicant was carrying on a business of horse and sheep breeding at all relevant times and was entitled to be registered for GST. | 2. The first applicant correctly returned taxable supplies and creditable acquisitions in its business activity statements. | 3. The first applicant was entitled to the deductions claimed in its income tax returns. | 4. The second and third applicants were entitled to deductions for their respective interests in the first applicant's net loss incurred in each of the years of income.

Issues decided:
1. The first applicant was carrying on a business of horse and sheep breeding at all relevant times and was entitled to be registered for GST. 2. The first applicant correctly returned taxable supplies and creditable acquisitions in its business activity statements. 3. The first applicant was entitled to the deductions claimed in its income tax returns. 4. The second and third applicants were entitled to deductions for their respective interests in the first applicant's net loss incurred in each of the years of income.

ATO view of decision:
The Commissioner accepts that the decision is one that was open to the Tribunal on the view of the evidence taken by the Tribunal and will not appeal the decision.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 9-5 9-20(1) 9-20(2) 9-40 11-5 11-20 23-10 195-1 Income Tax Assessment Act 1997 8-1 Income Tax Assessment Act 1936 92(2)
Subject references: Income tax GST partnership enterprise horse racing horse breeding sheep breeding