Depreciation deduction allowed for certain equipment
A taxpayer has been partially successful before the AAT in relation to claims for depreciation for certain items of plant and equipment by a partnership (of which the taxpayer was found to be a partner). The AAT found that those items of plant and equipment were used in the business conducted by the partnership, being the manufacture of polystyrene and cardboard boxes, for the purpose of deriving assessable income.
The AAT recounted in detail the taxpayer's dispute with the ATO, including various assessments and amended assessments over the years. It noted that the taxpayer lodged tax returns covering the 1994 to 2005 years in August 2005 and May 2006. It also set out how the business came about and, in particular, the taxpayer's involvement as a partner (along with various family members from time to time).
The AAT also noted previous legal proceedings in late 2008 concerning amended assessments, and that the Commissioner had issued amended assessments to give effect to that decision. The AAT noted that the taxpayer had accepted the Commissioner's estimate of his income in the relevant income years. Therefore, the only issue remaining before it was claims for depreciation expenses.
The AAT said the depreciation of capital items is an allowable deduction in the year of income where those capital items are owned by a taxpayer and either used by him or her during that income year for the purpose of producing assessable income, or installed ready for use for that purpose and held in reserve.
The AAT noted that the principal difficulty faced by the taxpayer regarding depreciation of assets "was the fact that the partnership did not keep basic business records" during the income years in question. The AAT noted the taxpayer had obtained a report prepared by quantity surveyors in 2006 to identify items of equipment and the rate of depreciation. However, the AAT was critical of the assumptions made in the report. The AAT said "it was not possible to either establish the year in which a particular item was acquired or its cost. In those circumstances, no depreciation calculation could be made in respect of those items".
Despite noting the "poor evidentiary material" before it, the AAT embarked on a detailed assessment of the plant and equipment claimed to be depreciated. The AAT was able to find sufficient evidence to support depreciation for certain items. These included an air compressor, a boiler, a box crushing machine, four box-making machines, a hydraulic press, an industrial sweeper, a laminator, a microwave oven, a polystyrene product printing machine, a scale and three trailers.
The AAT held that the taxpayer had, "to a limited extent", established on the balance of probabilities that the Commissioner's assessments in the income years in question were excessive. Accordingly, the AAT held that the objection decisions made by the Commissioner in respect of the 1994 to 2001 income years were incorrect in so far as they disallowed the depreciation deductions found allowable. Therefore, the AAT remitted the matter back to the Commissioner for reassessment.
Re Rigoli and FCT [2012] AATA 757, www.austlii.edu.au/au/cases/cth/AATA/2012/757.html.
