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08 Oct 08 Payments to fictitious entity not deductible; assessable under Div 7A - 3D Scaffolding

The Federal Court (Edmonds J) has dismissed the taxpayers' appeals from the decision of the AAT, which upheld the Commissioner's denial of deductions claimed by the taxpayer company, a scaffolding company, in respect of lease payments purportedly made by it to the lessor of scaffolding. The AAT found and the taxpayers conceded on appeal that the lessor was fictitious.  Further, the AAT upheld assessments by the Commissioner issued to one of the shareholders of the taxpayer company, treating the payments as deemed dividends under Division 7A, on the basis that the fictitious entity to whom the payments were made and the shareholder were one and the same.

In relation to the claim for a deduction by the taxpayer company, the Court found no procedural unfairness in the way in which the AAT dealt with the taxpayer company's witnesses. In relation to the Div 7A assessments, the Court held that the AAT committed no error of law merely because it mistakenly found that the shareholder was the sole director of the taxpayer company when he was not. There was ample evidence to show that even though the shareholder was not the sole director, he still controlled the taxpayer company, that payments had been made to him, and that Div 7A should therefore apply: 3D Scaffolding Pty Ltd v Commissioner of Taxation [2008] FCA 1477 (Federal Court; Edmonds J; 3 October 2008).

For a copy of the decision, go here.

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