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30 Jun 11 Deductions against personal services income partially allowed – Re the Taxpayer

The Administrative Appeals Tribunal has allowed a number of deductions claimed by a taxpayer against his personal services income, but has disallowed the bulk of the claimed deductions, on the basis that there was not enough evidence to establish that the entire amount of the expenditure was incurred in connection with gaining or producing personal services income, and the taxpayer declined to proffer any basis for apportionment of the expenses.

The taxpayer was a consultant horticulturist who provided expert advice through a company. The Tribunal had previously decided that the income received by the company from the consulting business in the 2003, 2004 and 2005 years of income was to be treated as personal services income in the hands of the taxpayer: Re the Taxpayer and FCT [2009] AATA 906. The present proceedings were instituted to determine whether and to what extent the taxpayer was entitled to deductions against that income.

The taxpayer provided advice to businesses that cultivate different kinds of commercial forest plantations. His family company maintained a rural property which included a macadamia nut plantation that generated a crop for sale each year. There were also a number of trees that the taxpayer said he grew on an experimental basis. He explained that the property was, in effect, a laboratory in which he could test his ideas. Those tests and the experience he obtained were required for the purposes of his consulting business. He argued that the expenses he incurred in conducting the tests and maintaining his “laboratory” were therefore deductible against the personal service income he derived.

The Commissioner accepted that certain expenses were deductible. In relation to the bulk of the claimed deductions, the Tribunal found that there was not enough evidence to establish that the expenditure was incurred in connection with gaining or producing personal services income. Further, the taxpayer had declined to provide an evidentiary basis for apportioning the expenditure.

Re the Taxpayer and FCT [2011] AATA 359 (Administrative Appeals Tribunal, Senior Member B J McCabe, 27 May 2011).