Butler and Commissioner of Taxation
[2009] AATA 283
•27 April 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 283
ADMINISTRATIVE APPEALS TRIBUNAL )
) No ST200600331-334
TAXATION APPEALS DIVISION ) Re DERRICK EDWARD BUTLER Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Senior Member R W Dunne Date27 April 2009
PlaceAdelaide
Decision The Tribunal varies the objection decision in part, as set out in paragraph 34 of these reasons, by reducing the GST shortfall to $60,138 and reducing the shortfall penalty to $30,069.
..............................................
R W DUNNE
(Senior Member)
CATCHWORDS
TAXATION – goods and services tax – assessments of GST net amount – whether cash or accruals basis appropriate – input tax credits – penalties – burden of proof – whether applicant has discharged burden – objection decision varied
Taxation Administration Act 1953 ss 14ZL(1) and (2), 14ZQ, 14ZY(1), 14ZZK(b), 22(1), 284-75(1), 284-80(1), 284-90(1), 284-220(1), 298-20
A New Tax System (Goods and Services Tax) Act 1999 s 29-5
Eldridge v FC of T 90 ATC 4907
FC of T v Dalco 90 ATC 4088
Gauci and Others v FC of T 75 ATC 4257
McCauley v FC of T 88 ATC 4605
Trautwein v FC of T (1936) 56 CLR 63
Hart v FC of T 2003 ATC 4665REASONS FOR DECISION
27 April 2009 Senior Member R W Dunne introduction
1. This is an application for review of a decision by the respondent to disallow a taxation objection lodged by Mr Derrick Butler on behalf of B Butler & D E Butler trading as “DB Consultancy” (“applicant”). The taxation objection was against assessments of the goods and services tax (“GST”) net amount of DB Consultancy, raised by the respondent pursuant to s 22(1) of the Taxation Administration Act 1953 (“TA Act”), for the quarterly tax periods from 1 July 2001 to 30 September 2004. The assessments gave rise to a GST shortfall notified as $62,658.00. A shortfall administrative penalty of 50 percent was imposed under s 284-90 of Schedule 1 of the TA Act, uplifted by 20 percent under s 284-220 of the TA Act. The total administrative penalty amount was $37,594.80.
2. At the hearing, Mr Butler represented himself (and DB Consultancy) and the respondent was represented by Mr Stuart Cole, of counsel. Evidence was given by Mr Butler.
3. The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 were admitted in evidence (Exhibit R1). In addition, the Tribunal admitted the following documents in evidence:
·applicant’s documents (Exhibit A1);
·respondent’s documents (Exhibit R2);
·respondent’s documents (attachments) (Exhibit R3); and
·Butler documents (Exhibit R4).
issues
4. The following are the issues for the Tribunal:
(a)Has the applicant’s liability for GST on taxable supplies and entitlement to input tax credits for the quarterly tax periods from 1 July 2001 to 30 September 2004 been correctly assessed?
(b)Is the applicant liable to an administrative penalty, and if so:
(i)at what rate; and
(ii)should the penalty be remitted?
legislation
5. The legislation that is relevant in this matter is contained in the TA Act and the A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”).
6. Sections 14ZL(1) and (2) of the TA Act provide:
“14ZL Part applies to taxation objections
(1)This Part applies if a provision of an Act or of regulations (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part.
(2) Such an objection is in this Part called a taxation objection.”
Section 14ZQ of the TA Act, where relevant, provides:
“…
‘objection decision’ has the meaning given by subsection 14ZY(2)
…
‘reviewable objection decision’ means an objection decision that is not:
(a) an ineligible income tax remission decision; or
(b) an ineligible sales tax remission decision.
…
‘taxation decision’ means the assessment, determination, notice or decision against which a taxation objection may be, or has been, made.
‘taxation objection’ has the meaning given by section 14ZL.”
Section 14ZY(1) of the TA Act provides:
“14ZYCommissioner to decide taxation objections
(1)Subject to subsection (1A), if the taxation objection has been lodged with the Commissioner within the required period, the Commissioner must decide whether to:
(a) allow it, wholly or in part; or
(b) disallow it.”
Section 14ZZK of the TA Act provides:
“14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) …
(b) the applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii)if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii)in any other case—the taxation decision concerned should not have been made or should have been made differently.”
Section 22(1) of the TA Act provides:
“22 Commissioner may make assessment of indirect tax
(1)The Commissioner may at any time make an assessment of your net amount, or any part of your net amount, for a tax period.
…
Note: An assessment made under this section is a reviewable indirect tax decision (see Division 7).”
7. Section 29-5 of the GST Act reads:
“29-5 Attributing the GST on your taxable supplies
(1) The GST payable by you on a *taxable supply is attributable to:
(a)the tax period in which any of the *consideration is received for the supply; or
(b)if, before any of the consideration is received, an *invoice is issued relating to the supply—the tax period in which the invoice is issued.
(2) However, if you *account on a cash basis, then:
(a)if, in a tax period, all of the *consideration is received for a *taxable supply—GST on the supply is attributable to that tax period; or
(b)if, in a tax period, part of the consideration is received—GST on the supply is attributable to that tax period, but only to the extent that the consideration is received in that tax period; or
(c)if, in a tax period, none of the consideration is received—none of the GST on the supply is attributable to that tax period.”
8. Sub-division 284-B of the TA Act then deals with the liability to an administrative penalty. The provisions relevantly read:
“284‑75 Liability to penalty
(1) You are liable to an administrative penalty if:
(a)you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and
(c) you have a *shortfall amount as a result of the statement.
…
284‑80Shortfall 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.
Shortfall amounts Item You have a shortfall amount in this situation: 1 … 2 An amount that the Commissioner must pay or credit to you under a *taxation law for an accounting period, or under a tourist refund scheme under Division 168 of the *GST Act or Division 25 of the A New Tax System (Wine Equalisation Tax) Act 1999, worked out on the basis of the statement is more than it would be if the statement were not false or misleading 3 … 4 … …
284‑90 Base penalty amount
(1)The base penalty amount under this Subdivision is worked out using this table:
…
Base penalty amount Item In this situation: The base penalty amount is: 1 … … 2 Your *shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a *taxation law 50% of your *shortfall amount or part
…
284‑220Increase in base penalty amount
(1) The *base penalty amount for an accounting period is increased by 20% if:
(a)you took steps to prevent or obstruct the Commissioner from finding out about a *shortfall amount in relation to which the base penalty amount was calculated; or
(b)you became aware of such a shortfall amount after a statement had been made to the Commissioner about the relevant *tax‑related liability and you did not tell the Commissioner about it within a reasonable time; or
(c)the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284‑90(1) and a base penalty amount for you was worked out under one of those items for a previous accounting period; or
…
298‑20 Remission of penalty
(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.
…”
background
9. The applicant had lodged a Business Activity Statement (“BAS”) for each of the quarterly tax periods from 1 July 2001 to 30 September 2004. The BAS included the following particulars:
Total Sales
Export Sales
GST on Sales
GST on Purchases
GST
Refund
1.7.01 – 30.9.01
$42,464
$35,064
$672
$1,193
$521
1.10.01 – 31.12.01
$54,780
$42,525
$1,114
$1,623
$509
1.1.02 – 31.3.02
$20,892
$19,892
$90
$806
$716
1.4.02 – 30.6.02
$25,275
$24,275
$90
$5,052
$4,962
1.7.02 – 30.9.02
$7,759
-
$705
$992
$287
1.10.02 – 31.12.02
$22,400
$20,000
$218
$1,586
$1,368
1.1.03 – 31.3.03
$20,000
$20,000
-
$524
$524
1.4.03 – 30.6.03
$50,875
$36,400
$1,315
$5,341
$4,026
1.7.03 – 30.9.03
$60,625
$40,624
$1,818
$1,857
$39
1.10.03 – 31.12.03
$31,121
$19,985
$1,012
$1,201
$189
1.1.04 – 31.3.04
$10,656
-
$969
$3,484
$2,515
1.4.04 – 30.6.04
$26,251
$13,000
$1,205
$5,092
$3,887
1.7.04 – 30.9.04
$35,001
$28,103
$690
$5,831
$5,141
10. Commencing in February 2005, the applicant was subjected to an expanded GST audit by the respondent. As a consequence of the audit, all the applicant’s BAS for the relevant quarterly tax periods were adjusted, the amounts described as “Export Sales” were re-classified as taxable supplies and all claims for input tax credits were disallowed. The reviews of the BAS resulted in the issue of notices of assessment on 18 August 2005 containing the following adjustments:
Period
Total Sales
GST Amount
Refund Claimed
Adjustment
1.7.01 – 30.9.01
$42,464
$3,860
$521
$4,381
1.10.01 – 31.12.01
$54,780
$4,980
$509
$5,489
1.1.02 – 31.3.02
$20,892
$1,899
$716
$2,615
1.4.02 – 30.6.02
$25,275
$2,297
$4,962
$7,259
1.7.02 – 30.9.02
$7,759
$705
$287
$992
1.10.02 – 31.12.02
$22,400
$2,036
$1,368
$3,404
1.1.03 – 31.3.03
$20,000
$1,818
$524
$2,342
1.4.03 – 30.6.03
$50,875
$4,624
$4,026
$8,650
1.7.03 – 30.9.03
$60,625
$5,511
$39
$5,550
1.10.03 – 31.12.03
$31,121
$2,829
$189
$3,018
1.1.04 – 31.3.04
$10,656
$969
$2,515
$3,484
1.4.04 – 30.6.04
$26,251
$2,386
$3,887
$6,273
1.7.04 – 30.9.04
$43,962
$4,060
$5,141
$9,201
GST shortfall
$62,658
11. A shortfall administrative penalty of 50 percent was imposed because the respondent considered that the GST shortfall was due to recklessness. The penalty was increased by 20 percent because it was considered that steps had been taken by the applicant to prevent or obstruct the respondent from determining the amount of the shortfall. The total shortfall administrative penalty amount, including the increase of 20 percent, was $37,594.80.
12. Although the respondent’s systems indicated that the applicant was reporting on a cash basis for GST purposes, it appears the BAS were lodged on an accruals basis.
evidence
13. The applicant had been a director of SABC Project Management Pty Ltd (“SABC”) from 2000 to 2003. The other director was a Mr Dennis Davies. SABC had no employees during that period and was not registered for GST. It allocated work to various businesses and individuals to conduct professional services. The directors of SABC entered into performance related projects, most of which were with overseas companies. These projects included:
·the development of intellectual property in mining and water treatment which had an ecological benefit to the companies; and
·project management and preparing the company for a merger or takeover as a back-door listing into New Zealand based public companies. Ultimately, the merger would occur with the issue of shares in the New Zealand companies to SABC for its involvement in the projects.
The applicant resigned as a director of SABC. Subsequent to resigning, SABC had received shares from a New Zealand public company, believed to be Pure New Zealand Limited, but he (or DB Consultancy) received none of the shares following his resignation as a director of SABC and a falling-out with Mr Davies.
14. The applicant’s evidence was that the BAS prepared for DB Consultancy for the quarterly tax periods from 1 July 2001 to 30 September 2004 had been prepared on an accruals basis. Much of the particulars contained in the BAS had been sourced from the records of SABC, especially in relation to total sales and export sales. In cross-examination, the applicant was unable to provide copies of agreements or other documents relating to the intended issue of shares to DB Consultancy arising from his involvement in SABC. SABC had all the agreements and other documents relating to the projects and, as the company had been liquidated, these were unavailable to the applicant. Mr Cole also referred the applicant to the document described as “DB CONSULTANCY Remuneration from overseas transactions” (Exhibit R4, page 11). The document contained references to shares in various companies (O’Connor Wooltech Pty Ltd, Finsbury Services Doc Pump Pty Ltd and Tellurian Pty Ltd) which it was intended would be issued to Pure New Zealand Limited and to SABC. The applicant’s evidence was that the shares were, in fact, never issued.
15. As to the amount of consultancy income (GST included), the applicant referred the Tribunal to his submission (Exhibit R4, pages 3-6). It was the applicant’s evidence that the actual gross income derived by DB Consultancy during the period 1 July 2001 to 30 September 2004 was $143,124.04, made up as follows:
Details Gross $ GST $ Net Cash only Income $
1/07/01 – 30/09/01
Income from consultancy GST included - - -
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income - - -
==================================1/10/01 – 31/12/01
Income from consultancy GST included 1,334.85 121.33 1,213.52
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 1,334.85 121.33 1,213.52
==================================1/01/02 – 31/03/02
Income from consultancy GST included - - -
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income - - -
==================================1/04/02 – 30/06/02
Income from consultancy GST included - - -
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income - - -
==================================1/07/02 – 30/09/02
Income from consultancy GST included - - -
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income - - -
==================================1/10/02 – 31/12/02
Income from consultancy GST included 5,000.00 454.55 4,545.45 Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 5,000.00 454.55 4,545.45
==================================1/01/03 – 31/03/03
Income from consultancy GST included 24,016.48 2,183.30 21,833.18
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 24,016.48 2,183.30 21,833.18 ==================================1/04/03 – 30/06/03
Income from consultancy GST included 13,975.13 1,270.47 12,704.66
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 13,975.13 1,270.47 12,704.66 ==================================1/07/03 – 30/09/03
Income from consultancy GST included 17,661.00 1,605.55 16,055.45
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 17,661.00 1,605.55 16,055.45 ==================================1/10/03 – 31/12/03
Income from consultancy GST included 17,381.55 1,580.14 15,801.41
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 17,381.55 1,580.14 15,801.41 ==================================1/01/04 – 31/03/04
Income from consultancy GST included 11,155.00 1,014.09 10,140.91
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 11,155.00 1,014.09 10,140.91 ==================================1/04/04 – 30/06/04
Income from consultancy GST included 17,200.00 1,563.64 15,636.36
Other income 20,000.00 20,000.00
Accrual income for overseas projects
------------------------------------------------------------
Total Income 37,200.00 1,563.64 35,636.36 ==================================1/07/04 – 30/09/04
Income from consultancy GST included 15,400.03 1,400.00 14,000.03
Other income
Accrual income for overseas projects
------------------------------------------------------------
Total Income 15,400.03 1,400.00 14,000.03 ==================================Other amounts were received while he was working on projects for overseas companies, such as Pure New Zealand Limited or Titan Resources Inc. These amounts were for expenses (such as travel) or were loans to be reimbursed when projects were completed. But the amounts (including the loans) had nothing to do with Australian projects. They were all for overseas projects, so that GST was not applicable and the amounts were not income for Australian tax purposes either.
16. In further cross-examination, Mr Cole directed the applicant to the summary of the respondent’s position (Exhibit R2, page 1). In the summary, it was the respondent’s assertion that the income received by DB Consultancy during the tax periods 1 July 2001 to 30 September 2004 totalled $407,462 and included deposits to Adelaide Bank cheque account ($186,283), deposits to credit cards ($194,188) and payments received from SABC ($26,991). When the amounts were put to him, the applicant acknowledged that the source of the difference between his claimed income of $143,124 and the respondent’s asserted income of $407,462 (namely $264,338) was SABC, that the difference represented loan funds, but that he had no documentation identifying the loan arrangements. The funds were advances made by SABC which would be taken into account when the relevant projects were completed.
consideration
17. On its face, this application for review involved complex issues. Many of them, as they were explained by the applicant, the Tribunal had difficulty in comprehending. The consideration of the application involved considerable time. At the preliminary stage, no less than 15 conferences and telephone conferences were listed before the Conference Registrar and ultimately 7 took place. Before the Tribunal, the hearing took place on 15 July, 16 July, 23 September and 6 November 2008. As events transpired, this was necessary to enable the applicant to have ample time and the best opportunity to present his case. He provided copious documents and schedules, but when asked to refer to material within the documents that supported his claims, he was unable to do so on any satisfactory or understandable basis. Much of the material he put before the Tribunal was irrelevant. It was of little assistance in providing the Tribunal with a clear understanding of the applicant’s case. The critical documents that were necessary to assist the Tribunal were simply absent or were unavailable.
18. The applicant’s contention was that the gross income derived by DB Consultancy during the period 1 July 2001 to 30 September 2004, assessed on a cash basis, was $143,124.04. The respondent’s contention was that the income received by DB Consultancy during the same tax period, again assessed on a cash basis, was $407,462, made up as follows:
Tax Period
Cheque Account Deposits
Credit Card Deposits
Payments from SABC
Total Income
1/07/01-30/09/01
$5,889.00
$37,100.00
$10,500.00
$53,489.00
1/10/01-31/12/01
$6,223.00
$40,137.00
$16,491.00
$62,861.00
1/01/02-31/03/02
$31,324.00
$21,430.00
$52,574.00
1/04/02-30/06/02
$2,300.00
$31,010.00
$33,310.00
1/07/02-30/09/02
$4,514.00
$15,665.00
$20,179.00
1/10/02-31/12/02
$10,0404.00
$33,125.00
$43,529.00
1/01/03-31/03/03
$24,316.00
$6,600.00
$30,916.00
1/04/03-30/06/03
$14,225.00
$7,071.00
$21,296.00
1/07/03-30/09/03
$20,001.00
$1,050.00
$21,051.00
1/10/03-31/12/03
$17,199.00
$1,000.00
$18,199.00
1/01/04-31/03/04
$13,868.00
$13,868.00
1/04/04-30/06/04
$20,320.00
$20,320.00
1/07/04-30/09/04
$15,690.00
$15,690.00
Totals
$186,283.00
$194,188.00
$26,991.00
$407,462.00
19. It was also the applicant’s submission (Exhibit R4, pages 3-6) that the GST for the relevant tax periods, assessed on a cash basis through DB Consultancy, was as follows:
Details Gross $ GST $ Net Cash $
1/07/01 – 30/09/01
Purchases GST included 14,316.70 654.71 13,662.00
Overseas purchases including GST where
component is local
Other purchases 2,391.13 62.35 2,328.78
-----------------------------------------------------------
Total Costs 16,707.83 717.06 15,990.78
=================================1/10/01 – 31/12/01
Purchases GST included 17,706.28 1,034.46 16,671.82
Overseas purchases including GST where
component is local
Other purchases 5,049.62 237.45 4,812.17
-----------------------------------------------------------
Total Costs 22,755.90 1,271.91 21,483.99
=================================1/01/02 – 31/03/02
Purchases GST included 9,201.64 797.07 8,404.57
Overseas purchases including GST where
component is local
Other purchases 6,088.43 206.25 5,882.18
-----------------------------------------------------------
Total Costs 15,290.07 1,003.32 14,286.75
=================================1/04/02 – 30/06/02
Purchases GST included 14,392.18 520.79 13,871.39
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 14,392.18 520.79 13,871.39
=================================1/07/02 – 30/09/02
Purchases GST included 39,121.07 3,327.95 35,793.12
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 39,121.07 3,327.95 35,793.12
=================================1/10/02 – 31/12/02
Purchases GST included 14,759.92 786.27 13,973.65
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 14,759.92 786.27 13,973.65
=================================1/01/03 – 31/03/03
Purchases GST included 8,950.04 752.01 8,198.03
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 8,950.04 752.01 8,198.03
=================================1/04/03 – 30/06/03
Purchases GST included 16,768.78 518.45 16,250.33
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 16,768.78 518.45 16,250.33
=================================1/07/03 – 30/09/03
Purchases GST included 8,655.31 694.03 7,961.28
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 8,655.31 694.03 7,961.28
=================================1/10/03 – 31/12/03
Purchases GST included 18,459.92 776.49 17,683.43
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 18,459.92 776.49 17,683.43
=================================1/01/04 – 31/03/04
Purchases GST included 8,475.41 740.61 7,734.80
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 8,475.41 740.61 7,734.80
=================================1/04/04 – 30/06/04
Purchases GST included 10,458.21 643.84 9,814.37
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 10,458.21 643.84 9,814.37
=================================1/07/04 – 30/09/04
Purchases GST included 9,419.85 684.61 8,735.24
Overseas purchases including GST where
component is local
Other purchases - - - -----------------------------------------------------------
Total Costs 9,419.85 684.61 8,735.24
=================================Cash or Accruals Basis
20. GST is determined according to attribution rules, which vary according to whether the paying entity is on a cash basis or an accruals basis of accounting (see s 29-5 of the A New Tax System (Goods and Services Tax) Act 1999). It seems clear from the evidence of the applicant that the BAS of DB Consultancy for the tax periods from 1 July 2001 to 30 September 2004 were prepared on an accruals basis. Although the applicant contended to the contrary, the Tribunal is satisfied that the accruals basis was the appropriate basis for working out the GST and the input tax credits for DB Consultancy for the relevant tax periods.
Burden of Proof
21. Under the TA Act, a person who is dissatisfied with an objection decision, that is a reviewable objection decision, may apply to the Tribunal for a review of the decision (s 14ZZK(b)). The TA Act modifies the operation of the Administrative Appeals Tribunal Act 1975 in certain respects. One of the modifications relates to the burden of proof. Generally, neither party carries a burden of proof in proceedings in the Tribunal. However, under s 14ZZK(b)(i) when the Tribunal reviews an objection decision the person applying for review:
“… has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive;”
22. There have been no modifications to the Tribunal’s essential task. As observed by Foster J in Eldridge v FC of T 90 ATC 4907 at 4921:
“It is abundantly clear, of course, that even though the Tribunal does over again the work of the Commissioner, it does it in a significantly different way. Although it could be said to be part of an administrative hierarchy, its functions partake far more of the Court than of the office desk.
It is clearly not cast in the role of the inquisitor. Although it does not act within the confines of formal pleadings, it is constrained in its inquiries and deliberations by the ambit of the taxpayer’s objections. Although it is not bound by the rules of evidence (s 33(1)(c)) in reaching its decision it must act upon the evidence which is placed before it. …”
23. The Tribunal’s task was explained more fully in the decision of the Full High Court in FC of T v Dalco 90 ATC 4088. There, speaking of the Income Tax Assessment Act 1936 (but the principles apply equally to the GST Act and the TA Act) and also in speaking of an appeal (but the same principles apply to a review in this Tribunal), Brennan J observed (at 4091):
“… It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed (s 199) unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer. Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.
…”
24. As Brennan J also said in Dalco (at page 4093), the manner in which a taxpayer can discharge the burden of proof varies with the circumstances. In some cases, the burden maybe discharged by pointing to some error of computation. The burden can also be discharged by the taxpayer proving that the Commissioner erroneously included in the assessment an amount that should not have been included. On the other hand, as Mason J pointed out in Gauci and Others v FC of T 75 ATC 4257 at 4261 (when considering the application of the predecessor to s 14ZZK(b)):
“Section 190(b) of the Act imposed on the appellants the burden of proving that the assessments were excessive. The appellants relied on their evidence and that of Graham in order to show that the assessments were excessive. Once that evidence was rejected, the appellants’ case necessarily failed.”
25. Section 14ZZK(b) effectively creates a rebuttable presumption that an assessment is not excessive. As was further said by Mason J in Gauci (at page 4261):
“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.”
26. Finally, in commenting on the taxpayer’s absence of records, Lockhart J in McCauley v FC of T 88 ATC 4605 at 4612 referred to the judgment of Latham CJ in Trautwein v FC of T (1936) 56 CLR 63 and said:
“I have already made some observations about the effect of the absence of records on the taxpayer’s case and it is pertinent to recite the observation on this matter by Latham CJ in Trautwein’s case (supra) at p 87:
‘In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.’
…”
27. Over four hearing days, the applicant was given every opportunity to produce documentation or other evidence to support his claims and to show that the GST assessments were excessive. As has been said, a considerable amount of documentation was provided to the Tribunal, but critical documents and evidence of third parties could not be furnished. For example, during the course of his evidence the applicant made the following statement relating to the activities of SABC, the company in which he and Mr Dennis Davies had been directors:
“…The two directors, Dennis Davies and myself, had agreed that we would only be paid from – the proceeds from the completion of projects. We were to receive such income, like 10 per cent of the shares – issued shares upon completion. We were to receive advances on the project by the company. The advances were for the purpose – to make sure that we were able to complete the projects within a reasonable time and those advances were to be offset against the income once the project was completed. So if we use the example of Titan Resources, we got an independent appraisal of the transaction, we got approval by the board of the company, and the transaction was completed and shares were issued, which was our payment that we were to receive, but I actually never received – the shares were actually hived off into another company.” [Transcript, 6 November 2008 at page 44]
When pressed, the applicant was unable to provide or refer the Tribunal to agreements or other material which demonstrated that the monies received through SABC were only advances that were to be offset against sums received when the relevant project was completed.
28. For the respondent, it was contended that the amount of the audit assessments, determined on an accruals basis, should be maintained. On this basis, the total sales (or taxable supplies) made during the relevant tax periods amounted to $408,099. Alternatively, the respondent submitted that, if a cash basis was adopted, the gross income of DB Consultancy amounted to $407,462. This compared with the applicant’s submission that the total income of DB Consultancy, on a cash basis, for the relevant periods was $143,124.
29. The applicant submitted on several occasions during the hearing that the funds received by DB Consultancy were loans or advances associated with projects in which DB Consultancy or SABC were involved. Following the final hearing day, on 23 December 2008 and 5 February 2009, the applicant sought further time within which to produce third party witness statements demonstrating that the funds received by DB Consultancy were loan funds provided for projects facilitated by SABC. Although the applicant was given a further period within which to produce the witness statements for further consideration, the statements were not forthcoming.
Shortfall Administrative Penalty
30. Section 284-75(1) of Schedule 1 of the TA Act provides:
“284-75 Liability to penalty
(1) You are liable to an administrative penalty if:
(a)you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and
(c) you have a *shortfall amount as a result of the statement.
Note:Subsection 2(2) specifies laws that are not taxation laws for the purposes of this Subdivision.”
31. Statements were made in the BAS for DB Consultancy for the relevant quarterly tax periods that certain taxable supplies should be treated as GST-free supplies (export sales). In the Tribunal’s view, these statements were false and misleading in a material particular and shortfall amounts resulted. The BAS were lodged without adequate records being maintained and in the absence of evidence that the supplies were GST-free as export sales. Did the shortfall amount result from recklessness by the applicant? In Hart v FC of T 2003 ATC 4665, the Full Federal Court (Spender, Hill and Hely JJ) was required to consider recklessness in the context of s 226H of the Income Tax Assessment Act 1936, the predecessor to s 284-90(1) of Schedule 1 of the TA Act. Hill and Hely JJ referred to the concept and at pages 4673-4674 said:
“43 Recklessness is a concept well known to the law, particularly in the fields of tort and criminal law. In those fields, recklessness will usually be found to have been established if the person's conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person. In some contexts a subjective test is applied, but in others the test is objective. In BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) ATC 4111 at 4129 Cooper J made the following observations in relation to recklessness in the context of s 226H;
`Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.'
44 … Negligence, at least must be established although there are some sections (eg s 226K) which impose a liability in particular circumstances even if the taxpayer has not been negligent. The context makes it clear that recklessness means something more than failure to exercise reasonable care (s 226G), but less than an intentional disregard of the Act (s 226J).”
32. The Tribunal is satisfied that the shortfall amount resulted from recklessness by the applicant and, under s 284-90(1) of Schedule 1 of the TA Act (Item 2), the base penalty amount is 50 percent of the shortfall amount. The respondent indicated at the hearing that it did not wish to pursue the 20 percent increase of the base penalty amount under s 284-220(1) of the TA Act. The Tribunal agrees that this concession was properly made.
Input Tax Credits
33. In the notices of assessment that issued to DB Consultancy on 18 August 2005, all claims for input tax credits were disallowed. Before the Tribunal, the applicant provided schedules which set out details of the claims for input tax credits by DB Consultancy during the relevant tax periods. However, when cross-examined by Mr Cole in relation to the schedules, he was unable to relevantly substantiate the claims that the expenditure involved was for a creditable purpose. The respondent contended that the only input tax credits allowable amounted to $2,520 and, in the absence of satisfactory evidence to the contrary from the applicant, the Tribunal is satisfied that this amount is properly allowable in respect of input tax credits during the relevant tax periods, determined as follows:
Tax Period
Total ITC Claims Allowable
1/07/01-30/09/01
$346.00
1/10/01-31/12/01
$124.00
1/01/02-31/03/02
$297.00
1/04/02-30/06/02
$152.00
1/07/02-30/09/02
$259.00
1/10/02-31/12/02
$328.00
1/01/03-31/03/03
$164.00
1/04/03-30/06/03
$177.00
1/07/03-30/09/03
$277.00
1/10/03-31/12/03
$120.00
1/01/04-31/03/04
$136.00
1/04/04-30/06/04
$72.00
1/07/04-30/09/04
$68.00
TOTAL
$2,520.00
34. For the reasons outlined above, the Tribunal is not satisfied that the applicant has discharged the onus of proving that the GST shortfall of $62,658, arising from the assessments for the quarterly tax periods from 1 July 2001 to 30 September 2004, is excessive. Input tax credits of $2,520 in respect of the relevant tax periods are properly allowable, reducing the GST shortfall to $60,138. As to the shortfall administrative penalty, the rate of 50 percent for recklessness is appropriate in the circumstances and, with the waiver of the 20 percent uplift in the base penalty amount under s 284-220 of the TA Act, this gives rise to a reduced shortfall penalty of $30,069.
decision
35. The objection decision is varied in part, as set out in paragraph 34 of these reasons, by reducing the GST shortfall to $60,138 and reducing the shortfall penalty to $30,069.
I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne
Signed: .....................................................................................
AssociateDates of Hearing 15-16 July 2008, 23 September 2008 and
6 November 2008Date of Decision 27 April 2009
Advocate for the Applicant Self represented
Counsel for the Respondent Mr S Cole
Solicitor for the Respondent ATO Legal Services Branch
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