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The AAT has held that the taxpayer, the owner of land which it managed for participants under a farm agreement, derived assesable income in the form of farm and management fees payable by the participants, notwithstanding the fact that only a portion of the fees were payable in cash (the balance having been paid in a "round robin" arrangement involving bills of exchange), and notwithstanding the fact that the Commissioner had allowed the participants deductions for the fees only to the extent to which they had been paid in cash.

The AAT accepted the Commissioner's submissions that if services are performed by an accruals based taxpayer and the taxpayer asserts a right to a reward, there will be an immediate derivation of income.

The AAT rejected an alternative argument by the taxpayer that the Commissioner should have made a compensating adjustment under s 177F(3) ITAA 1936. In particular, in the absence of a detailed definition of the “scheme” and an appropriate “alternative postulate”, the taxpayer failed to identify “an amount” that was included in the taxpayer’s assessable income that would not have been included but for the scheme, as required by s 177F(3)(c).

Reynolds Wines Limited and FCT [2010] AATA 121 (AAT, Frost SM, 16 February 2010).


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