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The AAT has set aside assessments raised by the Commissioner that included amounts in the taxpayer's assessable income that the Commissioner asserted were "undeclared income". The AAT accepted the taxpayer's evidence that the amounts represented part of the $33m proceeds of sale of the goodwill of Mr James' business of dealing in heavy machinery that was formerly conducted in and from New Zealand. Penalties imposed on the taxpayer were also set aside.

The AAT said, in para 42:

"Th[e taxpayer's] explanation for those payments is rejected by the respondent Commissioner and the ATO, who argue that...the payments received in account are simply manifestations of some other, as yet unidentified business activity now being conducted in Australia or elsewhere by Mr James or his companies. A moment’s reflection serves to demonstrate that the inescapable implication of such a hypothesis must be that Mr James has in the course of a single lifetime succeeded in establishing not merely one but two multi-million dollar businesses – the first consisting of dealing in heavy machinery in New Zealand, and the second (although its shape and nature are as yet unspecified by and unknown to the respondent) being some other but equally profitable business in Australia that is producing millions of dollars in bank deposits. On any view of it, such a conclusion appears too absurd to warrant serious consideration. On all the evidence, this second so-called “business” or activity is simply what Mr James says it is – that is, receipt of the residue of payments of the price owing for the heavy machinery business that he 1995."

James and Anor and FCT [2011] AATA 26 (AAT; Dr McPherson CBE DP and Kenny SM; 24 January 2011).


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