Federal judge Robert French rejects ATO’s case that investor’s $30,000 to grow Indian sandalwood between 1998 and 2000 had main purpose of avoiding tax

According to Patrick Durkin in The Australian Financial Review (17/9/2007, p.8), the Australian Taxation Office’s push to outlaw tax deductions for agricultural investment schemes had suffered a setback after a court ruled they could constitute a “serious commercial venture”. Judge sides with sandalwood investor: Federal Court judge Robert French rejected the Tax Office’s argument that an investor who sank about $30,000 into a tax-effective plan to grow Indian sandalwood between 1998 and 2000 had the main purpose of avoiding tax. There would be “significant returns which could reasonably be expected from a moderately successful outcome to the project, independent of any tax benefits”, Justice French said.

Tax breaks end in June: Managed investment schemes were thrust into the spotlight in February when Assistant Treasurer Peter Dutton announced the ATO would in effect end the lucrative tax breaks for investors in agribusiness tax schemes from 30 June this year. The next day, $400 million was wiped from the largest sharemarket-listed forestry and agricultural schemes and federal politicians faced vigorous lobby­ing from outraged businesses.

ATO rethinks changes: Less than two months later, Dutton announced the sche­mes had won a reprieve, and the ATO’s draft ruling, which seeks to disallow upfront tax deduc­tions derived from investing in the schemes, was delayed until July 2008. The ATO is also funding a test case to settle the taxation of the schemes. Tax Office spokeswoman Sarah Turner said the ATO was still looking to identify a test case for a scheme offered in the 2008-09 financial year.

The Australian Financial Review, 17/9/2007, p. 8