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23 Jul 13 Decision Impact Statement - Rawson Finances

The ATO has published a Decision Impact Statement in relation to the decision of the Full Court of the Federal Court in Rawson Finances Pty Ltd v FCT [2013] FCAFC 26; 2013 ATC 20-374.

During the 1997 and 1998 income years, the taxpayer received a total of $4.75 million from Mercantile Discount Bank of Israeli (the Bank).

From 1997 until 2008, the taxpayer made sporadic payments to the Bank and claimed interest deductions. The documentation in support of the purported loans was limited. There were no loan documents, no security, no guarantee, and no consistent stream of payment amounts. The payments that were made were inconsistent with the alleged rate of interest.

The Full Court decision concerned the question of whether the AAT, in its decision (Areffco and FCT [2011] AATA 628), erred in law in deciding that the taxpayer sufficiently discharged its onus of proof to establish that the relevant transactions were pursuant to a loan arrangement.

In the Federal Court (FCT v Rawson Finances Pty Ltd [2012] FCA 753), Edmonds J reversed the AAT's decision, allowing the Commissioner's appeal. His Honour's decision was based on a finding that the AAT had erred in law in applying s 14ZZK (b)(i) of the Taxation Administration Act 1953 and that there were fundamental deficiencies in the taxpayer's evidence such that the AAT's finding was not open on the evidence.

In the Full Court of the Federal Court, Jagot J (with whom Nicholas J agreed) and Jessup J allowed the taxpayer's appeal. The plurality agreed there was no procedural fairness.

The Decision Impact Statement states: "There are no significant implications from the decision on other cases as the decision turned on its particular facts in relation to the characteristics of the loan."


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