Forrest v Commissioner of Taxation [2010] FCAFC 6

FEDERAL COURT OF AUSTRALIA

Forrest v Commissioner of Taxation [2010] FCAFC 6

Citation: Forrest v Commissioner of Taxation [2010] FCAFC 6

Appeal from: Re Taxpayer and Commissioner of Taxation [2008] AATA 325

Parties: JOHN ANDREW HENRY FORREST v COMMISSIONER OF TAXATION

File number: WAD 101 of 2008

Judges: SPENDER, SUNDBERG AND MCKERRACHER JJ

Date of judgment: 5 February 2010

Catchwords: TAXATION – income tax – whether the appellant, pursuant to s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) was entitled to deduct from his taxable income interest costs incurred from borrowing money for the purpose of purchasing a number of units in a trust – trust properly characterised as a fixed trust of income – held the interest costs incurred were an allowable deduction

TAXATION – income tax - whether a payment made from a company to a charitable trust at the appellant's direction upon his resignation from the company was an eligible termination payment - held the payment to the charitable trust was payment made "in consequence of" the appellant's resignation and therefore an eligible termination payment – held further, that deductibility as a donation to a charity was disallowed by the operation of s78A(2) of the Income Tax Assessment Act 1936 (Cth)

TAXATION – penalties – whether the omission of the eligible termination payment from the appellant's taxable income constituted recklessness – whether the 50% penalty imposed was excessive – test of recklessness requires gross carelessness rather than mere negligence – held the conclusion not to include the eligible termination payment involved a reasonable professional judgment – penalty reduced to nil