Decision impact statement

Tricare Group Pty Ltd v Commissioner of Taxation

• Subsequent to the Tribunal's finding in Tricare Group Pty Ltd v Commissioner of Taxation [2011] AATA 298, the Tribunal found in Retirement Village Operator v Commissioner of Taxation [2013] AATA 887 that payments made by the retirement village operator to outgoing residents (or to their legal personal representatives) that represented a share of any increase in the entry price payable by a new resident (i.e. the difference between the entry price paid by the outgoing resident and the entry price payable by the new resident), are deductible to the retirement village operator under section 8-1 of the ITAA 1997.

  Please refer to the Decision Impact Statement for Retirement Village Operator and Commissioner of Taxation [2013] AATA 887, issued on 12 November 2014, that outlines the ATO view of that decision and the administrative treatment that also applies to this decision.

Impacted Advice

• TR 2002/14
• GSTR 2011/1

• N/A

Subject References:
Deductions
Losses or outgoings
Carrying on a business
Purpose of gaining or producing assessable income
Capital or of a capital nature

Brief summary of facts

1. Tricare Group Pty Ltd is the head company of a consolidated group of companies that includes Tricare (Toowoomba) Pty Ltd (Tricare Toowoomba).

2. Tricare Toowoomba acquired, as a going concern, the business of operating a retirement village from Vestaburn Pty Ltd. It carried on that business. After it acquired the business and while carrying it on, Tricare Toowoomba made payments to persons who had ceased to be a resident (or to their legal personal representative), representing a portion of the difference between the contribution made by those persons when they became residents of the retirement village and the new resident's contribution.

3. Tricare Group Pty Ltd contended that the amounts so paid were deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) or alternatively under section 40-880 of the ITAA 1997.

4. The Commissioner contended that the amounts were not deductible under section 8-1 of the ITAA 1997 on the ground that the amounts not incurred in carrying on a business for the purpose of gaining or producing assessable income and were capital or of a capital nature. The Commissioner also contended that paragraph 40-880(5)(d) of the ITAA 1997 operated to prevent a deduction under section 40-880 of the ITAA 1997.

Issues decided by the tribunal

The AAT held that the amounts in question were incurred in carrying on a business for the purpose of gaining or producing assessable income and were not capital or of a capital nature. That being the case, the operation of section 40-880 of the ITAA 1997 did not arise for consideration.

ATO view of Decision

The deductibility of an outgoing under section 8-1 of the ITAA 1997, and in particular, whether an outgoing is capital or of a capital nature is purely a question of fact unless there is a misdirection as to the relevant legal principles. In this case, on the basis of the circumstances of the taxpayer, the AAT concluded that the amounts in question were properly characterised as the cost of operating the business in question rather than a cost of acquiring it.

The application of correct legal principles under section 8-1 of the ITAA 1997 to the primary facts in reviewing an assessment may permit the AAT to arrive at more than one conclusion. A court will not interfere with the decision of the AAT in such cases even if it would itself have arrived at another conclusion. The AAT is not bound to follow its own decisions, and findings of fact are not in any event precedents.

Consequently, as a decision of fact based on the circumstances of this taxpayer, this decision has no implications where these payments are made by village operators in the differing circumstances covered by TR 2002/14. That is, an existing village operator makes these payments to a former resident (or to their legal personal representative) under a contractual obligation between the village operator and the resident. Consequently, in these circumstances, the ATO maintains the view, as outlined in paragraph 50 of TR 2002/14, that these payments are capital or of a capital nature.

In cases not covered by the TR 2002/14, close attention will need to be given to the particular facts and the tests stated in Sun Newspapers Ltd v Federal Commissioner of Taxation; (1938) 61 CLR 337 to form a view as to whether the expenditure in question is on capital account. Because the distinction between capital and revenue is often a fine one, the result in this case will not necessarily be indicative: taxpayers who wish to know the ATO position in regard to their particular facts should seek ATO advice.

Administrative Treatment

Based on the above view of the decision, the ATO does not intend to conduct a review of TR 2002/14.

The ATO also does not intend to conduct a review of GSTR 2011/1.

Implications for ATO precedential documents

None

Implications for Law Administration Practice Statements

None

Legislative References:
Income Tax Assessment Act 1997
8-1
40-880

Case References:
Hallstroms Pty Ltd v Federal Commissioner of Taxation
[1946] HCA 34
(1946) 72 CLR 634

G.P. International Pipecoaters Pty Ltd v Federal Commissioner of Taxation
[1990] HCA 25
(1990) 170 CLR 124
(1990) 90 ATC 4413
(1990) 21 ATR 1

Spriggs v Federal Commissioner of Taxation
[2009] HCA 22
(2009) 239 CLR 1
2009 ATC 20-109
(2009) 72 ATR 148

Sun Newspapers Ltd v Federal Commissioner of Taxation
(1938) 61 CLR 337