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12 Dec 11 Personal service income (PSI) case remitted to AAT - Cameron

The Federal Court (Edmonds J) has upheld the taxpayer's appeal from the decision of the AAT in Cameron and FCT [2011] AATA 386 and remitted the matter back to the AAT differently constituted.

The taxpayer supplied drafting services through a company of which he and his wife were the only shareholders and directors. The company's income from drafting services was produced through the personal services of the taxpayer. The company also derived income from a stevedoring and sale business..

The Court commented that the reasons of the AAT were "notable for their absence of findings on...material questions of fact", both in relation to the unrelated clients test in s 87-20 ITAA 1997 and in relation to the business premises test in s 87-30 ITAA 1997. The court said that "(t)his may reveal that the [AAT] made some error of law".

However, in relation to the unrelated clients test, the Court held that "even if it had, as it should have, considered, and made findings of fact on, the nature or character of the offers or invitations in determining whether they were made to the public at large or to a section of the public, the [AAT] would nevertheless have come to the conclusion it did" (para 59). Accordingly, this aspect of the appeal was dismissed.

In contrast, in relation to the business premises test, the Court said that "it was incumbent on the [AAT} to...find whether, during the 2004 year of income, the premises were used mainly for gaining or producing drafting income or stevedoring and sales income." In particular the AAT needed to consider and make findings with respect to:

the area of the premises that has been used for providing drafting services and the area of the premises that has been used for the conduct of the stevedoring and sales business; and
the time that the applicant had used the premises for providing drafting services and the time that the applicant had used the premises for the conduct of the stevedoring and sale business.

The AAT did not consider the temporal aspect at all but, on the basis of "some comparison of the income produced from drafting services and the income produced from stevedoring and sales in the 2004 year of income [arrived at] a 'must conclusion...that the premises were not used for drafting purposes either predominantly or even to any significant extent in the 2004 year'."

The Court held that this conclusion was "flawed" and that the AAT had failed to exercise jurisdiction with respect to this issue and the matter should be remitted to the AAT differently constituted.

Cameron v FCT [2011] FCA 1378 (Federal Court, Edmonds J, 8 December 2011).

 


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