The case involved an appeal by Academy Cleaning & Security Pty Ltd (the taxpayer) against the Deputy Commissioner of Taxation's decision to disallow the taxpayer's objection to an amended income tax assessment for the 2009 year. The central issue was whether a $420,000 outgoing claimed as a deduction by Academy under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) was allowable. This outgoing related to an agreement entered into on 29 June 2009 with BR Redd Ltd for the purchase of three contract lots of "sequestered carbon". Academy paid a non-refundable deposit of $63,000 and intended to pay the $357,000 balance at a future, uncertain time when the property became deliverable. The taxpayer argued that the $420,000 was either incurred in gaining or producing its assessable income or necessarily incurred in carrying on its business for that purpose. The Commissioner contended that the outgoing was not incurred, was capital in nature, and was part of a scheme with the dominant purpose of obtaining a tax benefit, to which Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applied. The court heard evidence about the context of the proposed Carbon Pollution Reduction Scheme, Academy's business of providing cleaning and security services, its director Mr. Hughes' understanding of environmental sustainability's importance in winning tenders, and expert evidence regarding the carbon credit market. Ultimately, Justice Rares dismissed Academy's appeal, finding that the $357,000 balance was not definitively incurred in the 2009 year, that the $420,000 outgoing was not necessarily incurred in carrying on Academy's business, and that the dominant purpose of entering into the agreement was to obtain a tax benefit, thus Part IVA of the ITAA 1936 applied to disallow the deduction.


Academy Cleaning & Security Pty Ltd v Deputy Commissioner of Taxation

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Academy Cleaning & Security Pty Ltd v Deputy Commissioner of Taxation - decision

Filed

Australia

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

A tax advantage is a fiscal incentive where the government reduces or exempts selected activities, goods or actors from taxes.

A loan is a policy instrument where funds are provided to a borrower with the expectation of repaying the principal plus interest.

Tradable permits are market-based tools that grant permission for specific activities, frequently used to regulate emissions. These permits can be issued within a trading system to manage environmental impacts.

Codes and standards are regulatory instruments that specify minimum standards to protect health and safety. This ranges from performance standards, which prescribe outcomes while allowing flexibility to achieve compliance, to the more prescriptive approach of technology-specific standards.

The processes through which enterprises can identify, prevent, mitigate and account for how they address their actual and potential adverse impacts. Due diligence is the idea that reasonable precautions should be taken to avoid causing harm to people, the environment, or society. It also involves identifying and mitigating risks before they occur.

Either money or something of monetary value is transferred between two or more organisations, people or countries.

A long-lived, colourless gas, chiefly emitted from fossil fuel combustion, deforestation and cement production.

Extreme weather refers to events where a weather variable exceeds (or falls below) a threshold. Meaning it is significantly different from the average or usual weather pattern.

Terrestrial means "of the earth" and relates to the risks to ecological system that includes all living organisms and their interactions within land-based environments, such as forests, grasslands, and deserts.

Any compulsory, unrequited payment to the government levied on corporations or individuals. This can be for environmental reasons, such as introducing a Carbon tax to set a price that emitters must pay for the greenhouse gases they emit.

Activities of industries that extract natural resources, such as mining, oil, and gas, for commercial use.

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

Activities that involve planning, designing and building infrastructure, residential, and commercial structures.

This sector involves activities to move goods and people, alongside the storage of products.

This sector creates and distributes information and entertainment through television, radio, print, and digital platforms.

Activities of government agencies and institutions that provide public services, enforce laws and manage public resources.

This sector includes firms and individuals offering specialised expertise in fields such as law, accounting, consulting, science and engineering.

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

Slow onset events evolve gradually from incremental changes over many years or from increased frequency or intensity of recurring events. As defined in the Cancun Adaptation Framework (2010), slow onset events include risks and impacts from rising temperatures, desertification, biodiversity loss, land and forest degradation, glacial retreat, ocean acidification, sea level rise, and salinization.

Academy Cleaning & Security Pty Ltd v Deputy Commissioner of Taxation - decision

Policy instrument

Risk

Greenhouse gas

Economic sector

Finance