The Bowerman Decision: A Game-Changer for Australian Property Tax Deductions

The Administrative Appeals Tribunal's decision in Bowerman and Commissioner of Taxation [2023] AATA 3547 has sent ripples through Australia's tax landscape, fundamentally reshaping how property losses can be claimed as tax deductions. This landmark case, decided on 31 October 2023, offers significant implications for taxpayers, property investors, and tax practitioners across Australia.

Case Background: An 86-Year-Old's Tax Victory

Jenifer Ethel Bowerman, an 86-year-old retiree, achieved what many considered unlikely - successfully claiming a $265,936 property loss as a tax deduction. The case centered on two off-the-plan apartment purchases in Woolooware Bay, NSW:

• 2015: Purchased the Foreshore Boulevard apartment (intended as main residence)
• 2017: Purchased the Dune Walk apartment (intended for resale to fund the first purchase)

Due to financial constraints and market conditions, Bowerman moved into the Dune Walk apartment and lived there for approximately 26 months. When COVID-19 devastated property markets in 2020, she was forced to sell at a significant loss.

The Commissioner's Position

The Australian Taxation Office initially rejected Bowerman's deduction claim on three grounds:

1. The loss was capital in nature (main residence exemption should apply)
2. The loss was private or domestic in nature
3. The loss wasn't incurred until settlement in July 2020 (wrong income year)

The Tribunal's Groundbreaking Decision

Senior Member G Lazanas delivered a comprehensive ruling that overturned the Commissioner's decision on all three issues, fundamentally expanding the scope of property tax deductions in Australia.

Issue 1: Revenue vs Capital - The Myer Emporium Test

The Tribunal's Finding: The loss was on revenue account and deductible under section 8-1(1)(a) of the Income Tax Assessment Act 1997.

Key Reasoning:

• Bowerman had a predominant profit-making purpose at the time of acquisition
• The transaction possessed sufficient commercial characteristics
• The Myer Emporium test was satisfied, establishing the transaction as revenue rather than capital

This finding is particularly significant because it demonstrates that even when a property becomes a main residence, the original profit-making intention can still characterize the eventual sale as a revenue transaction.

Issue 2: Private vs Business Nature

The Tribunal's Finding: The loss was not private or domestic in nature, despite Bowerman living in the property.

Key Reasoning:

• The character of the loss remained linked to Bowerman's original profit-making intention
• Temporary private use doesn't automatically transform a commercial transaction into a private one
• The profit-making purpose remained the dominant characteristic of the transaction

Issue 3: Timing of Loss Recognition

The Tribunal's Finding: The loss was incurred in the 2020 income year when the contract was signed, not at settlement.

Key Reasoning:

• Taxation Ruling TR 97/7 bound the Commissioner to treat the loss as incurred at contract signing
• Public rulings create binding obligations on the ATO
• The Commissioner cannot depart from published guidance without proper withdrawal

Legal Principles and Precedents

The Myer Emporium Framework

The case reinforced the application of the High Court's decision in Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199, which establishes that for a transaction to be on revenue account:

1. Profit-making purpose: The taxpayer must have entered the transaction with the intention of making a profit
2. Commercial transaction: The transaction must possess commercial characteristics

Supporting Case Law

The Tribunal drew on several key precedents:

• Greig v Commissioner of Taxation [2018] FCA 1084: Established a low threshold for commercial transactions
• Commissioner of Taxation v Anstis (2009) 238 CLR 334: Guidance on the negative limb of section 8-1
• Visy Packaging Holdings Pty Ltd v Commissioner of Taxation [2012] FCA 1195: Intention threshold principles

Impact Statement: Transforming Australian Tax Practice

For Individual Taxpayers

Expanded Deduction Opportunities:

• Property losses may be deductible even when the property becomes a main residence
• Original profit-making intention can override subsequent personal use
• Documented commercial purpose strengthens deduction claims

Key Takeaway: Taxpayers should maintain detailed records of their profit-making intentions from the outset of any property transaction.

For Property Investors

Revenue Account Treatment:

• Greater scope for treating property transactions as business activities
• Potential for claiming losses against other income
• Reduced reliance on capital gains tax concessions

Risk Considerations:

• Increased ATO scrutiny on property transaction documentation
• Need for clear evidence of commercial purpose
• Potential application to multiple property transactions

For Tax Practitioners

Practice Implications:

• Review client property transactions for potential revenue treatment
• Update advice frameworks around property deduction claims
• Enhanced documentation requirements for client files

Professional Guidance:

• The Chartered Accountants Australia and New Zealand issued updated guidance on 7 July 2025
• Institute of Financial Professionals Australia provided commentary on practical applications

Practical Guidance for Taxpayers and Advisors

Documentation Requirements

To benefit from the Bowerman precedent, taxpayers should maintain:

1. Written Evidence of Intention:

   • Purchase contracts showing investment purpose
   • Correspondence demonstrating profit-making objectives
   • Market analysis supporting commercial viability

2. Commercial Transaction Evidence:

   • Marketing materials if property was listed for sale
   • Professional advice regarding timing and pricing
   • Evidence of business-like approach to the transaction

3. Timeline Documentation:

   • Clear records of when contracts were signed vs settled
   • Evidence of when losses crystallized
   • Proper income year allocation

Risk Management Strategies

For Taxpayers:

• Avoid claiming main residence exemption and business deductions simultaneously
• Consider apportionment where mixed-use occurs
• Seek professional advice before claiming significant property losses

For Advisors:

• Review existing client positions for potential amendments
• Update standard documentation templates
• Monitor ATO guidance updates following Bowerman

Subsequent Developments and ATO Response

Taxation Ruling Updates

The ATO issued TR 97/7A2 on 2 July 2025, providing:

• Clarification on loss incurrence timing
• Distinction between losses and general outgoings
• Updated guidance on contract vs settlement timing

Industry Response

Professional bodies have responded with:

• Updated technical guidance documents
• CPD sessions on Bowerman implications
• Template documentation for practitioners

Real-World Applications and Examples

Example 1: Off-the-Plan Investment Gone Wrong

Scenario: Sarah purchases an off-the-plan apartment for $800,000 with documented intention to resell for profit. Market conditions force her to move in temporarily. She later sells for $650,000.

Bowerman Application:

• Original profit-making purpose documented ✓
• Commercial transaction characteristics ✓
• Temporary personal use doesn't negate business purpose ✓
• Result: $150,000 loss potentially deductible

Example 2: Multiple Property Portfolio

Scenario: John regularly buys and sells properties, treating it as a business. One property becomes his temporary residence due to circumstances.

Bowerman Application:

• Pattern of commercial dealing ✓
• Business-like approach ✓
• Temporary residence use ✓
• Result: Losses on all properties potentially deductible

Example 3: Renovation and Flip Strategy

Scenario: Maria buys rundown properties, renovates them, and resells for profit. She temporarily lives in one during renovation.

Bowerman Application:

• Clear profit-making scheme ✓
• Systematic commercial approach ✓
• Renovation adds commercial character ✓
• Result: Losses potentially deductible despite temporary residence

Strategic Considerations for 2024-2025

Tax Planning Opportunities

End of Financial Year Strategies:

• Review property portfolios for potential loss recognition
• Consider timing of property sales for optimal tax outcomes
• Evaluate revenue vs capital treatment options

Compliance Considerations:

• Ensure proper documentation is in place before claiming deductions
• Consider amended assessments for prior years where Bowerman applies
• Monitor ATO audit activity in this area

Future Outlook

Potential Developments:

• Federal Court appeals may further clarify the law
• ATO may update compliance approaches
• Legislative responses possible if revenue implications are significant

Ready to Optimize Your Financial Strategy?

Don't navigate the complex world of Australian tax and property investment alone. The Bowerman decision opens new opportunities for property loss deductions, but requires careful planning and expert guidance.

Our experienced team at D & Y Practice stays current with all significant tax developments, including landmark cases like Bowerman. We can help you:

• Review your property transactions for potential deduction opportunities
• Ensure proper documentation supports your tax positions
• Navigate the complex interplay between revenue and capital treatments
• Develop tax-effective property investment strategies

Book a consultation today to discuss how the Bowerman decision might benefit your specific circumstances and develop a tailored strategy that maximizes your tax position while ensuring full compliance.

Key Takeaways from Bowerman

1. Profit-making intention at acquisition can override subsequent personal use
2. Commercial transaction characteristics have a low threshold under current law
3. Documentation is crucial - maintain evidence of business purpose from day one
4. Timing matters - losses may be recognized at contract signing, not settlement
5. Professional advice essential - the interplay of tax rules requires expert navigation

The Bowerman decision represents a significant shift in Australian property tax law. While it opens new opportunities for taxpayers, it also increases the importance of proper documentation and professional advice. As the tax landscape continues to evolve, staying informed and seeking expert guidance remains more critical than ever.

Disclaimer: This information is general in nature and should not be considered as professional tax or financial advice. Tax laws and regulations can change, and individual circumstances vary. The Bowerman decision may not apply to all situations, and the ATO may challenge similar claims. Always consult with a qualified accountant or tax professional before making financial decisions or claiming property-related deductions. The D & Y Practice accepts no liability for any loss or damage arising from reliance on this information.