A convicted heroin dealer will be allowed to claim a $220,000 tax deduction for money lost during a drug deal after the Australian Taxation Office (ATO) lost a bid to appeal against a full Federal Court ruling in his favour.
The commissioner of taxation had been seeking leave in the High Court to appeal against the Federal Court's decision that Perth man Francesco Dominico La Rosa could write the money off as lost income.
The ATO had been trying to make La Rosa - who served a 12-year jail term for dealing heroin and amphetamines - pay tax on his 1994-95 assessable income, which it estimated amounted to $446,954.
But La Rosa insisted his taxable income should be reduced for that year because it wrongly included a sum of $224,793.
The money had been buried in La Rosa's backyard and was dug up for use in an intended drug deal in May 1995, but was stolen during the transaction by unknown people.
In 2001, the Administrative Appeals Tribunal held that the money was lost during activities directly connected with La Rosa's illicit drug-dealing business and was lost during operations to acquire trading stock.
On the basis of those findings, the tribunal concluded that while the income had been properly included in La Rosa's income as part of the default assessment process - enacted when he failed to lodge tax returns for seven years - it was properly allowable as a deduction.
The ATO appealed to the Federal Court, arguing there was no evidence the money had been stolen and it was against public policy to allow stolen money as a tax deduction.
But the Federal Court upheld the tribunal's decision.
The ATO subsequently appealed to the full court of the Federal Court and that appeal was dismissed in June 2003.
Yesterday, in a Perth sitting of the High Court, the ATO's application for special leave to appeal was also refused.
The ruling means the ATO has now exhausted all avenues of appeal.
However, Prime Minister John Howard said last December that if the High Court action failed, the law would be changed.
"If the appeal is unsuccessful, we will take steps to amend the law," he told Parliament at the time.
A spokeswoman for Treasurer Peter Costello yesterday said the Government would now pursue the necessary amendments.
"The Government is disappointed that the High Court refused the commissioner of taxation leave to appeal," the spokeswoman said.
"The proceeds of crime are taxable and the tax commissioner has been arguing in the courts that deductions for losses incurred in deriving illegal income should not be allowed.
"Since the courts have not ruled this way, the Government will now seek to amend the legislation to prevent such losses being allowed as deductions."
AAP