The Full Federal Court has dismissed a taxpayer's appeal and held that a Commonwealth grant of almost $2.5 million for the establishment of a windfarm was an assessable recoupment: Denmark Community Windfarm Ltd v FCT [2018] FCAFC 11.


In May 2011, the taxpayer was given a renewable energy grant in respect of 50% of the project costs it had incurred in constructing two wind turbines. The grant was payable in instalments on the completion of identified project milestones.

The ATO issued a private ruling stating that the grant would be assessable income under s 20-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997). In response, the taxpayer argued that the grant was:

  • not assessable under s 20-20(2) because it was not received by way of an "indemnity"; and
  • not an assessable recoupment within the meaning of subs 20-20(2) or s 20-20(3) because those provisions required the relevant deduction to have been claimed for a "loss or outgoing", which, it said, was not the case for deductions claimed for depreciation.

At first instance the Federal Court held that the grant was an assessable recoupment under subs 20-20(2) and 20-20(3). The primary judge found that the grant was received as compensation for an "expense" the taxpayer had incurred, which fell within the meaning of "indemnity".


The Full Federal Court dismissed the taxpayer's appeal and held that the amounts received under the grant were assessable recoupments under s 20-20(2) of ITAA 1997. The Full Court rejected the taxpayer's argument that the depreciation deductions it claimed were not "for the loss or outgoing" under s 20-20(2)(b). Rather, the Full Court considered that the phrase "for the loss or outgoing" was sufficiently broad to pick up a depreciation deduction under Div 40 or Subdiv 328-D where the relevant outgoing was the cost of the depreciating asset. In such circumstances, the depreciation deduction may properly be regarded as a deduction "for the loss or outgoing".