No Expense ‘incurred’ with purchase of sequestered carbon

The federal court upheld the Commissioner’s amended assessment denying a business taxpayer, Academy Cleaning & Security Pty Ltd. (‘academy’), a deduction of $420,000 for the purported purchase of 15,000 tonnes of ‘sequestered carbon’


The taxpayer’s business included providing security and cleaning services under contracts that it won in tender processes, and one of the factors of particular importance in winning public-sector tenders was ‘environmental sustainability and social responsibility’

In anticipation of the then-Rudd Government’s proposed Emissions Trading Scheme coming into law the taxpayer entered into an emissions reduction purchase agreement on 29 June to acquire 15,000 tonnes of ‘sequestered carbon’ from Voluntary Credits Ltd, a Malaysian Company.

The taxpayer paid a non-refundable deposit of $63,000 (15% of the total price of $420,000) on 29 June 2009, but contended that is had incurred a total outgoing of $420,000.

However, the proposed Emissions Trading Scheme was defeated in the senate and never became law, and the taxpayer never ended up acquiring any of the sequestered carbon referred to in its agreement with Voluntary Credits Ltd.


The Federal Court agreed with the Commissioner that no expense had been incurred.

With the Commissioner’s contention that no part of the $420,000 should be treated as an allowable deduction, based on the application of the general anti-avoidance provisions

The commissioner’s imposition of a 75% shortfall penalty was also (by implication) upheld.

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