Behrndt and Commissioner of Taxation (Taxation)

[2021] AATA 1769

Behrndt and Commissioner of Taxation (Taxation) [2021] AATA 1769 (16 June 2021)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2017/5112, 2017/5113, 2017/5114 and 2017/5115

Re:Jason Behrndt

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Britten-Jones

Date:16 June 2021

Place:Melbourne

The decision under review is affirmed.

........................................................................

Deputy President Britten-Jones

Catchwords

TAXATION — income tax — burden of proof — onus on applicant to prove amended assessments excessive — applicant unable to prove actual taxable income — applicant failed to discharge onus of proving amended assessments excessive — Income Tax Assessment Act 1936 (Cth), s 167 — Taxation Administration Act 1953 (Cth), s 14ZZK — decision under review affirmed

Legislation

Income Tax Assessment Act 1936 (Cth)

Taxation Administration Act 1953 (Cth)

Cases

Gashi v Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30

Rigoli v Commissioner of Taxation (2014) 141 ALD 529; [2014] FCAFC 29

REASONS FOR DECISION

Deputy President Britten-Jones

16 June 2021

Introduction

1. The applicant objects to his tax assessments for the financial years ending 30 June in each of 2009, 2011, 2012 and 2013. He accepts that there is some tax payable but says that it is in the vicinity of $245,000 compared to the $470,000 assessed by the Commissioner. It is not entirely clear how the applicant calculates the amount he says is owed. The applicant spent much of the hearing disputing the inclusion of particular amounts as assessable income, but he failed to prove that the amounts assessed are excessive. For this reason, the application for review is unsuccessful and the decision of the Commissioner is affirmed.

   Background

2. The applicant and his business partner were property developers who purchased vacant land through related entities often using money from third parties. The applicant was the development manager and had nothing to do with the financial side of the business which was looked after by his business partner who was a qualified accountant.

3. The Commissioner determined that income tax returns lodged by the applicant did not declare all of the assessable income in the 2009, 2011, 2012 and 2013 income years. Specifically, certain deposits identified in the applicant’s bank accounts were assessed by the Commissioner as assessable income. Tax shortfalls were identified and amended assessments as to income tax were made.

4. On or about 24 July 2015, the applicant was provided with an audit position paper and given until 21 September 2015 to review and respond to the paper. On 29 October 2015, the Commissioner issued the applicant with notices of amended assessment and notices of assessment of shortfall penalty for the years 2009, 2011, 2012 and 2013. On 29 December 2015, the applicant lodged objections against the notices of amended assessment, the notices of assessment of shortfall penalty and the imposition of statutory interest charges. On 27 September 2016, the Commissioner made a decision in respect of the objections. The applicant applied to the Tribunal for a review of that decision by application dated 25 August 2017.

5. The applicant operated numerous bank accounts including an account in the name of Creative Edge Investments Pty Ltd (Creative Edge). He was a director and shareholder of Creative Edge whose bank account was used by the applicant to receive payments from other entities. The Commissioner calculated the applicant’s actual income based on what he received into those bank accounts. Certain deposits were excluded because they were received from family members, proceeds from the sale of a family home, amounts transferred between accounts, and amounts attributed to other people. Amounts paid from the bank accounts of related third parties with whom there was a loan agreement were also excluded. All other payments to these accounts were treated by the Commissioner as assessable income because they were payments for services the applicant provided. The applicant did not dispute that these deposits were received but instead identified deposits that he asserted were not income. These assertions were not supported by satisfactory evidence and hence the applicant failed to prove that the amended assessments were excessive.

6. The Commissioner issued amended assessments pursuant to s 167 of the Income Tax Assessment Act 1936 to the applicant on the basis that the Commissioner was not satisfied with the returns furnished by the applicant. Where the Commissioner makes an assessment pursuant to s 167, then the taxpayer has the onus under s 14ZZK(b) of the Taxation Administration Act 1953 of showing the assessment is excessive. To discharge this onus, the taxpayer must do more than establish that the Commissioner’s assessment is wrong, they must prove their actual taxable income for the years in issue.[1]  This onus on the applicant was especially difficult for him to overcome given his lack of experience in the financial affairs of his business. However, whilst the applicant was unrepresented at the hearing, he was represented earlier by an experienced tax lawyer who lodged the application for review and prepared the applicant’s statement of facts, issues and contentions dated 29 October 2019 (SOFIC).

   [1] Gashi v Commissioner of Taxation (2013) 209 FCR 301, 314-315 at [61] – [66], 317-318 at [75] – [79]; [2013] FCAFC 30; Rigoli v Commissioner of Taxation (2014) 141 ALD 529, 533-534 at [12] – [14], 537 at [25] – [27]; [2014] FCAFC 29.

   2009 Income Year

7. In 2009, the applicant declared taxable income of $103,326. The Commissioner adjusted that income based upon the deposits into the bank accounts such that the amended taxable income was $534,280. In the applicant’s SOFIC, the applicant disputed the adjusted income on the basis that it included an amount of $101,611 for the sale of the family home and an amount of $289,000 for a loan from his father-in-law. At the hearing the respondent showed that these amounts were not included in the applicant’s amended taxable income and the applicant accepted this.

8. The applicant asserted that some payments[2] were “Creative Edge’s income” but at the hearing he accepted that the Creative Edge bank account was used as a personal bank account and that he treated income received by Creative Edge as a payment to him. In that case, the applicant has failed to establish that these deposits to the Creative Edge bank account were not personal income. Further, the applicant was unable to establish what the correct position should be with respect to his taxable income.[3]

   [2] $48,000 on 23/7/08, $100,487.50 on 06/7/08, $80,000 on 16/12/08, $9,467.43 on 17/12/08, $98,771.78 on 05/02/09.

   [3] See footnote 1.

9. Consequently, the applicant was unable to prove that the amount of the amended assessment for 2009 was excessive.

   2011 Income Year

10. In 2011, the applicant declared taxable income of $57,396. The Commissioner adjusted that income based upon the deposits into the bank accounts such that the amended taxable income was $310,648. The applicant was cross examined on his SOFIC but was unable to explain a negative income amount of $30,752 asserted in the First Schedule of the SOFIC. Further, the applicant asserted that the amended taxable income was excessive because it included a loan amount of $319,200 from a related entity, Land Anywhere Pty Ltd, but the applicant was unable to support this assertion from the bank statements provided. The applicant also disputed the characterisation as income of certain withdrawals from his account for share trading in the amount of $22,200.  However, there was no evidence to establish his assertions.  Consequently, the applicant was unable to prove that the amount of the amended assessment for 2011 was excessive.

    2012 Income Year

11. In 2012, the applicant declared taxable income of $145,659. The Commissioner adjusted that income based upon the deposits into the bank accounts such that the amended taxable income was $175,954. During the hearing the applicant accepted that there was no issue with respect to this year because his income based on his own tax return for 2012 was $195,660 which was greater than the income as adjusted by the Commissioner. Consequently, the applicant conceded that the amount of the amended assessment for 2012 was not excessive.

    2013 Income Year

12. In 2013, the applicant declared taxable income of $61,325. The Commissioner adjusted that income based upon the deposits into the bank accounts such that the amended taxable income was $205,934. The applicant asserted that two deposits of $10,000 on 8 November 2012 and 30 April 2013 ought not have been included as income but the Commissioner established at the hearing that these amounts were not in fact included as income. Further, the Commissioner did not include as income the shareholder loan payments of $403,407.85 and $66,275 from related entities. The applicant made other assertions with respect to income amounts that should not have been included but he was unable to support these assertions with evidence. The applicant was unable to prove that the amount of the amended assessment for 2013 was excessive.

    Administrative Penalty and Shortfall Interest Charge

13. The income declared by the applicant represented a significant understatement of his assessable income and was therefore false or misleading. I agree with the finding of the Commissioner in the decision under review that the applicant’s behaviour was reckless in the sense that it is behaviour that falls significantly short of the standard of care expected of a reasonable person in the same circumstances. The base penalty of 50% of the shortfall amount being $186,145.30 is appropriate. In these circumstances, I would not remit the shortfall interest charge.

    Conclusion

14. The Tribunal affirms the decision under review.

15.     I certify that the preceding 14 (fourteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Britten-Jones

........................................................................

Associate

Dated: 16 June 2021

Dates of hearing:	12, 15 and 19 February 2021
Representative for the Applicant:	Self-represented
Counsel for the Respondent:	J. Battiste
Solicitors for the Respondent:	Australian Government Solicitor