Al Rubaei and Commissioner of Taxation (Taxation)
[2019] AATA 71
•30 January 2019
Al Rubaei and Commissioner of Taxation (Taxation) [2019] AATA 71 (30 January 2019)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2017/5538 and 2018/0624
Re:Bassem Al Rubaei
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Boyle
Date:30 January 2019
Place:Perth
Application 2017/5538
The Tribunal sets aside the decision under review and substitutes a decision that the amended assessment be reduced from $93,000 to $67,000.
Application 2018/0624
The Tribunal affirms the decision under review.
...........[sgd].............................................................
Deputy President Boyle
CATCHWORDS
Application 2017/5538
TAXATION – income tax – whether the amended assessment for the 2014 financial year is excessive – unexplained income – decision under review set aside and substituted
Application 2018/0624
TAXATION – shortfall penalty – whether assessment of shortfall penalty was properly imposed – shortfall amount resulted from recklessness by taxpayer or agent – whether to remit the shortfall penalty in whole or in part – non-remission of the penalty not unreasonable or unjust – 50% shortfall penalty for recklessness – 20% uplift – decision under review affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) – s 29(7)
Constitution of the Commonwealth of Australia – s 75(v)
Income Tax Assessment Act 1936 (Cth) – s 166, s 167, s 170, s 190(b)
Income Tax Assessment Act 1997 (Cth)
Judiciary Act 1903 (Cth) – s 39B
Taxation Administration Act 1953 (Cth) – s 14ZZK, Part IVC, Sch 1 – s 284-75, s 284-80,
s 284-90, s 284-220, s 284-220(1), s 284-25, s 298-20CASES
Commissioner of Taxation v Rigoli [2013] FCA 784
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gashi v FCT (2013) 209 FCR 301; [2013] FCAFC 30
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
George v Federal Commissioner of Taxation (1952) 86 CLR 183
Graham Docker & Associates Pty Ltd v Federal Commissioner of Taxation [2005] ATC 2404; [2005] AATA 1180
Llun and Commissioner of Taxation [2017] AATA 3058
Nguyen v Commissioner of Taxation [2011] AATA 544
PBKQ and Commissioner of Taxation [2016] AATA 681
R v Deputy Commissioner of Taxation (WA); Ex parte Briggs (No 2) (1987) 14 FCR 249
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483
Vu v Commissioner of Taxation [2006] 63 ATR 341 at 344SECONDARY MATERIALS
Australian Taxation Office, Practice Statement Law Administration 2007/22 (Australian Taxation Office, 11 October 2018)
REASONS FOR DECISION
Deputy President Boyle
30 January 2019
THE APPLICATIONS
There are two applications before the Tribunal. The Applicant seeks review of:
(a)the Respondent’s (ATO) decision dated 21 September 2016 to disallow the Applicant’s objection to an amended assessment for the 2014 financial year (R3.1, T2); and
(b)the ATO’s decision dated 18 January 2018 to disallow the Applicant’s objection to assessment of shortfall penalty for the 2014 financial year (R3.2, T2).
BACKGROUND
At all material times the Applicant was the sole director of Flyaway Travel Pty Ltd (Flyaway) which traded as a travel agency business on Barrack Street in Perth.
The Applicant was informed in September 2015 that the ATO was auditing Flyaway for the 2014 financial year. The Applicant was asked to provide all records of income and expenditure for the business and his personal records of income and expenditure (R3.1, T5).
In March 2016 the Applicant was informed that the ATO was auditing his individual income tax return for the 2014 financial year (R3.1, T14).
In his 2014 income tax return the Applicant declared total income of $26,130 which included director’s fees of $26,000 from Flyaway (R3.1, T3 at 17). The Applicant claimed that his taxable income was $24,882 after deductions (R3.1, T3 at 25).
As part of the audit of Flyaway, the Applicant submitted a completed “Personal living expenses questionnaire” which provided information of his household for the 2014 financial year. The questionnaire requested details on the household’s sources of income, expenses, assets purchased and loans taken out during the audit period (R3.1, T6).
The Applicant stated the following in his completed questionnaire dated 19 October 2015:
(a)he had two sources of income – $500 per week from work and $374.50 per week from government family assistance payments (R3.1, T6 at 59);
(b)his household expenses were $537.50 per week (R3.1, T6 at 58);
(c)he did not buy any property (R3.1, T6 at 60); and
(d)he did not make any asset purchases greater than $3,000 (R3.1, T6 at 61).
On 20 October 2015 officers from the ATO met with the Applicant and his tax agent, Mr Domenic Calabro, for an audit interview. The Applicant said that he did not purchase any property during the 2014 financial year. After further questioning the Applicant said that he purchased a vacant property in Kensington Avenue, Dianella in the 2014 financial year and started building there in November or December 2014 (ATO record of interview – R3.1, T7 at 69).
During the audit interview the Applicant was also asked about private bank accounts. He volunteered that he had a private bank account with CBA. After questioning he also said that he had a Westpac private bank account and a personal mortgage and that previously he had a private bank account with Bankwest (R3.1, T7 at 66-69).
As part of the audit of Flyaway the ATO requested details of accounts held by the Applicant at Westpac and Bankwest (R3.1, T10-12). The ATO identified a fourth private bank account with Westpac (the Westpac Bank Account) (R3.1, T12 at 193-202). This account was opened in February 2014 and closed in March 2014. There were deposits totalling $93,000 into this account as follows:
Date
Amount Deposited
27 February 2014
$20,000
5 March 2014
$10,000
7 March 2014
$35,000
11 March 2014
$22,000
14 March 2014
$6,000
In response to the ATO’s queries about the above deposits, the Applicant’s tax agent, Mr Calabro, said that all except for $10,000 was raised by the sale of the Applicant’s wife’s jewellery and that the $10,000 was a loan from a friend used to purchase land on which the Applicant built (R3.1, T13 at 204).
On 18 March 2016 the ATO wrote to the Applicant advising that the ATO were auditing his income tax return for the 2014 income year. The letter said “[you] have been selected for audit because issues identified from the audit of your company Flyaway Travel Pty Ltd indicate that you may have under-reported your income”. The letter referred to the Westpac Bank Account and deposits totalling $93,000 and requested the Applicant to provide documents supporting his tax agent’s explanation for the deposits by
23 March 2016 (R3.1, T14).
On 23 March 2016 the ATO wrote to Flyaway advising that the audit of Flyaway was completed and no further action was required but that potential issues regarding the Applicant’s individual income tax return had been identified (R3.1, T16).
The Applicant did not provide any documents to the ATO to support the explanation for the deposits as requested in the ATO’s letter of 18 March 2016.
On 28 April 2016 the ATO wrote to the Applicant advising the findings of the ATO’s audit into his income tax return for the 2014 financial year. These were contained in an enclosed audit position paper (R3.1, T17 at 216-222). In summary, the findings were:
(a)the Applicant had not correctly calculated his taxable income; he understated it by $93,000 with the result that further income tax of $32,506.95 was payable; and
(b)the Applicant was liable to a penalty of $19,504.10 (R3.1, T17 at 216).
The ATO’s reason for its finding as set out in the audit position paper was that the Applicant understated his taxable income because the deposits totalling $93,000 to the Westpac Bank Account “... represented a form of income to [the Applicant] from an unidentified source and were applied to [the Applicant’s] personal use” (R3.1, T17 at 219). The ATO referred to the fact that the Applicant did not voluntarily disclose information about this account and the deposits. As to the Applicant’s explanation that the deposits were from the sale of his wife’s jewellery and loans, the ATO noted that the Applicant did not provide evidence to support these claims (R3.1, T17 at 218).
The ATO audit position paper set out the ATO’s determination that the Applicant was liable to an administrative penalty for making a false or misleading statement in his income tax return in that he understated his taxable income. The ATO considered that the Applicant was reckless in making the false or misleading statement and applied a rate of 50% to the tax shortfall. The ATO increased this by 20% because it considered that the Applicant took steps to prevent the Respondent from finding out about the shortfall amount. The ATO decided that it was not appropriate to remit the penalty (R3.1, T17 at 221).
In response to the audit findings the Applicant’s tax agent provided five statutory declarations and explained that the Applicant did not disclose the Westpac Bank Account at the audit interview because he (the Applicant) understood the ATO officer to be asking about business bank accounts (R3.1, T19). Two of the statutory declarations are from people who say they bought used gold from the Applicant for cash (R3.1, T19 at 230-231). Another two are from people who say they lent the Applicant cash to help him build his house (T3.1, T19 at 236-237). The fifth statutory declaration is from the Applicant’s wife and she says that during a trip to Iran in late 2013 and early 2014 she received cash gifts from her family (R3.1, T19 at 232-233). The tax agent also said that the Applicant was awaiting a sixth statutory declaration from a person who purchased jewellery from the Applicant. The effect of the statutory declarations were as follows:
Name
Amount
Date
Purpose
Josephine Denton
$10,000
March 2014
Purchase gold
Razak Alburkat
$9,500
20 February 2014
Purchase gold
Takwa Abed Said Al Rubaei
$16,000
25 November 2013 to 7 February 2014
Gifts
Wadee Shareef
$20,000
February 2014
Loan
Zaki Mohammed Ali
$22,000
5 March 2014
Loan
None of the people who gave statutory declarations provided any documents in support of their statements.
As part of its audit into the Applicant’s income tax return the ATO says that its officers spoke to four of the five persons who gave statutory declarations to verify the contents of their statements. Notes of the conversations with three of the five were included in the
T-documents (R3.1, T20 and T21). There was a note to the effect that the ATO was unable to contact Zaki Mohammed Ali as no contact details were provided (R3.1, T21 at 239) and there is no note of a conversation with Takwa Abed Said Al Rubaei, the Applicant’s wife. She, however, did give evidence at the hearing.
On 4 July 2016 the ATO wrote to the Applicant (R3.1, T23) advising that the ATO had completed its audit and the result of the audit was as follows:
Additional income tax liability $32,506.99
Administrative penalty (income tax) $19,504.20
Total amount payable (excluding interest charges) $52,011.19
The letter enclosed reasons for decision (R3.1, T23 at 273-274). The reasons refer to the statutory declarations other than the one from the Applicant’s wife and go on (R3.1, T23 at 273):
We have verified the statutory declarations with the relevant individuals and it was identified that neither receipts nor loan acknowledgments were documented for any of the transactions. It was found that no jewellery valuation was done nor any written documentation to justify the cash handling transactions with large sums of cash of at least $9,500 per transaction. It is implausible that such third party dealings with non-family members would be transacted by cash instead of via electronic means for example bank transfer. We also found inconsistencies in the individuals’ [sic] reasoning on the source of cash used to pay you.
We have therefore concluded that there is no ground for your claims, and your 2014 income tax return will be amended to include the additional income identified as per our position paper.
On 11 July 2016 the ATO issued (R3.1, T25 and T26):
(a)a Notice of Amended Assessment for the 2014 financial year showing shortfall tax of $32,507; and
(b)a Notice of Assessment of shortfall penalty of $19,504.15.
On 15 July 2016 the Applicant objected to the Notice of Amended Assessment. The reason given for the objection was that the ATO chose to disregard the statutory declarations provided by the Applicant during the audit (R3.1, T27).
During the objection process the ATO asked the Applicant to substantiate his claim that the $93,000 deposited to the Westpac Bank Account was not assessable income but instead proceeds from the sale of jewellery and loans (R3.1, T27). The Applicant’s tax agent provided several photographs of jewellery and three Westpac customer receipts showing cash withdrawals in May and July 2015 (R3.1, T29). No explanatory information accompanied the photographs or the customer receipts.
The ATO disallowed the Applicant’s objection and notified him by letter dated
21 September 2016 (R3.1, T30). In summary, the reason for the objection decision was that the Applicant had not provided sufficient evidence demonstrating that any of the $93,000 in deposits came from sales of gold, loans or gifts. The ATO concluded (T3.1, T2 at 13):
Based on the information above, we consider that you have not satisfied the onus of showing that our assessment was excessive. You have not demonstrated, by evidence, that the character of your additional income was different to that claimed by the Commissioner. Therefore, your objection to reduce your assessable income by $93,000 has been disallowed.
On 14 September 2017 the Applicant lodged application 2017/5538 for review of the ATO’s objection decision of 21 September 2016 (R3.1, T1). An order pursuant to s 29(7) of the Administrative Appeals Tribunal Act 1975 (Cth) extending time for the making of the application for review was made on 28 September 2017.
On 30 October 2017 the Applicant objected to the assessment of a shortfall penalty for the 2014 financial year (R3.2, T4).
On 18 January 2018 the ATO disallowed the Applicant’s objection to the assessment of a shortfall penalty (R3.2, T2 at 9-15).
On 9 February 2018 the Applicant lodged application 2018/0624 in the Tribunal (R3.2, T1).
THE ISSUES FOR DETERMINATION
The ATO’s SFIC identifies, correctly in the Tribunal’s view, the issues as being (R1):
(a)whether the amended assessment for the 2014 financial year is excessive;
(b)whether the ATO’s assessment of a shortfall penalty for the 2014 financial year was properly imposed; and
(c)if yes to (b), whether to remit the shortfall penalty in whole or in part.
The Applicant’s SFIC expresses the issues slightly differently. It identifies the particular issues, albeit in self-serving language not reproduced below, as being whether the amended assessment was excessive because it wrongly including as assessable income:
(i)$10,000 received from Josephine Denton from the sale of the Applicant’s wife’s jewellery;
(ii)$9,500 received from Razak Alburkat from the sale of the Applicant’s wife’s jewellery;
(iii)$16,000 gifted by Applicant’s wife’s family toward the purchase of the family home;
(iv)$22,000 lent to the Applicant by Zaki Mohammed Ali; and
(v)$20,000 lent to the Applicant by Wadee Shareef.
The Tribunal notes that the Applicant’s SFIC only explains the source of $77,500 of the $93,000 unexplained funds which formed the basis of the ATO’s assessment. Explanations as to the source of the balance of $15,500 emerged at the hearing. This is the subject of comment below.
THE HEARING
The applications were heard on 25 October 2018. The Applicant was represented at the hearing by Ms Velevski and the ATO was represented by Mr Edwards.
The following documents were tendered:
·Applicant’s Statement of Facts, Issues and Contentions dated 21 May 2018 (Exhibit A1);
·Statement of the Applicant dated 21 May 2018 (Exhibit A2);
·Witness Statement of Takwa Abed Said Al Rubaei dated 21 May 2018 (Exhibit A3);
·Witness Statement of Razak Alburkat dated 21 May 2018 (Exhibit A4);
·Witness Statement of Wadee Mohammed Shareef dated 21 May 2018 (Exhibit A5);
·Witness Statement of Anthony Edwards dated 21 May 2018 (Exhibit A6);
·Witness Statement of Fatma Rahman and Abed Al-Rubaei dated 3 October 2018 (Exhibit A7);
·Witness Statement of Josephine Denton dated 7 September 2018 (Exhibit A8);
·Respondent’s Statement of Facts, Issues and Contentions dated 9 July 2018 (Exhibit R1);
·Respondent’s Submission dated 23 October 2018 (Exhibit R2);
·T-Documents in Application 2017/5538 (T1-T31) (Exhibit R3.1); and
·T-Documents in Application 2018/0624 (T1-T5) (Exhibit R3.2).
The following witnesses gave evidence at the hearing:
(i)The Applicant
(ii)The Applicant’s wife, Takwa Abed Said Al Rubaei; and
(iii)Josephine Denton
At the conclusion of the hearing the Tribunal directed that the parties provide written submissions on the power of the ATO to treat unexplained amounts in the Applicant’s Westpac Bank Account as assessable income. In accordance with that direction the ATO lodged submissions on 1 November 2018 (ATO’s closing submissions) and the Applicant lodged submissions on 7 November 2018.
AMENDED ASSESSMENT APPLICATION 2017/5538
Legislative framework
As noted above, at the conclusion of the hearing the Tribunal directed the parties to make submissions on the power of the ATO to treat unexplained deposits as assessable income. The ATO’s submission, correctly in the Tribunal’s view, identified the relevant question as being whether the exercise of power to treat unexplained deposits as assessable income is relevant to the Applicant’s review under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA).
In a Part IVC proceeding the Tribunal’s task does not involve reviewing the ATO’s exercise of power. Rather it involves reviewing the amount of an assessment. In other words, the Tribunal’s task does not involve looking behind an assessment – either to the steps taken by the ATO in an assessment, the correctness of an assessment or the validity of an assessment.
Sections 166, 167 and 170 of the Income Tax Assessment Act 1936 (Cth) (ITAA 36) are the key provisions. Section 166 of the ITAA 36 imposes a duty on the ATO to make an assessment and confers the power to do so. According to that section the ATO must make an assessment of “the amount of taxable income … of any taxpayer; and the amount of the tax payable thereon…”. In making an assessment of the amount of taxable income the ATO must apply relevant provisions of the ITAA 36 and the Income Tax Assessment Act 1997 (Cth) (ITAA 97).
Section 167 of the ITAA 36 is in aid of s 166 of the ITAA 36 (see George v Federal Commissioner of Taxation (1952) 86 CLR 183 at p183; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at p618). Section 167 of the ITAA 36 sets out circumstances in which the ATO may make an assessment of taxable income for the purpose of s 166 of the ITAA 36 (see R v Deputy Commissioner of Taxation (WA);Ex parte Briggs (No 2) (1987) 14 FCR 249 per Sheppard J at p263-264).
The relevant circumstance for s 167 of the ITAA 36 is that “the Commissioner is not satisfied with the return furnished by any person”. It may be inferred that a consequence of the audit of the Applicant’s income tax return for the 2014 financial year was that the ATO was not satisfied with that return. The ATO made “an assessment of the amount upon which in his or her judgment income tax ought to be levied”. That amount was the amount of assessable income less deductions claimed by the Applicant in his return for the 2014 financial year plus the deposits totalling around $93,000 to the Westpac Bank Account. The ATO made this assessment on the basis of additional information obtained in the audit, including the Applicant’s explanations for the source of the deposits to the Applicant’s Westpac Bank Account.
Section 170 of the ITAA 36 provides that the ATO may amend assessments in certain circumstances, including “an assessment of an individual for a year of income within 2 years after the day on which the Commissioner gives notice of the assessment to the individual”. Here the ATO issued the notice of assessment on 10 December 2014 and issued the notice of amended assessment on 11 July 2016 – this was well within the two year period.
The next question is whether the ATO’s exercise of power in treating the unexplained deposits as assessable income is relevant to the Applicant’s review in the Tribunal. The ATO submits that numerous court cases and decisions of the Tribunal in Part IVC proceeding matters establish that it is not (ATO’s closing submissions). The Tribunal agrees.
Before the Tribunal the “taxpayer does not impugn the validity of the assessments; he attacks the respective amounts at which his taxable income was assessed” (Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 per Brennan J at p618). In other words a taxpayer cannot challenge the exercise of power in making an assessment in Part IVC proceedings in the Tribunal. If a taxpayer wishes to do this, then he or she must seek judicial review under s 39B of the Judiciary Act 1903 (Cth). Under this section, the Federal Court exercises the same judicial review jurisdiction as the High Court would under s 75(v) of the Constitution.
There are a number of statements in the various cases and decisions explaining the effect of s 14ZZK of the TAA and ss 166 and 167 of the ITAA 36. For example, in Commissioner of Taxation v Rigoli [2013] FCA 784 Pagone J at [9] said
… It is clear from these passages that the combined effect of s 167 and the legal burden of proof falling upon the taxpayer is that for a taxpayer to succeed in establishing the excessiveness of an assessment under s 167 … requires the taxpayer to establish not that the amount assessed by the Commissioner under s 167 of the 1936 Act was wrong but, rather, by establishing what the actual amount was…
In Llun and Commissioner of Taxation [2017] AATA 3058 the Tribunal’s reasons for decision treated unexplained deposits to offshore bank accounts as assessable income. See also PBKQ and Commissioner of Taxation [2016] AATA 681 at [29].
In the present case the Tribunal’s task is confined to determining:
(a)whether the Applicant has proved that the amended assessment is excessive and if so, what the assessment should have been; and
(b)whether the decision to disallow the Applicant’s objection to the assessment of shortfall penalty should have been made or made differently or should have been remitted.
The Applicant conceded (Applicant’s post-hearing submissions at paragraphs 2-3) that he must prove that the amended assessment is excessive. He notes that in an AAT matter regarding undeclared cash deposits Senior Member O’Loughlin and Senior Member Egon Fice in Nguyen v Commissioner of Taxation [2011] AATA 544 explained the following at [14] and [15]:
In the Tribunal review of an assessment, it is not necessary for the Commissioner to seek to establish that the applicant’s assessable income was, or was at least, a particular figure (see the decision of Finn J in Vu v Commissioner of Taxation [2006] 63 ATR 341 at 344). There are several ways in which a taxpayer can discharge the burden of proof placed on him by s 14ZZK of the Administration Act. When referring to the predecessor s 190(b) of the 1936 Assessment Act, Murphy J said in McCormack’s case, at 323:
A taxpayer might discharge the burden of proof placed on him by s. 190(b) in any of several ways. He may prove all relevant circumstances and from these establish that an inference should be drawn that the property (from the sale of which by the taxpayer a profit arose) was no acquired by him for the purpose of profit-making by sale. Or he may prove by direct evidence that such a purpose did not exist. The burden might also be discharge by a combination of direct evidence and inference from other circumstances. He may, of course rely upon any evidence or any inference from evidence adduced by the Commissioner.
The ATO submitted (R1, ATO’s SFIC paragraphs 30-31) that the burden on the Applicant is two-fold: to prove that the assessment is excessive and to prove what the correct assessment ought to be. The ATO further submitted that there is no onus on the ATO to show that the assessment is reasonable or supported by the evidence (R1, ATO’s SFIC paragraph 32). The ATO cites Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at p89 per Mason J:
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.
The ATO further submits that the position was authoritatively summarised by the Full Federal Court in Gashi v FCT (2013) 209 FCR 301; [2013] FCAFC 30 at [61]:
In seeking to establish in Pt IVC proceedings that an assessment issued under
s 167 is excessive, the ultimate question was and remains whether the amount of each assessment was excessive: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623. Section 14ZZ0 of the TAA places the burden of proving each assessment is excessive on the taxpayer: Dalco at 623 citing George at 189. The TAA does not place any onus on the Commissioner to show that the assessments were correctly made: Dalco at 624 citing Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89. Indeed, absent agreement with the Commissioner to confine the issues for determination in a Pt IVC proceeding, the Commissioner is entitled to rely upon any deficiency in the taxpayer’s proof of the excessiveness of the amount assessed in seeking to uphold the assessment: Dalco at 624.
The ATO also points to the comments in Graham Docker & Associates Pty Ltd v Federal Commissioner of Taxation [2005] ATC 2404; [2005] AATA 1180 at [34] to the effect that it is not open to a taxpayer to complain in circumstances where the quantification of an assessment is complicated by the failure on his part to keep accurate records of account. That principle has application in the present case where a significant contributor to the difficulty faced by both the Applicant and the ATO in determining the correct assessable income is the result of the Applicant’s failure to keep proper records.
It follows from what the Full Court said in Gashi that there is in no sense a shift in burden to the ATO in Part IVC proceedings under the TAA. The question always remains whether the Applicant has discharged the burden of proving that the assessment was excessive.
Has the Applicant discharged the burden of proof?
The Applicant does not dispute that the deposits made into the Westpac Bank Account total $93,000. As the Applicant’s counsel put in her oral closing submissions (Transcript at 88):
The key question here today was the origin or the source of the $93,000 undeclared cash deposits.
The Applicant asserts that the money came from a number of sources, primarily those identified in the Applicant’s SFIC as set out in [32] above plus $15,500 of the Applicant’s savings.
The Applicant’s case relies heavily on his credibility as a witness. Ms Denton provided a witness statement and gave evidence at the hearing. The only relevant evidence Ms Denton could give was as to the $10,000 that she says she paid to the Applicant for some of his wife’s jewellery. The Applicant’s wife also gave evidence, however, the only sources of relevant cash in relation to which she could give evidence was the sale of some of the jewellery to Ms Denton and her bringing $16,000 in cash into Australia from a holiday in Iran. While the witness statements were provided by Razak Alburkat, Wadee Mohammed Shareef and Anthony Edwards, none of them gave evidence. A statutory declaration by Zaki Mohammed Ali had also been provided by the Applicant’s accountant to the ATO (R3.1, T19 at 237). Mr Mohammed Ali also did not give evidence.
The credibility of the Applicant
The credibility of the Applicant’s story is, in the Tribunal’s view, undermined by numerous basic inconsistencies. In the material before the Tribunal there are at least three different explanations for the sources of the deposits. The first explanation of the source of the funds, which was provided by the Applicant’s tax agent in an email to the ATO in February 2016, was that all of the $93,000, except for $10,000, came from sales of the Applicant’s wife’s jewellery (R3.1, T13 at 204). The Applicant’s tax agent said that the $10,000 was borrowed from a friend (R3.1, T13 at 204). There was no statement from the Applicant’s tax agent and he was not called to give evidence.
By letter dated 18 March 2016 (R3.1, T15 at 211-212) the ATO sought substantiation and evidence relating to the sale of the jewellery which generated the $83,000 and the $10,000 loan from a friend. Notwithstanding a number of phone calls from the ATO following up that request for information, nothing appears to have been received by the ATO until an email from the Applicant’s accountant dated 5 May 2016 (R3.1, T18) in which he advised that he had spoken to the Applicant recently and that “the person who bought the jewellery is currently overseas” but that the Applicant was trying to get “some documentation from her”. This, the Tribunal assumes, was a reference to Ms Denton.
The next communication received by the ATO was an email from the Applicant’s accountant dated 16 May 2016 (R3.1, T19) attaching statutory declarations from Ms Denton, Razak Alburkat, Takwa Abed Said Al-Rubaei, Wadee Shareef and Zaki Mohammed Ali. That email from the Applicant’s accountant also advised that “He [the Applicant] is still awaiting one more [statutory declaration] for $16,000 for some jewellery…” which represented the balance of the $93,000. That further statutory declaration was never provided but rather the Applicant subsequently claimed that the balance of some $15,500 or $16,000 was sourced from his savings (Transcript at 55-56).
There was no explanation provided by the Applicant either before or at the hearing for the basic inconsistencies between his stories as to the source of the $93,000.
Further it is also of significance in determining the Applicant’s credibility that the Applicant did not provide material information to the ATO as part of its audit of Flyaway. For example, the Applicant did not declare any sales of jewellery, gifts of money or the purchase of Kensington Avenue, Dianella in the “Personal living expenses questionnaire” he completed. The Applicant did not tell the ATO about the Westpac Bank Account into which the five deposits totalling $93,000 were made. The ATO only became aware of this account after making an inquiry at Westpac. The Applicant has not provided any proper explanation about these matters and his evidence at the hearing was evasive and unconvincing.
In cross-examination it was put to the Applicant that as part of the ATO’s audit of Flyaway he had been required to complete a “Personal living expenses questionnaire” but had failed to disclose (Transcript at 42):
·the Westpac Bank Account into which the $93,000 had been deposited (R3.1, T6 at 61);
·the gift of $16,000 brought back from Iran by his wife; and
·the purchase of land in Kensington Avenue, Dianella (R3.1, T6 at 60).
The Applicant’s explanation for these failures to disclose was that he thought that the audit being undertaken by the ATO related to Flyaway not him personally and that therefore he did not understand that he had to make these disclosures. He conceded that he had failed to disclose the personal bank accounts including the Westpac Bank Account into which the $93,000 was deposited but had no explanation for that failure (Transcript at 48). He said in relation to the failure to disclose in the questionnaire the $16,000 gift that “[t]hey didn’t ask me about any gift…” (Transcript at 44) and in relation to his failure to disclose the purchase of the land “[t]hey didn’t ask me” (Transcript at 47). These are wholly unconvincing explanations. The document completed by the Applicant (R3.1, T6) is clearly a document that identifies him as the relevant taxpayer and is relating to his personal circumstances, assets and income and the information sought is clear.
In relation to the change in story between the Applicant’s accountant’s advice to the ATO in the email of 16 May 2016 (R3.1, T19) that he was waiting for a further statutory declaration establishing jewellery sales to account for the then unexplained $16,000 balance and the Applicant’s later story that the balance came from his savings, the Applicant in effect said that he was not responsible for what his accountant wrote. When it was pointed out to the Applicant that the email from his accountant was copied to him, he denied having received it. His evidence in this regard was evasive and unconvincing.
Yet another version of the source of the $93,000 was provided by the Applicant’s lawyers in the objection to the penalties in their letter dated 27 October 2017 (R3.2, T4 at 20) wherein it is claimed that the “amounts arose from the sale of personal property such as jewellery (gold) and gifts of money from close family friends” (see [99] below).
In completing the “Personal living expenses questionnaire” the Applicant had also stated his total income as being $500 a week from work and $374.50 from “Family Assistance” (R3.1, T6 at 59). As noted at [5] above, the Applicant declared in his tax return for the 2014 financial year a total income of $26,130, which included director’s fees of $26,000 from Flyaway (R3.1, T3 at 17). The Applicant claimed that his taxable income was $24,882 after deductions (R3.1, T3 at 25).
That, however, is significantly different to the income claimed in a loan application (R3.1, T11 at 154) made by the Applicant in April 2014 in which he stated his annual gross income to be $129,982. In cross-examination the Applicant claimed that his finance broker had completed the application form. He claimed that he had told his finance broker that his income was $700 a week and was not able to explain from where his broker got the income figures that were used in the loan application. He conceded that he had signed the loan offer document (R3.1, T11 at 150). The Tribunal finds the Applicant’s explanation inherently unbelievable.
The Tribunal appreciates that English is not the Applicant’s first language and that the Applicant may have had some difficulty understanding some questions put to him in cross-examination. The Tribunal has taken that into account in assessing his credibility. The Tribunal does not believe that any difficulty that the Applicant may have in communicating easily in English explains the repeated failure of the Applicant to provide information truthfully to the ATO or to adequately answer questions put to him in cross-examination. The Tribunal is of the view that the Applicant was deliberately obfuscating in his evidence at the hearing. The Applicant has been running an apparently successful travel agency in Perth for the last 11 or 12 years. It would appear that he has a sufficient command of English and understanding of the commercial principles to run a successful business. His failure to provide the information clearly sought in the ATO “Personal living expenses questionnaire” was not the result of a lack of understanding of the language. The concepts behind the questions and the details sought are not complex or unique to the Australian legal or financial system. The questions were not difficult or unclear. The Tribunal finds that the Applicant knew what information was being sought and for his own reasons chose not to provide that information.
In relation to each of the elements of the Applicant’s explanation of the sources of the $93,000, the Tribunal finds:
$10,000 from sale of jewellery to Ms Denton
The Tribunal accepts the Applicant’s explanation. The Tribunal is concerned that there was no record of the sale, that Ms Denton has no documentation evidencing her ownership of the jewellery such as a record of insurance covering the jewellery and that the money used to purchase the jewellery was cash from a safety deposit box so there is no bank record of any withdrawal by Ms Denton. Notwithstanding those concerns, Ms Denton presented as a credible witness whose testimony was tested by cross-examination and the Tribunal has no reason to disbelieve her evidence.
$9,500 from sale of jewellery to Razak Alburkat
Mr Alburkat was not called and his evidence could not be tested. Again there is no contemporaneous documentary evidence of there being a sale or of Mr Alburkat’s ownership of the jewellery. The only evidence is a witness statement (A4) and a very brief statutory declaration (R3.1, T19 at 231) saying that he “bought used gold” from the Applicant. Neither of Mr Alburkat’s statements identifies the jewellery for which he claims he paid $9,500. In light of the inconsistencies in the Applicant’s story as to the sources of the $93,000, in particular the significant change in the story from that put forward by the Applicant’s accountant in May 2016, which the Tribunal finds was on the Applicant’s instructions, and the final version as it unfolded at the hearing, the Tribunal does not accept that the Applicant has discharged his burden of proof under s 14ZZK of the TAA in relation to the claimed sale of jewellery to Mr Alburkat.
$16,000 gifted by Applicant’s wife’s family
The Applicant’s wife’s evidence was that she and her daughters went to Iran in November 2013 and that she was given $16,000 which had been saved by her parents and elder brother. She returned to Perth on 7 February 2014 when she says that she gave the money to the Applicant who deposited it in the bank (Transcript at 75-76). There are a number of issues with the Applicant’s wife’s evidence. Again there is no record of her having received the money or her having brought the money into Australia. As was pointed out to her in cross-examination, any amount in excess of $10,000 in aggregate being brought into Australia by members of a family must be declared. She conceded that she had not declared the money when coming into Australia and claimed that she thought that she did not have to because the $16,000 between her and her daughter represented only $8,000 each.
There is also no record of the $16,000 being deposited into the bank around the time of her return to Australia. There is a deposit of $20,000 on 27 February 2014 (Westpac eSaver statement R3.1, T12 at 193). However, the Applicant’s evidence at the hearing (Transcript at 35) was that that deposit of $20,000 was of the money given to him by Mr Shareef. After being cross-examined at some length on the issue the Applicant conceded that he could not point to any deposit into the account which represented the $16,000 received from his wife’s family (Transcript at 37-38). That situation also applied, to a greater or lesser degree, to the other deposits comprising the $93,000. The dates and, in most cases, the amounts of the deposits did not reconcile with the claimed sales of jewellery, gift and loans claimed to be the sources of the funds.
Notwithstanding these inconsistencies, the Applicant’s wife’s evidence was tested by cross-examination and she maintained her explanation that she had been given $16,000 by her family which she had passed on to the Applicant. The Tribunal is prepared to accept that that money was received as claimed by the Applicant and that the Applicant has discharged his burden of proof under s 14ZZK of the TAA in relation to this amount.
$22,000 lent to the Applicant by Zaki Mohammed Ali
Mr Mohammed Ali was not called to give evidence. There was no witness statement provided by Mr Mohammed Ali. The only evidence, other than that of the Applicant, was a statutory declaration apparently signed by Mr Mohammed Ali in April 2016 (R3.1, T19 at 237). That statutory declaration said that he had “Borrowed [sic]” the Applicant money to help him buy his house and “I gave him $22,000 cash that I was saving for long time but not using on the 5/3/14”.
At paragraph 24 of his statement (A2), the Applicant said:
I also borrowed $22,000 from Zaki Mohammed Ali- known him for a very long time, distant relative because our cousins are married. I went to his home in Yokine and he was happy to lend me $22,000. He moved to Iraq in 2016. My brothers paid him back in Iraq.
The Applicant’s evidence at the hearing was (Transcript at 35):
That $22,000 I borrow money from Mohammed Ali Zaki, Mohammed Ali. He moved to Iraq. On that time he say some property, and me and Anthony went to his house at that time, I need the money, some money, $22,000, to buy the land. He offer me, and then my brother, he pay him in Iraq. My brother, in Iraq, when he moved, he said, “I pay you here and my brother, because I have someone with my brother and my family”, we share some money to him in Iraq.
As with the other claimed loan from Mr Shareef, the Applicant was unable to provide any detail of the terms of the claimed loan such as the time for repayment, interest or anything else about the loans. The “loan” from Mr Mohammed Ali as described by the Applicant in his evidence (see [76] above) lacks any commercial or other apparent basis. The Applicant’s evidence was that the $22,000 was repaid in Iraq. The problem that that poses for the Applicant is that given his claimed income of around $26,000, where did the money come from to repay the loan, if it was, as claimed, a loan?
Mr Mohammed Ali’s evidence could not be tested. There were numerous inconsistencies with the Applicant’s account of this loan which appears to have no commercial basis other than possibly a means of Mr Mohammed Ali transferring funds into Iraq the result of which would not have meant that the Applicant was $22,000 better off. The arrangement as described by the Applicant in cross-examination would have been $22,000 in and $22,000 out. Where did the $22,000 used to repay Mr Mohammed Ali come from? It must also be remembered that there was no mention of this claimed loan when the Applicant’s accountant provided the first version of the source of the $93,000 in the email of
17 February 2016 which was that all but $10,000 of that sum had come from sales of jewellery (R3.1, T17).
The Tribunal does not accept the Applicant’s story and finds that the Applicant has not discharged his onus of proof for the purposes of s 14ZZK of the TAA in relation to this claimed loan from Mr Mohammed Ali.
$20,000 lent to the Applicant by Wadee Shareef.
Mr Shareef did not give evidence. The claims made in his witness statement (A5) and the statutory declaration provided to the ATO by the Applicant’s accountant in May 2016 (R3.1, T19 at 236) could not be tested. As with the loan from Mr Mohammed Ali, the Applicant claims that there was no document recording the loan with Mr Shareef.
The Applicant also claims that by 2016 he had repaid the $20,000 lent to him by Mr Shareef (A2, Applicant’s witness statement, paragraph 22 and Transcript at 61). The Applicant could not produce any statements or other evidence verifying his repayment of this loan. Remembering that the Applicant’s claim is that his annual income is around $26,000 (based on his claimed income for the 2014 financial year from all sources), it is difficult to see how he could have repaid the $20,000 to Mr Shareef while at the same time apparently paying $22,000 to Mr Mohammed Ali in Iraq and coming up with $13,000 of his own savings (his explanation for the balance to make up the total of $93,000 in deposits into the Westpac Bank Account).
When cross-examined on the detail of the loan from Mr Shareef the Applicant claimed that no interest was payable and there was no agreement as to when the loan would be repaid. The Tribunal finds it hard to accept that a person would enter into such an arrangement.
The Tribunal does not accept the Applicant’s story and finds that the Applicant has not discharged his onus of proof for the purposes of s 14ZZK of the TAA in relation to the claimed loan from Mr Shareef.
$15,500 paid from the Applicant’s savings
In the final paragraph of his witness statement (A2) the Applicant simply asserts that “[t]he balance of the $93,000 came from own (sic) personal savings”. No evidence was put forward by the Applicant, either by way of statement or at the hearing, to substantiate this claim or to explain the source of his “personal savings”. At the hearing the Tribunal examined the Applicant as to how, if as he claims, his income is around $26,000 a year from all sources with his disclosed living expenses, he could have had savings of $15,500 which is over half a year’s net income. He had no plausible explanation. When first asked where he kept these personal savings, the Applicant initially said “[a]t home with my wife, with my family” (Transcript at 65) but immediately thereafter when asked whether he kept these savings in a bank his evidence was “[o]f course, my personal account in the bank and my business in the bank that’s why always I keep small money for my own self too” (Transcript at 66).
The Tribunal notes that this balance of $15,500 of personal savings to make up the total $93,000 was not mentioned in the initial version of the source of the $93,000 provided by the Applicant’s accountant in February 2016. The Applicant’s evidence was, in the Tribunal’s view, confused and unsatisfactory. In relation to most of the amounts that he claimed to have received from others, the deposits made by the Applicant into the account did not coincide in time and in a number of cases, amount, with the amounts he claims to have received. At the hearing the Applicant was attempting to explain the difference between the $22,000 that he claimed to have received from Mr Mohammed Ali and the deposit made on 7 March 2014 by the Applicant of $35,000 (R3.1, T12 at 197) which the Applicant claimed in part represented the money lent to him by Mr Mohammed Ali. The amount being referred to in that evidence was the $13,000 difference between those amounts, not the $15,500 needed to make up the balance of $93,000. The Tribunal, however, will treat the evidence that the Applicant gave in relation to the $13,000 “shortfall” as being the Applicant’s explanation of the source of the $15,500 shortfall needed to explain the balance of the $93,000 in deposits.
In the Tribunal’s view the Applicant’s evidence also suggested that the Applicant’s claim that his total income from all sources as disclosed in the information he provided to the ATO (R3.1, T6 at 59) as part of the audit and his tax return was not correct. The following exchange occurred at the hearing (Transcript at 66-67);
DEPUTY PRESIDENT: So, $13,000 you say was wages? That’s six months wages. So what were you living on before you paid that money? Or asked another way. Where had that $13,000 come from?
APPLICANT: Come from my – my work – my work in the business and the businesses yes.
DEPUTY PRESIDENT: From your wages?
APPLICANT: Plus the – plus my family benefits – the kids, they have a family benefit.
DEPUTY PRESIDENT: But you appreciate, don’t you, that $13,000 is – of your declared income – six months of income?
APPLICANT: M’mm.
DEPUTY PRESIDENT: Your evidence also was that in relation to the $22,000 that was subsequently paid, that was also partly by way of a loan and partly by way of further wages. So that was made three days later – four days later?
APPLICANT: Just I keep small saving, small saving, all this –
DEPUTY PRESIDENT: Well, Mr Al Rubaei, $13,000 is not small. So your evidence is that the money that makes up the balance of the $35,000 and the money that makes up the balance of the $32,000 all came from your income which you say is $26,000 a year?
APPLICANT: Yes.
DEPUTY PRESIDENT: Insofar as you say you take money out of your business, how much do you take out of your business?
APPLICANT: One time I take $1500, one time I take transfer to my personal account – to my personal – from the business to personal account.
DEPUTY PRESIDENT: And is that shown in your tax return?
APPLICANT: Yes, of course, yes, yes.
The Applicant was then taken to his tax return (R3.1, T1 at 17) which showed his total declared income of $26,000. The following exchange then took place (Transcript at 67-68):
DEPUTY PRESIDENT: Item 2 on that page is “Income from allowances, earnings, tips, director’s fees, et cetera” and you declare $26,000?
APPLICANT: Yes.
DEPUTY PRESIDENT: But we know the $26,000 is the wage that you were drawing at that stage of around $500 a week?
APPLICANT: Yes.
DEPUTY PRESIDENT: Where is the other money that you took out of your business for your personal use, where is that shown?
APPLICANT: I think he show it in tax return, I can’t remember where it shown.
Contrary to the Applicant’s evidence, the tax return does not disclose any money “taken out of the business”, just the $500 a week “salary”. The Applicant’s claims simply do not add up if his declared income of $26,000 a year is true. The Tribunal does not accept the Applicant’s story in relation to $15,500 to make up the total of $93,000 coming from “personal savings” from declared income and finds that the Applicant has not discharged his onus of proof for the purposes of s 14ZZK of the TAA.
Conclusion
Accordingly, the Tribunal finds that the Applicant has only discharged the onus of proof which rests with him under s 14ZZK of the TAA in explaining the $10,000 representing the proceeds of sale of the jewellery to Ms Denton and the $16,000 gift from the Applicant’s wife’s family.
PENALTIES APPLICATION 2018/0624
Legislative framework
Section 284-75 of Sch 1 of the TAA relevantly provides as follows:
284-75 Liability to penalty
(1)You are liable to an administrative penalty if:
(a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
Note: This section applies to a statement made by your agent as if it had been made by you: see section 284-25.
...
(6)You are not liable to an administrative penalty under subsection (1) or (4) if:
(a)you engage a *registered tax agent or BAS agent; and
(b)you give the registered tax agent or BAS agent all relevant taxation information; and
(c)the registered tax agent or BAS agent makes the statement; and
(d)the false or misleading nature of the statement did not result from:
(i) intentional disregard by the registered tax agent or BAS agent of a *taxation law (other than the *Excise Acts); or
(ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts).
(7)If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6)(b).
Section 284-25 of Sch 1 of the TAA provides;
284-25 Statements by agents
This Division applies to a statement made by your agent as if it had been made by you.
Section 284-80 of Sch 1 of the TAA relevantly provides:
284-80 Shortfall amounts
(1)You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.
Item 1 of the table in s 284-80 of Sch 1 of the TAA is:
A *tax-related liability of yours for an accounting period, or for a *taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999, worked out on the basis of the statement is less than it would be if the statement were not false or misleading.
Relevantly, s 284-90 of Sch 1 of the TAA provides:
284-90 Base penalty amount
(1)The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:
Base penalty amount Item In this situation: The base penalty amount is: 1 You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a *taxation law (other than the *Excise Acts) by you or your agent 75% of your *shortfall amount or part 2 You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Excise Acts) 50% of your *shortfall amount or part 3 You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts) 25% of your *shortfall amount or part
Section 284-220(1) of Sch 1 of the TAA relevantly provides:
284-220 Increase in base penalty amount
(1)The *base penalty amount is increased by 20% if:
(a)you took steps to prevent or obstruct the Commissioner from finding out about a *shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated; or
(b)you:
(i) became aware of such a shortfall amount after a statement had been made to the Commissioner about the relevant *tax-related liability; or
(ii) became aware of the false or misleading nature of a statement made to the Commissioner or another entity after the statement had been made;
and you did not tell the Commissioner or other entity about it within a reasonable time;…
The Applicant made no submissions, either in his SFIC or in the submissions provided after the hearing in relation to the penalties that had been applied by the ATO. Counsel made no oral submissions in relation to penalties either in opening or closing.
Application 2018/0624 seeks review of the ATO’s objection decision on the Applicant’s objection of 27 October 2017 (R3.2, T4 at 19-20) to the penalties applied. As noted in the Applicant’s objection, the notice of assessment dated 11 July 2016 applied penalties totalling $19,504.10 being a 50% penalty on the tax shortfall of $16,253.45 and a 20% uplift of $3,250.65. These penalties were based on the ATO’s assessment of the Applicant’s assessable income as being $119,000 rather than the $26,000 declared, i.e. a shortfall of the $93,000 representing the unexplained deposits into the Applicant’s Westpac Bank Account (see ATO’s reasons for decision, R3.2, T2 at 11)
The Applicant’s objection to the application of penalties (R3.2, T4 at 20) was based on the assessment of the $93,000 as assessable income rather than on the basis upon which the penalty and uplift were applied. Relevantly the objection was:
11.The tax shortfall arose due to the increase in assessable income of $93,000 following the conclusion of an ATO audit.
12.The ATO audit determined that the $93,000 was assessable income. The Taxpayer contends (hence the reason for the Objection and the Application for review at the AAT) that the amount was not assessable income as the amounts arose from the sale of personal property such as jewellery (gold) and gifts of money from close family friends.
13.The Taxpayer used a tax agent throughout this time period and sought advice regarding the treatment of the monies received. During the audit process and the Objection process, the Taxpayer provided evidence of the source of the monies he received, and acted co-operatively at all times with the ATO.
14.During the ATO audit process, the Taxpayer was transparent in his dealings, as the information was in any case, easily identifiable through bank data. The Taxpayer sought statements from his relatives and friends to verify and confirm the source of the monies and the jewellery sales and this was provided to the tax agent and the ATO through the audit and objection process.
15.At all times, the Taxpayer believed that the monies of $93,000 were not assessable on the basis that he received it from his friends through loans and also through the sale of gold jewellery and this advice was confirmed by his tax agent.
The ATO applied a base penalty of 50% under the table in s 284-90 of the TAA on the basis of their assessment of the Applicant’s conduct as reckless. A full explanation of the ATO’s reasoning in concluding that the Applicant’s behaviour was reckless, as that term is used in s 284-90 of the TAA, was set out in the ATO’s objection decision (R3.2, T1 at 5).
The effect of the Tribunal’s finding that the Applicant has established that $10,000 was received as the proceeds of sale of jewellery to Ms Denton and that $16,000 was received by way of gift from his wife’s family is that the shortfall amount is reduced from $93,000 to $67,000. That, however, is still a significant shortfall amount and the Tribunal is of the view that the correct characterisation of the Applicant’s conduct in relation to that $67,000 shortfall is that it was reckless for the purposes of calculating the appropriate rate for the base penalty under s 284-90 of the TAA and that a base penalty of 50% is applicable.
Further, the Applicant’s conduct through the Flyaway audit and the subsequent audit of his personal tax affairs did constitute obstruction or failure to disclose to the Commissioner as envisaged by s 284-220 of Sch 1 of the TAA justifying an increase in the base penalty amount by 20%.
Both in relation to the base penalty applicable under s 284-90 of Sch 1 of the TAA and the uplift under s 284-220 of Sch 1 of the TAA, the Tribunal cannot see any reason why the ATO’s characterisation of the Applicant’s conduct set out in the objection should be considered to be incorrect. As noted above, the Applicant has made no submissions as to why the ATO’s assessment that his conduct should attract a 50% base penalty under
s 284-90 of Sch 1 of the TAA and an uplift of 20% under s 284-220 of Sch 1 of the TAA is erroneous. The Tribunal finds that a base penalty of 50% and an uplift of 20% is appropriate.
Remission of penalty
Section 298-20 of Sch 1 to the TAA provides:
(1)The Commissioner may remit all or a part of the penalty.
(2)If the Commissioner decides:
(a)not to remit the penalty; or
(b)to remit only part of the penalty;
the Commissioner must give written notice of the decision and the reasons for the decision to the entity.
Note: Section 25D of the Acts Interpretation Act 1901 sets out rules about the contents of a statement of reasons.
(3)If:
(a)the Commissioner refuses to any extent to remit an amount of penalty; and
(b)the amount of penalty payable after the refusal is more than 2 penalty units; and
Note:See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.
(c)the entity is dissatisfied with the decision;
the entity may object against the decision in the manner set out in Part IVC.
The discretion under s 298-20 of Sch 1 to the TAA is a broad one; the question which arises under that provision “is simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part” (Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 (Sanctuary Lakes) at [249] and [251] per Griffiths J (Edmonds J agreeing). Accordingly, the “power under s 298-20 requires consideration to be given to the particular circumstances of the taxpayer” (at [251] of Sanctuary Lakes).
The Tribunal notes that there is an ATO Practice Statement Law Administration 2007/22 (the Practice Statement), which is an instruction to ATO staff concerning the exercise of the discretion under s 298-20 of Sch 1 of the TAA. It is appropriate for the Tribunal to have regard to the policy expressed in the Practice Statement in reviewing the objection decision; however, the Tribunal is not bound by it, as the law lies in the statutory text of
s 298-20 of Sch 1 of the TAA (Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at p69-70 per Bowen CJ and Deane J).
The ATO in its objection decision the subject of application 2018/0624 set out in detail the ATO’s reasoning in not remitting any of the penalty (R3.2, T1 at 6). The conduct of the Applicant referred to in those reasons is broadly the conduct that this Tribunal has found the Applicant to have engaged in. The ATO at paragraph 33 of its reasons for deciding not to remit any of the penalty stated:
33.We have made this decision based on the following factors:
·using the services of a tax agent does not discharge your obligation to lodge a tax return that is correct
·it remains your responsibility to set up appropriate reporting and recording systems, provide information and all relevant taxation information to your agent as required
·you failed to discharge the onus of proving that the 2014 Income Tax Penalty Assessment is excessive.
The Applicant has made no submissions as to why the ATO’s reasoning for not exercising the discretion to remit any part of the penalty was incorrect or provided any reason why the discretion to remit any part of the penalty should be exercised. The Applicant has not pointed to any particular financial or personal circumstances of the Applicant or the particular circumstances surrounding the Applicant’s significant understatement of his assessable income which would make non-remission of the penalty “unreasonable or unjust (and therefore inappropriate)” – using the language of Sanctuary Lakes at [249]. As far as the Tribunal is concerned the ATO’s decision not to exercise the discretion to remit any part of the penalty was and still is the appropriate decision.
DECISION
Application 2017/5538
The Tribunal finds that the Applicant discharged the onus of proof which rests with him under s 14ZZK of the TAA in explaining that the $10,000 deposit represents the proceeds of sale of the jewellery to Ms Denton and the $16,000 deposit was a gift from the Applicant’s wife’s family. However, the Applicant failed to discharge his onus of proof in respect of the other deposits. The Tribunal finds that the amended assessment was excessive and hence, the amended assessment is reduced from $93,000 to $67,000.
The Tribunal sets aside the decision under review and substitutes a decision that the amended assessment be reduced from $93,000 to $67,000.
Application 2018/0624
The Tribunal finds that the ATO’s decision dated 18 January 2018 to disallow the Applicant’s objection to assessment of shortfall penalty for the 2014 financial year was the correct decision. The basis of the objection to the penalties made by the Applicant was that the $93,000 treated by the ATO as assessable income (see paragraphs 12-15 of the objection lodged by the Applicant (R3.2, T4 at 20-21)). There is no clear or discernible objection made by the Applicant to the rate applied under s 284-90 of Sch 1 to the TAA or the 20% uplift applied under s 284-220 of Sch 1 to the TAA. The objection seemed to be limited to the shortfall amount not the rate of the penalty applied under s 284-90 of Sch 1 to the TAA or the fact of the 20% uplift under s 284-220 of Sch 1 to the TAA. The Tribunal finds that the shortfall penalty was correctly calculated at the rate of 50% for recklessness under s 284-90 of Sch 1 to the TAA and the 20% uplift under s 284-220 of Sch 1 to the TAA was correctly imposed. The Tribunal finds that the ATO’s decision not to exercise the discretion to remit any part of the penalty under s 298-20 of Sch 1 to the TAA is the appropriate decision. The Tribunal affirms the decision under review.
I certify that the preceding 111 (one hundred and eleven) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle
....[sgd]....................................................................
Associate
Dated: 30 January 2019
Date of hearing: 25 October 2018 Counsel for the Applicant: Ms D Velevski Solicitors for the Applicant: Diana Velevski Tax Lawyers Counsel for the Respondent: Mr J Edwards
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