Bloom and Commissioner of Taxation (Taxation)
[2023] AATA 417
•20 March 2023
Bloom and Commissioner of Taxation (Taxation) [2023] AATA 417 (20 March 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers: 2018/3819-28
Re:Jeffrey Bloom
APPLICANT
AndCommissioner of Taxation
RESPONDENT
Decision
Tribunal:Deputy President I R Molloy
Date:20 March 2023
Place:Brisbane
The objection decision under review is affirmed.
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Deputy President I R Molloy
Catchwords
Taxation – Income tax – taxpayer’s onus to prove assessment is excessive or otherwise incorrect – lack of substantiation – whether administrative penalties were correctly applied at 75% – whether administrative penalties were correctly increased by 20% – decision under review affirmed
Legislation
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
Cases
Bosanac v Commissioner of Taxation (2019) 374 ALR 425
Bourne v Commissioner of Taxation [2020] AATA 190
Cassiniti v Commissioner of Taxation [2018] FCAFC 212; (2018) 266 FCR 385
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gashiv Commissioner of Taxation [2013] FCAFC 30; (2013) FCR 301
Landcomv Commissioner of Taxation [2022] FCA 510
Re Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Secondary Materials
Practice Statement Law Administration PS LA 2012/5: Administration of penalties for making false or misleading statements that result in shortfall amounts
Practice Statement Law Administration PS LA 2014/4: Administration of the penalty imposed under subsection 284-75(3) of Schedule 1 to the Taxation Administration Act 1953
REASONS FOR DECISION
Deputy President I R Molloy
20 March 2023
The applicant, Mr Bloom, applied for review of the decision of the respondent, the Commissioner of Taxation, dated 28 June 2018, disallowing his objections to income tax default assessments and administrative penalty assessments for the income years ended 30 June 2002 to 30 June 2009 and 30 June 2012 to 30 June 2013.
At the hearing the applicant, through his representative, confirmed that he was not disputing the primary tax assessments for the income years 2002, 2003, 2004, 2005 and 2009.[1] The reasons were that Mr Bloom had no documentation relating to 2002, and for the other years the figures he advanced as his taxable income nearly equalled and in some cases, exceeded the Commissioner’s figures. The applicant maintained his application for review of the penalty assessments for all years.
[1] This is also included in the applicant’s Amended Statement of Facts, Issues and Contentions lodged on 27 January 2023 (“Applicant’s Amended SFIC”).
Background
Mr Bloom failed to lodge his income tax returns for the years referred to in his application by their respective due dates. Despite not lodging income tax returns, he lodged business activity statements (BAS) for the majority of quarters within the 2002 to 2009 income years.[2]
[2] T31 to T60.
According to the Commissioner, on 29 October 2008, the applicant was informed that he was required to lodge his income tax returns for the 1993 to 2007 income years.[3] Some years later, the Commissioner sent the applicant a reminder letter, dated 5 August 2015,[4] and a warning letter, dated 20 August 2015.[5]
[3] ST8.
[4] T3.
[5] T4.
The applicant disputed that he was informed that he was required to lodge his income tax returns as alleged by the Commissioner. He also claims that the reminder letter and the warning letter were sent to the wrong address and were not received by him.
On or about 14 October 2015, the Commissioner issued the default assessments for income tax for the years referred to in the applicant’s application,[6] and assessments of administrative penalty for those years.[7] The primary tax assessments were made having regard to the amounts recorded in the applicant’s BAS and industry benchmarks.
[6] T16 to T25.
[7] T5 to T14.
The applicant relied on two unsworn witness statements, dated 26 July 2019 and 2 August 2019, and additionally a letter, dated 17 October 2019, annexing a statutory declaration dated 16 October 2019, income tax returns for the 2012 and 2013 income years, and a bundle of invoices and other documents.
Due to a medical condition, the applicant did not attend the hearing, either in person or remotely, and was not available to be cross-examined. The Commissioner expressly stated that he did not dispute the existence of the applicant’s medical condition. Nor was there an objection to the applicant’s written statements being received into evidence despite the applicant not being available for cross-examination. The Commissioner made clear, however, that but for the applicant’s medical condition, he would have been subjected to cross-examination.
The only other witness for the applicant was Jason Pankhurst, who provided a witness statement dated 5 August 2019, and was cross-examined. Mr Pankhurst, who has accounting qualifications and experience, had prepared a spreadsheet in 2019 to reflect, as best he could, the applicant’s income and allowable deductions for the relevant years.
According to the applicant’s witness statements, at all material times, until 2009, he conducted business as a sole trader under the name Jeffrey Bloom and Associates. The business, according to the applicant, “was a consulting business that did market and sales coaching campaigns to small business owners.”
The business, he says, was based in Admiralty Towers 2, Queen Street, Brisbane. He says “At that time I resided at various locations depending on my then current relationships.” The Admiralty Towers premises were a three-bedroom apartment in the Brisbane CBD. Mr Bloom did not provide any evidence in respect of the other locations where he said he resided.
Mr Bloom says the consulting business engaged subcontractors who assisted with seminars directed at recruiting customers. At the end of each seminar the attendees would be offered free telephone consultations with the intention of recruiting customers for individual training. The applicant said the individual training was “usually largely by telephone but included 1 visit in their business premises.”
Mr Bloom says the seminars were provided at no cost or at a nominal fee of approximately $35 to $50 per person. He also sold CDs at the seminars. Mr Bloom says that in 2003, he leased a car for business purposes, and in 2007 he leased a replacement vehicle. He says his business entailed considerable travel which he undertook in the leased vehicles or using hire cars when interstate.
Mr Bloom says the consulting business failed and ceased trading by early 2010.
Mr Bloom says that in the 1990s, he started to acquire derelict cars which he restored. This developed into a collection of vehicles for display which he called Aussie Muscle Car Museum. The vehicles on display were his own and other vehicles owned by third parties. He says the display was operated more as a hobby.
People were invited to view the display for a “donation” of $15 to defray costs. By the time of his witness statements, in 2019, the collection had been dispersed and he retained only a few vehicles that are “not in good condition”.
Mr Bloom says that from 2010, he conducted a business called Aussie Muscle Car Traders, again as a sole trader. This involved selling a variety of car parts and accessories and eventually predominately selling wheels.
Mr Bloom says he lodged BAS “that I prepared myself but that was not sufficient to update the Australian Taxation Office records in a way that enabled the relevant areas to be aware of my correct address.” This is a reference to his claim that the ATO letters were not received by him. He says they went to an address he vacated in 1993 notwithstanding the BAS lodged had his correct address.
It was stressed on behalf of the applicant that the way in which he conducted his consulting business was not typical of his industry. In his Amended SFIC, it was submitted that the Commissioner’s default assessments were based on “a reverse engineering” of the applicant’s BAS lodged by book-keepers engaged by the applicant, and on “an unreasonable application of industry averages that do not apply to the Applicant’s business model.”
In respect of his failure to lodge tax returns, Mr Bloom says “I provided all information regarding my income and expenditure to my accountant … for the 2002 to 2009 financial years and was advised that a return was not necessary. I had no way of knowing that [my accountant] could not be relied on at the time.”
Mr Bloom says his accountant (and two others) were charged with conspiracy to defraud the Commonwealth (unrelated to Mr Bloom), and that his accountant was sentenced to a term of imprisonment. Mr Bloom claims “I have also been a victim” of his dishonesty. By this I understand that he is referring to the claim that he was advised he did not need to lodge tax returns. There was no evidence in respect of this advice except what Mr Bloom says in his witness statements.
Mr Bloom says that by working with Mr Pankhurst, he has attempted to reconstruct “the Taxation Information required by the Taxation Commissioner so that my Tax payable accurately reflects my Taxation position for the relevant years. The financial information reconstructed from bank statements was based on electronic access provided by Westpac Banking Corporation (“WBC”).”
Mr Bloom says that all his income for the relevant years was deposited to his bank account with Westpac. He says: “In relation to the expenses recorded in the bank statements I have attempted to allocate them between private and business to the best of my ability, since many are represented only by ‘Cheque – Withdrawal’ without further clarification and absent check (sic) stub books from early years.”
Mr Pankhurst says he has worked in the accounting industry for 28 years with a mix of tax and commercial roles, and that he has been engaged in often complex reconstructions. Mr Pankhurst says in his witness statement:
9. Using all the materials available to me including the complete set of the bank statements referred to above and questioning of the applicant over a period of months in regards to the bank statements I was able to produce a single spreadsheet (in Microsoft Excel), including, annual summary of taxable income …
10. The applicant informed me that he had only one bank account at the time. This was confirmed by Westpac.
11. Over a period of months, I used the bank statements and asked the applicant questions about all processes relevant to his financial affairs in the conduct of his business and his general life.
12. My questions enabled me to get all possible details of the patterns that applied to the applicant’s lifestyle in the relevant period.
13. Based on my accounting experience I applied reasonable assumptions to best determine the categories that I applied to the information.
…
15. I combined information across years to apply reasonable assumptions across the period to make the data coherent.
16. In my opinion it is fair and reasonable to say the applicants (sic) reconstructed taxable income is accurate to maintain his personal lifestyle for this period and as such this would form a strong basis for establishing his taxable position for the period in question.
Mr Bloom says he visited Mr Pankhurst “and provided accurate clarification to the best of my ability of the information contained in the Bank Statements.” He says “the bank statements are a valuable resource in conjunction with the forensic accounting provided by Mr Pankhurst.” The deductions used to calculate his taxable income “are based on my accountant’s [Mr Pankhurst’s] opinion of the likely deductions based on the information that he elicited from me and from my bank statements.”
Primary tax assessments
As the Commissioner submitted, and the applicant accepted, the central issue in respect of the default tax assessments is whether the applicant has discharged his onus to demonstrate what his taxable income was in a relevant year, and, in so doing, establishing that the respective default assessment was excessive or otherwise incorrect.
In making an assessment, as in this case, under section 167 of the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”), the Commissioner assesses the amount upon which in his or her judgment income tax ought to be levied. That amount is deemed to be the taxpayer’s taxable income for the purposes of making an assessment for income tax under section 166 of the ITAA 1936. An assessment pursuant to section 167 of the ITAA 1936 will necessarily involve guesswork by the Commissioner to some extent.[8]
[8] Gashiv Commissioner of Taxation [2013] FCAFC 30 (Gashi) at [55].
There is a suggestion in the applicant’s Amended SFIC that the assessments were made “upon no intelligible basis”, citing Trautwein v Federal Commissioner of Taxation.[9] This is plainly untenable in view of what has been said about how the Commissioner arrived at the assessments. In saying that I should not be taken to have accepted that this matter, which appears to go to the validity of the assessments, can be properly raised in these proceedings.[10]
[9] Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 (Trautwein), per Latham CJ.
[10] See Landcomv Commissioner of Taxation [2022] FCA 510 at [135], Thawley J.
Section 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (“TAA 1953”) places the onus of proof upon the applicant to prove that the “assessment is excessive or otherwise incorrect and what the assessment should have been”. It is insufficient for the applicant to prove that the Commissioner made a mere error in the assessment of the amount of the applicant’s taxable income, or that the assessment is no longer supported by the reasoning adopted by the Commissioner. [11] The standard of proof is the balance of probabilities, and the way that the onus can be discharged varies with the circumstances of the case.[12]
[11] Bosanac v Commissioner of Taxation (2019) 374 ALR 425 (Bosanac) at [28]-[30]; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (Dalco) at 625 per Brennan J.
[12] Dalco at 624; Gashi at [63].
The Commissioner points out that Mr Bloom’s contentions as to his taxable income in the relevant years has changed over time. The documentary evidence available to support what the applicant now contends was his taxable income comprises the Westpac bank account statements, which only contain amounts, dates and transaction references, without disclosing what was acquired (or supplied); an incomplete bundle of cheque stubs for cheques written between May 2007 and April 2008; and a bundle of assorted invoices.
These documents, as the Commissioner submits, are seemingly advanced in lieu of ten years’ worth of business records. In this regard, it is relevant, as the Commissioner also points out, that at the time the applicant lodged his objections, in February 2018, the statutory obligation to retain records of expenditure for five years[13] for the 2013 tax year had not elapsed, and had only barely expired for the 2012 year. Yet no contemporaneous documents, except the bank statements, have been produced for those years.
[13] Section 262A of the ITAA 1936, and section 900-165 of the Income Tax Assessment 1997 (Cth).
The difficulty a taxpayer faces in this sort of situation was referred to by Hill J in Imperial Bottleshops Pty Ltd v Commissioner of Taxation[14] and by Latham CJ in Trautwein.[15] As well as relying on relevant passages from these cases, the Commissioner also referred to the general propositions contained in Cassiniti v Commissioner of Taxation[16] as to the onus of proof placed on a taxpayer. In addition, in respect of the present case, the Commissioner submits, and I accept, that I ought to proceed with caution in considering what weight, if any, should be given to the applicant’s statements in circumstances where he is unavailable for cross-examination.
[14] Re Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148 at 155.
[15] Trautwein at 87.
[16] Cassiniti v Commissioner of Taxation [2018] FCAFC 212 at [88].
Mr Pankhurst attempted to reconstruct the applicant’s income tax position by characterising bank account transactions variously as income, not income, personal expenditure, or allowable deductions, as recorded in the bank statements. There were, he said, between ten and thirteen thousand transactions. He described it as a mammoth task. In deciding how a particular transaction should be classified, Mr Pankhurst either asked Mr Bloom what it related to, or made assumptions based on patterns he identified or from what he understood of Mr Bloom’s businesses and lifestyle. Mr Pankhurst acknowledged that some of this was guess-work. This was so in respect of each of the relevant years.
It is not clear, as the Commissioner submits, which characterisations are actually the subject of some consideration by the applicant, and which are guesses by Mr Pankhurst. Mr Pankhurst said that the majority of the time, Mr Bloom was able to give him good or clear instructions. Indeed sometimes, according to Mr Pankhurst, he would have a remarkable memory. This means of course that there were times when Mr Bloom was not able to give good or clear instructions.
At the time of his statement, in August 2019, Mr Pankhurst said he had known the applicant for more than two years, having first engaged him in February 2017. Mr Pankhurst had no personal knowledge of Mr Bloom or his businesses during the relevant years. The deductions claimed over the relevant years are in excess of one million dollars. Mr Pankhurst acknowledged in cross-examination that some of the deductions for motor vehicle expenses may have been personal expenditure. There were other items of business expenditure in the spreadsheet which he admitted were incorrectly categorized as deductions. Other items, such legal fees, may or may not have been properly categorized as deductions.
The Admiralty Towers rent was claimed as a deduction on the basis that the apartment was used in the applicant’s business. This seems inconsistent, as the Commissioner submitted, with the applicant’s business model. I have previously noted the absence of other evidence concerning the applicant’s home whilst he was renting the apartment. I am not satisfied from the evidence that these premises were simply Mr Bloom’s business premises and that he did not live there.
There are other claimed deductions which are at best questionable, for example, expenditure at Woolworths, the cost of an engagement cake, and restaurant expenses. I am not satisfied that any of these were business expenses. Whilst the applicant says that all of his income was deposited to the Westpac account, it is clear that all manner of personal expenditure was paid from that account.
The applicant’s characterisation of his bank account transactions are self-serving statements and overwhelmingly uncorroborated. The applicant’s alleged amounts of taxable income for the relevant years to 2009 are inconsistent with the BAS lodged by the applicant in relation to those years. He puts this down to errors by third parties, although no witnesses were called to explain the errors, and no real explanation for them was provided by Mr Bloom. While the BAS relate only to the years in question to 2009, most of my other comments concerning the unsatisfactory nature of the evidence relate to each relevant year.
In the result the applicant has failed to discharge his onus of establishing what his actual taxable income was in any of the relevant years and consequently that any of the assessments was excessive.
Administrative penalties
The Commissioner submits the applicant is liable to the administrative penalties under subsection 284-75(3) of Schedule 1 to the TAA 1953 because:
a)the applicant failed to lodge income tax returns for the relevant years by their respective due dates for lodgement;
b)the applicant’s income tax returns were necessary for the Commissioner to determine the applicant’s income tax liabilities for the relevant years; and
c)the Commissioner was required to determine the applicant’s income tax liabilities without the assistance of the returns.
The Commissioner further submits that the administrative penalty was correctly imposed at the rate of 75% of the applicant’s tax-related liability[17] and, for each of the relevant years except the 2002 income year, correctly increased by 20% because the applicant had been previously liable to the administrative penalty.[18]
[17] Section 284-90(1) of Schedule 1 to the TAA 1953, table item 7.
[18] Section 284-220(1)(e) of Schedule 1 to the TAA 1953.
In these circumstances, the Commissioner submits the administrative penalties were imposed correctly according to law.
The applicant submits that he should not be liable for administrative penalties for the relevant years on the following bases:
1.Having provided all relevant information, the applicant relied on the instructions of his tax-agent (i.e. his accountant) and calculations of his book-keepers. The first has been proven to be corrupt and contemptuous of the ATO and incarcerated for years; the second (probably unqualified) have been proven to have lodged BAS without undertaking the relevant due diligence and financial review.
2.The ATO’s Practice Statement PS LA 2012/5 (“the Practice Statement”) dealing with remission of penalties under the “Safe Harbour Exception” states:
“The safe harbour provision recognises that an entity should not be subject to a penalty as a result of certain actions or omissions of their registered agent or BAS agent (registered agent) where the entity provided all relevant taxation information to the registered agent necessary for the correct preparation of the statement.”
The Commissioner points out that there is no evidence to show the applicant’s accountant was his registered tax agent in the relevant years. I am not satisfied that the applicant “provided all relevant” information to his accountant especially having regard to the paucity of documentation in these proceedings (and at the time of the objections). The evidence as to advice provided is minimal and untested. Mr Bloom does not say when the advice was provided or precisely what that advice was. Of course there is nothing in writing.
The applicant relies on the opinion of a psychologist, many years after the alleged advice was given, that he is and was “impressionable” and that he relied excessively on his accountant to advise him of his responsibilities and obligations. This could only be based on Mr Bloom’s self-reporting. There is no evidence that he suffered from his current health issues in the relevant years. I am left wondering, amongst other things, how it is that Mr Bloom, who was lodging BAS, and conducting a business, could have accepted such advice and, if it was provided, whether he queried it.
As to being informed by the ATO, on 29 October 2008, that he was required to lodge his income tax returns for the 1993 to 2007 income years, the submission is that “this communication was only made by telephone directly to Yvonne Molds a BAS agent (ST8), with Mr Bloom in the background.” It is implausible that he was not aware of the communication at the time. The failure to receive the letters from the ATO, in 2015, for whatever reason, is in my view irrelevant. There was no obligation to send those letters. I have taken into account all of the submissions on behalf of the applicant including as they relate to his medical condition, and his levels of education and financial sophistication. I am not at all satisfied that Mr Bloom has taken reasonable care “in lodging or omitting to lodge his tax returns” or that he is protected by the safe harbour provisions in section 284-75(6) of Schedule 1 to the TAA 1953.
The Commissioner has the discretion to remit all or part of the administrative penalties.[19]
[19] Section 298-20 of Schedule 1 to the TAA 1953.
The Commissioner is guided by the considerations outlined in Practice Statement Law Administration PS LA 2014/4: Administration of the penalty imposed under subsection 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 (PSLA 2014/4). Although not binding, the Tribunal has considered PSLA 2014/4 an “appropriate tool” to assist it.[20]
[20] Bourne v Commissioner of Taxation [2020] AATA 190 at [107].
Relevantly, PSLA 2014/4 provides that:[21]
‘a major objective of the penalty regime is to promote consistent treatment by reference to specified rates of penalty. This objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course.’
[21] At [27].
The Commissioner submits that the applicant has failed to advance grounds which would warrant full or partial remission of the administrative penalties.
The applicant has advanced the matters referred to above as grounds upon which remission ought to be granted.
Mr Bloom contends the penalties imposed for the 2002 to 2009 years ought to be remitted on the basis that during those years, he relied on the advice of his tax agent. As I have said, I am not satisfied that this advice was given. Amongst other things, Mr Bloom’s evidence that he relied on his accountant’s advice at that time does not sit well with or explain his failure to lodge returns since 1992. There is no need for me to repeat all the matters referred to above. None of them provides a basis for remission in my view.
The applicant also refers to a number of matters which arose subsequently to the assessments being issued, including the effect of these and other related proceedings upon the applicant’s well-being. I accept the Commissioner’s submission that these matters do not address why the applicant’s income tax returns for the relevant years were not lodged prior to the statutory due dates, and are not relevant.
In my view, the applicant has failed to establish that the administrative penalties should be other than as imposed by the Commissioner. Nor has he established that there is a basis for exercising the discretion to remit these penalties.
Conclusion
The objection decision under review should be affirmed.
I certify that the preceding 55 (fifty-five) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy
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Associate
Dated: 20 March 2023
Date of hearing: 20 February 2023 Representative for the Applicant: Dean Rallison
Viden Group Pty LtdCounsel for the Respondent: Florence Chen Solicitor for the Respondent: Alexander Dekkers
Australian Taxation Office
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