In a recent decision, the AAT considered whether the anti-avoidance provisions applied to a joint venture investment in a quarrying operation where a taxpayer claimed deductions of over $100,000 in his 1998 income tax return.
The taxpayer claimed that he entered into the investment because he wanted to diversify his investment portfolio, and was attracted to riskier investments. After consulting with his accountant and reading the prospectus, he decided to invest in the project.
Towards the end of June 1998, the taxpayer signed several documents, including an application form for the purchase of five units in the project, a loan indemnity agreement and a loan agreement. He then claimed deductions in relation to the investment.
The AAT held that the joint venture itself was not entitled to claim a deduction for expenses incurred, and the deduction was denied as the activities carried out were too preliminary to the gaining or producing of assessable income. As the joint venture was not entitled to the deduction, the taxpayer was not entitled to a deduction for his share of the loss.
The AAT also considered the application of the anti-avoidance provisions. It held that as the taxpayer was not entitled to a deduction, the taxpayer did not obtain a tax benefit to which the rules could apply. However, the AAT then went on to consider if the rules could apply assuming a benefit arose. It held that based on the preliminary nature of the activities undertaken, it could be concluded that the scheme was entered into in order to obtain a tax benefit.
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