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18 Nov 08 Budplan management fees assessable - Business & Research Management

The Federal Court (Edmonds J) has held that the taxpayer (BARM) derived "management fees" payable by way of bills of exchange to BARM as manager of the various Budplan projects, notwithstanding that as part of a "round robin" arrangement, BARM immediately endorsed the bills in favour of Project & General Finance Pty Limited (PGF) by way of deposit with PGF. Under the arrangement with PGF, BARM's right to receive interest on the deposit and repayment of the principal was limited to the amounts that PGF had recourse to under loans made by it to the participants in the Budplan projects. Specifically, the Court rejected BARM's submission that its assessable income should be limited to these latter amounts.

After examining the submissions of the parties and the various authorities, the Court concluded, at para 126, as follows:

"In conclusion, my view is that, consistent with BARM being an accruals basis taxpayer, the income represented by the management fees was derived by BARM when those fees fell due; or, in the case of fees which related to the provision of services in a year of income after the year in which the fees fell due, consistent with the principle that comes out of Arthur Murray, in the year of income in which those services were provided. That is, as I understand the evidence, how BARM returned the income represented by the management fees. Even if BARM were to be taxed on the management fee income as a cash basis taxpayer, and as indicated in [111] above, I do not think such a basis is appropriate, that would only defer derivation to the date of delivery of the bills of exchange or, in the case of fees which related to the provision of services in a year of income after the year in which the fees were received, consistent with the principle that comes out of Arthur Murray, in the year of income in which these services were provided."

Business & Research Management Pty Ltd v FCT [2008] FCA 1652 (Federal Court, Edmonds J, 14 November 2008).

For a copy of the decision, go here.

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