Anthony Herbert and Commissioner of Taxation
[2013] AATA 42
[2013] AATA 42
Division TAXATION APPEALS DIVISION File Number(s)
2012/3442-3443
Re
Anthony Herbert
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms A F Cunningham (Senior Member)
Date 31 January 2013 Place Hobart The decision under review is affirmed.
[Sgd Ms A F Cunningham]
Ms A F Cunningham (Senior Member)
TAXATION APPEALS – extension of time – assessments for 1989 and 1995 income years – notice of objections lodged over 22 years and 12 years late – no reasonable explanation for delay in lodging – documents unavailable – prejudice to respondent – no reasonable prospects of success – decision under review affirmed
Income Tax Assessment Act 1936, ss 185(1), 188(1), 188(3)
Taxation Administration Act 1953, ss 14ZW(1), 14ZW(1B), 14ZW(1C), 14ZW(2), 15ZW(3), 14ZX(1), 14ZX(2), 14ZX(3), 14ZX(4)
Brown v Federal Commissioner of Taxation [1999] FCA 563
Windshuttle V Commissioner of Taxation [1993] 46 FCR 235
REASONS FOR DECISION
Ms A F Cunningham (Senior Member)
The applicant, Anthony Herbert seeks the review of a decision of the Commissioner of Taxation refusing the applicant extensions of time in respect of his objections lodged in June 2012 against income tax assessments for the 1989 and 1995 income years.
EVIDENCE
Mr Herbert appeared on his own behalf and gave oral evidence. His son, Andrew Herbert was also called to give evidence. Mr Stephen Linden appeared on behalf of the Commissioner of Taxation. The T Documents were received into evidence pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. Also tendered was a written statement with attachments prepared by Mr Herbert and an e-mail dated 19 November 2012 from Andrew Herbert addressed to the Tribunal.
1989 INCOME YEAR
It was Mr Herbert's evidence that he was residing in England when he instructed his accountant, Mr Delaney to complete and submit his taxation return for the financial year 1988 – 1989. The income earned by Mr Herbert for this period was derived through his IT Company, Queensland Programmers Pty Ltd from IT contracting in Hobart, Launceston and Brisbane. Mr Herbert claimed that the ATO issued an assessment for income tax and penalties in the sum of $48,372.01 on a gross income of $55,720.00.
Mr Herbert stated that the amount claimed for travel expenses was $3,040.00. Although he no longer had any documentary evidence with respect to his travel expenses, Mr Herbert maintained that he would be able to itemise the amounts on the basis of his recollection as to the number of work-related trips and conferences he had attended. On page 6 of his written statement, Mr Herbert outlined details of his claimed travel expenses on the basis of his hourly rates of pay during 1988/89, working hours per week, distance travelled and calculated that he had been overtaxed by $29,972.90 for the tax year 1988/89. It was not clear whether these details had been included in the original return lodged by Mr Delaney on Mr Herbert's behalf.
Mr Herbert maintained that on a number of occasions he had objected to the assessment both by telephone and in writing. In his written statement, Mr Herbert claims to have telephoned Stan Wertepny and Emily Jowitt of the ATO from England in an attempt to object to the ATO's assessment. He claims that he never received a response to his correspondence addressed to Emily Jowitt. Mr Herbert claimed that he was never assisted or advised as to how to lodge a written objection to his assessments.
In around September 1989 Mr Herbert asked his son Andrew Herbert to personally visit the ATO in Hobart. It was Andrew Herbert's evidence that he spoke with Stan Wertepny in person and Emily Jowitt on the telephone. It was his recollection that he had some six interactions with ATO personnel during the period September to November 1989 and also contacted his father's accountant, Mr Delaney.
Andrew Herbert maintained that at no time was he advised or referred to a formal complaint process and he found his interactions with the ATO frustrating and the personnel, unhelpful. In his statement, Andrew Herbert stated that he and his father eventually gave up approaching the ATO in late 1989 "as we had made no progress nor gained any acknowledgement of a right to make a claim/complaint, despite numerous attempts between us.”
1995 INCOME YEAR
Included in Mr Herbert's written statement was a copy of a Notice of Amended Assessment for the year ending 30 June 1995 for the net amount payable of $11,265.95. Mr Herbert contended that this amount was wrongly assessed and that following receipt of the assessment he complained on three occasions to the ATO, but stated that they 'somehow managed to persuade me to pay up anyway". On page 10 of his written statement Mr Herbert provided a breakdown of how he contended the sum of $11,424.29 which was the amount assessed prior to a credit, had been calculated. It was Mr Herbert's contention that at the time of assessment in March 1996 he was nominally $5,333.97 in arrears with his non-resident assessed tax and that the ATO had assessed interest at the rate of 14% on this amount which was backdated to 1 October 1989. Mr Herbert contends that he was not in arrears in the sum of $5333.97 because he had borrowed money from his wife to pay all outstanding taxation charges. Mr Herbert argued that nor should he have been charged penalty interest.
LEGISLATION
The applicable legislative provisions referable to the 1989 assessment are contained in the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 185(1) provides that an objection in writing against an assessment stating the grounds on which a tax payer objected should be made within 60 days after service of the notice of assessment. Subsection 188(1) provides for an application to be made in writing where the period for an objection has ended. Subsection 188(3) provides that the application must:
“… state fully and in detail the circumstances concerning, and the reasons for, the failure by the taxpayer to lodge the objection or request as required by this Act".
In 1991 amendments were made to the Taxation Administration Act 1953 (TAA 1953) which relevantly provide as follows:
“14ZW (1) Subject to this section, the person must lodge the taxation objection with the Commissioner within:
(aa) if the taxation objection is made under section 78A of the Fringe Benefits Tax Assessment Act 1986 or section 160AL, 160AQQ, 160ART or 175A of the Income Tax Assessment Act 1936 – 4 years after notice of the taxation decision to which it relates has been served on the person; or
…
14ZW(1B) If:
(a) section 14ZV applies to a taxation objection; and
(b) apart from this subsection, subparagraph (1)(aa), (ab) or, (ac) would apply to the taxation objection; the person must lodge the taxation objection before the end of whichever of the following ends last:
(c) the 4 years after notice of the assessment or determination that has been amended by the amended assessment or amended determination to which the taxation objection relates has been served on the person;
(d) the 60 days after the notice of the amended assessment or amended determination to which the taxation objection relates has been served on the person.
14ZW(1C) For the purposes of paragraph (1B)(c), if an assessment or determination has been amended more than once, the notice is the notice of the first assessment or determination in relation to the year of income, franking year or year of tax, as the case requires.
14ZW(2) If the 4 years or 60 days have passed, the person may nevertheless lodge the objection with the Commissioner together with a written request asking the Commissioner to deal with the objection as if it had been lodged within the 4 years or 60 days..
14ZW(3) The request must state fully and in detail the circumstances concerning, and the reasons for, the person’s failure to lodge the objection with the Commissioner within the 4 years or 60 days.
14ZX(1) After considering the request, the Commissioner must decide whether to agree to it or refuse it.
14ZX (2) The Commissioner must give the person written notice of the Commissioner’s decision.
14ZX(3) If the Commissioner decides to agree to the request, then, for the purposes of this Part, the objection is taken to have been lodged with the Commissioner within the 60 days.
14ZX(4) If the Commissioner decides to refuse the request, the person may apply to the AAT for review of the decision”.
RESPONDENT’S SUBMISSIONS
It was submitted on behalf the respondent that as neither party has a record of the 1989 income tax assessment, it is not known when the 60 day period referred to in subsection 185(1) of the ITAA 1936 ended. If it is assumed that the assessment issued in the second half of 1989, the objection was due in either late 1989 or early 1999. The only objection received by the respondent with respect to the 1989 assessment was lodged in June 2012 which the respondent submits was about 22 ½ years late.
The only written evidence was a letter included in Mr Herbert's written statement dated 11/11/89 and addressed to the Deputy Commissioner of Taxation in Hobart. It was submitted by Mr Linden that this letter is in the form of a complaint against process and procedure and does not constitute an objection under the legislation. It was also submitted that it is not clear whether the letter was sent before or after the assessment of the 1989 income year or whether it was in fact received by the ATO. There was no evidence that Mr Herbert contacted the ATO to ascertain whether it had received a letter or to seek a response. Although there is a reference in the letter to a decision to disallow a claim for business travel in a private car, there is no reference to a notice of assessment. It was further argued that the oral complaints referred to by Mr Herbert and his son made in about late 1989 did not constitute an objection against the 1989 assessment, as subsection 185(1) of the ITAA 1936 requires that an objection be in writing.
Given the lapse of time and the lack of records, it was submitted that the relevant circumstances concerning the assessment and the applicant's failure to lodge an objection within the stipulated time are not known. It was contended that Mr Herbert has not offered any satisfactory explanation for the delay in lodging an objection. Further, Mr Herbert has abandoned any challenge to the 1989 assessment for at no time from 1990 until May 2012 did Mr Herbert communicate to the Commissioner that he objected to the assessment.
Following Mr Herbert's return to Australia in July 1995, he did not lodge an objection against the 1989 assessment or make any further written complaint until June 2012. Reference was made to a statement in Mr Herbert's Objection Form (T3 page 18) where he stated:
"When I returned to Oz in 1996 I was active and working and unwilling to reopen this can of worms again - unjust though it was and still is. Now in 2012, I am old and tired and poor and I'll barely existing on the aged pension of $439 per fortnight - so now I really need what was taken from me… I am almost too proud to ask again, but this money if returned and paid off my share of our mortgage, would bring peace and stability to my last years."
It was submitted that Mr Herbert has not offered any satisfactory explanation for the delay in lodging an objection. Further, that the Commissioner will be prejudiced as a result of the length of time of over 22 years since the time for lodging an objection expired. Any avenues of useful enquiry would have dried up and material documents would have been destroyed. Moreover, it is not possible for the Commissioner to properly review an assessment where he does not know the amount of the taxable income he assessed. It is contended that given the length of time and lack of available records, the applicant’s objection has no real prospects of success.
With respect to the 1995 income tax year assessment, the legislation provides that the applicant had four years from service of the notice of the original assessment or 60 days after the amended assessment, whichever is the latter to lodge an objection. As the original assessment issued on 21 February 1996 (T5 page 34) and the amended assessment on 11 March 1996 (T5 page 35), the applicant had until late February 2000 to lodge an objection to the 1996 assessment and/or the amended assessment. It was contended that the applicant’s objection lodged in June 2012 was some 12 years and three months late.
The applicant’s claim that he did not realise that he was entitled to claim expenses for travel from London or accommodation expenses in Hobart is not, the respondent submitted a satisfactory explanation for failing to object for 16 years after the notice of assessment and amended assessment was served. Mr Linden submitted that Mr Herbert’s reason for making the claim in 2012 being that he is now old and with limited financial resources, is not a satisfactory explanation for the delay in lodging an objection.
It was contended that the Commissioner will be prejudiced as a result of the length of time of 16 years since the assessment and amended assessment and because details of the applicant’s 1995 tax return are no longer available. Any useful avenues of inquiring would have dried up and the documents would have been destroyed. Further, it was contended that the applicant’s objection has no real prospects of success. The applicant has not produced any documentation to substantiate his claim for travel and accommodation expenses. Further, his claim that the amount of $11,424.26 represents interest on the tax assessed at $5,333.97 dating back to 1989 is entirely misconceived. There is no evidence that Mr Herbert made any objection to "the other amount payable of $11,424.26" in the 1995 assessment when he contacted the ATO in 1996.
DISCUSSION AND FINDINGS
The leading authority concerning the discretion to extend time for an objection under section 14ZX is the Judgment of Hill J in Brown v Federal Commissioner of Taxation [1999] FCA 563 which was upheld by the Full Court. Hill J described the test as follows : "
“What is required is the balancing of the delay; the explanation for it; the circumstances which gave rise to it such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to a taxpayer who has by reason of the failure to object in time lost the right to a review of the assessment."
EXPLANATION FOR THE DELAY
In both cases the delay was considerable. With respect to the 1989 assessment, it was some 22 ½ years and some 12 years with respect to the 1995 assessment. It was Mr Herbert's evidence that he contacted the ATO on a number of occasions following receipt of the assessment both by telephone and in writing and also arranged for his son to personally visit the ATO in Hobart.
I agree with the submission advanced on behalf of the respondent that Mr Herbert's letter of 11 November 1989 was in the form of a complaint against process and procedure rather than a formal written notice of objection. It does not comply with a legislative requirement that the taxpayer state in full and in detail the grounds on which he relies in objecting to the assessment.
In the second paragraph Mr Herbert states:
"On 29/09/89 I learned that officer Jowitt had decided to disallow my 1989/9 claim for business travel in a private car. He told me that she had questioned the legitimacy of my modus operandi (I wholly own, and the main earner for my own company Queensland Programmers Pty Ltd) and then, with all the powers of a dictator, and without any attempt whatsoever to ask him (or me) for explanation of the nature of my business affairs, simply declared my right to claim as null and void".
Mr Herbert goes on to complain about the substance of his interactions with Ms Jowitt and claims that she said she would "refer the matter to a committee". Mr Herbert questioned how a committee would understand and have knowledge about his "numerous meetings, in Hobart and Launceston, the lengthy negotiations, the hagglings the discussions, the detailed arrangements…". He went on to claim that the Commissioner did not care and would give a "ruling anyway - with or without the facts."
The letter does not contain a request for a reconsideration or state fully and in detail the nature of Mr Herbert's objection. It does not provide the necessary information upon which an objection to the assessment could be considered. Mr Herbert points out that the details relating to his travel expenses could not be known by the Commissioner. Mr Herbert did not claim that he had ever lodged a written objection to his taxation assessments and it was his evidence that he had never been assisted or advised as to how to lodge a written objection.
It was Mr Herbert's evidence that in September 1990 he had paid his taxation liabilities in full with “15,000 GBP” borrowed from his wife. With respect to the taxation assessment for the 1995 year, Mr Herbert contends that the amount was wrongly assessed and that he had complained on three occasions to the ATO but was somehow persuaded " to pay up anyhow". Mr Herbert contended that the amount assessed included the $5333.97 together with interest on that amount which he contends he had fully repaid in 1990. It was argued on behalf of the Commissioner that the $11,424.29 was not calculated in that manner but was an outstanding debt owed by Mr Herbert to the Commissioner of Taxation with respect to assessments for previous years.
The principal problem is that neither the Commissioner of Taxation nor Mr Herbert have copies of any relevant documentation, including taxation returns for the income years 1989 or 1995. Mr Herbert contended the Commissioner did not include or allow for any travel expenses. With respect to the 1995 year it was Mr Herbert’s evidence that he was not aware that he was able to claim his travel expenses between England and Australia and his accommodation expenses in Hobart. He did not state that he included a claim for these expenses in his taxation return and there is no evidence that he has any documentary evidence to support his claims. I am not persuaded that there is merit to his claim for travel expenses nor his contention that the assessed sum of $11,265.95 was calculated in the manner he contended.
PREJUDICE
It is submitted that the respondent would be considerably prejudiced if extensions were granted and the Commissioner was expected to undertake reviews after such a substantial period of time. The Commissioner was essentially unaware that the assessments were disputed until receipt of Mr Herbert’s Notice of Objections in June 2012. The only records available are the notices of assessment and amended assessment for the income year in 1995. Mr Herbert contends that the evidence regarding travel expenses would be based on his recollections and that other persons may also be able to verify his claims. Given the significant passage of time it is most unlikely that such recollections would be accurate. It is my view that Mr Herbert would have considerable difficulty in being able to verify and substantiate his claims.
A further point made on behalf of the Commissioner was the claim that the applicant had substantially rested on his laurels in paying the assessed amounts and not pursuing an objection for a considerable number of years. It was not until 2012 when due to financial pressures, Mr Herbert decided to pursue objections against prior assessments and considered that a refund of income tax wrongly paid in previous years would assist him to reduce his mortgage and improve his overall financial circumstances.
Mr Herbert's reasons for failing to lodge his objections within the required time were set out in his Objection Form at T3 as follows:
·he was unaware that there was a time limit;
·he was living and working in England almost continuously from 1989 until 1996 during which period, from 1994, he had a six-month IT contract with the DHHS in Hobart;
·when he returned to Australia in 1996 he received an unexpected demand from the ATO for $,9000.00 on the basis of his income earned and non-residency in 1994;
·he was not aware that he was entitled to claim travel expenses between Hobart and London and accommodation expenses for 6 months and so paid the assessed taxation demand;
·now that he is "old and hard times are upon me, I wish to claim these 1994/95 expenses”.
In summary, Mr Herbert's reasons for failing to lodge objections within a timely manner, are based on his claimed ignorance of the timeframe and recent knowledge of what he contends were allowable deductions. Initially he accepted the Commissioner’s decisions and paid the assessed debts.
I consider that the respondent would be prejudiced by the grant of extensions of time for the lodgement of objections in these circumstances for the reasons outlined above. As von Doussa J stated in Windshuttle V Commissioner of Taxation [1993] 46 FCR 235:
"The kind of prejudice which is relevant is prejudice that could arise to the opposing party in properly and fairly dealing with the subject matter of the dispute that will require determination if the extension of time is granted. Relevant matters will be whether witnesses have disappeared or their recollections have faded (provided of course that the evidence of the witnesses would have been material… And cannot be refreshed…); whether avenues of useful enquiry have dried up or become difficult to pursue; and where the material documents have been destroyed."
I accept that the Commissioner no longer holds the original audit documents or records for the 1989 and 1995 income years, is no longer able to verify and obtain information from officers involved in the relevant audit or reviews and would be limited in his ability to test the validity of the applicant’s claims due to an absence of records and data.
I am not satisfied that Mr Herbert has provided an acceptable explanation for the considerable period of time between the assessments and the lodgement of his objections in 2012. Nor am I satisfied as to the merits of Mr Herbert's claims for travel expenses which he is unlikely to be able to verify to the satisfaction of the Commissioner. The fact that Mr Herbert believes that he is owed money by the Commissioner and that a refund would assist him in his retirement years, does not in my view, justify extending the period for objections allowed by the legislation in this case.
For all of the above reasons I find that Mr Herbert has failed to establish that the decision under review should have been made differently and accordingly dismiss the appeal.
I certify that the preceding 33 (thirty -three) paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member) ............[Sgd]................
Administrative Assistant
Dated : 31 January 2013
Date(s) of hearing 31 October 2012 Applicant In person Counsel for the Respondent Mr S Linden Solicitors for the Respondent Australian Taxation Office
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