| No Business? No Deduction!! |
| The Federal Court recently disallowed deductions claimed by a trust on the basis that no business was being conducted. |
The taxpayer was a beneficiary of the trust which took over an existing aviation business originally operated by a related entity. The business consisted of aircraft shows with the taxpayer?s husband as pilot, although he was not employed by the trust.
The Tax Office had previously audited the related entity and there were no concerns raised as to whether it was carrying on a business.
However, the trust derived no income for the 1996 year from air show activities but incurred outgoings totalling $108,580, for which it claimed deductions. The Commissioner disallowed the deductions.
As a result the trust net income overall increased, resulting in an increase in the taxpayer?s assessable income as beneficiary.
The Court observed that the absence of operations between the end of 1994 and June 1996, as well as the absence of a suitable aircraft for three years prior to the arrival of a new aircraft in late 1995 was inconsistent with the trust carrying on a business of air show activities. It was irrelevant that the Tax Office had accepted that a business was being conducted in a previous audit.
The Court held that the air show activities were related to the husband?s hobby, and therefore, no deduction was available to the trust for the outgoings incurred.
Tip: This case highlights the fact that the question of whether an entity is carrying on a business must be carefully considered on an ongoing basis.
29th-September-2003 |
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