Campbell and Commissioner of Taxation (Taxation)
[2019] AATA 2043
•22 July 2019
Campbell and Commissioner of Taxation (Taxation) [2019] AATA 2043 (22 July 2019)
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2018/2874 & 2018/2875
TAXATION AND COMMERCIAL DIVISION )
Re: Sandra Campbell
Applicant
And: Commissioner of Taxation
Respondent
CORRIGENDUM
TRIBUNAL:Member D K Grigg
DATE OF CORRIGENDUM: 23 July 2019
PLACE:Brisbane
The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975 (Cth) to alter:
1. the name of the Applicant on the front cover page to Sandra Campbell; and
2. the text at paragraph 1 of the decision to read as follows:
“This matter concerns default income tax assessments issued to Ms Sandra Campbell by the Australian Tax Office (“ATO”) for the financial years ended 30 June 2013 and 30 June 2014, and the resulting imposition of administrative penalties.”
…………………[SGD]…………….
Member D K Grigg
Division:GENERAL DIVISION
File Numbers: 2018/2874 & 2018/2875
Re:Catherine Campbell
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Member D K Grigg
Date:22 July 2019
Place:Brisbane
The decision under review is affirmed.
.................................[SGD].......................................
Member D K Grigg
Catchwords
TAX – whether trust money distributed to a beneficiary properly characterised as assessable income – whether default income tax assessments issued by the ATO excessive – taxpayer’s burden to prove default assessments excessive – whether ATO had obligation to ensure default assessments correctly made - whether administrative penalty correctly imposed under section 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 –– whether discretion should be exercised to remit the penalty - decision under review affirmed.
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)
Income Tax Amendment Bill (No. 5) 1978 (Cth)
International Tax Agreements Act (No 1) 2010 (Cth)
Taxation Administration Act 1953 (Cth)
Cases
Commissioner of Taxation v Dalco (1990) 168 CLR 614
Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32
Gauci v Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81
Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63
Secondary Materials
Explanatory Memorandum to Income Tax Assessment Amendment Bill (No. 5) 1978 (Cth)
Practice Statement Law Administration 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936
Practice Statement Law Administration 2014/4 Administration of the penalty imposed under subsection 284 75(3) of Schedule 1 to the Taxation Administration Act 1953
REASONS FOR DECISION
Member D K Grigg
22 July 2019
INTRODUCTION
This matter concerns default income tax assessments issued to Ms Catherine Campbell by the Australian Tax Office (“ATO”) for the financial years ended 30 June 2013 and
30 June 2014, and the resulting imposition of administrative penalties.
The issue concerns the receipt of trust money by Ms Campbell as a beneficiary of a New Zealand trust and whether that money is properly characterised as assessable income.
This decision is subject to two confidentiality orders made by Senior Member Tavoularis. Those orders are set out in Attachment A.
BACKGROUND & CLAIM HISTORY
On 3 February 2016 the ATO wrote to Ms Campbell and advised that according to its records she needed to lodge tax returns for the financial years ending 30 June 2013 and 30 June 2014. The ATO requested that Ms Campbell lodge the returns on or before
9 March 2016.[1] The ATO advised Ms Campbell that it had been provided with information from the Australian Transaction Reports and Analysis Centre (AUSTRAC) which detailed international funds transfer instructions made by Ms Campbell from a New Zealand trust. The AUSTRAC information showed that Ms Campbell had received distributions from the Sandra Campbell Trust (“the Trust”) in the 2013 and 2014 financial years which may be assessable.
[1] Exhibit 1, T Documents, T14, pages 297 – 300, Letter from the ATO to Ms Campbell dated 3 February 2016.
Ms Campbell did not respond to the 3 February 2016 letter.
On 30 March 2016 the ATO again wrote to Ms Campbell regarding her outstanding tax returns for the financial years ending 30 June 2013 and 30 June 2014. The ATO advised Ms Campbell that she was required to lodge the returns and that in the event that she did not do so on or before 4 May 2016, default assessments would be issued and she may be liable to an administrative penalty of 75% of the tax liability raised.[2]
[2] Exhibit 1, T Documents, T15, pages 301 – 306, Letter from the ATO to Ms Campbell dated 30 March 2016.
Ms Campbell did not respond to that letter either. However, her accountant, Mr Mel James, wrote to the ATO on 4 April 2016. Mr James:[3]
(a)acknowledged receipt of the 3 February 2016 and 30 March 2016 letters;
(b)explained that:
(i)he had “been attempting to contact the tax payer without immediate success. We have now managed to track down the taxpayer and have communicated the ATO position…”;
(ii)he was contacting Ms Campbell’s New Zealand Accountants to obtain the relevant information; and
(c)stated they will provide income tax returns as soon as possible.
[3] Exhibit 1, T Documents, T5, pages 174 – 175, Email from Mr James to ATO sent 4 April 2016.
On 20 May 2016 the ATO wrote again to Ms Campbell and advised her that:
(a)its records indicated she had still not lodged the required tax returns as requested in the letters issued on 3 February 2016 and 30 March 2016; and
(b)as a result of her failure to lodge her tax returns the ATO would issue a default assessment under section 167 of the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”) and that a penalty of 75% would be imposed pursuant to section 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (“TAA”).[4]
[4] Exhibit 1, T Documents, T11, pages 223 – 224, Letter from the ATO to Ms Campbell dated 20 May 2016.
On 27 May 2016, the ATO:
(a)issued default notices of assessment (“Default Assessments”):
(i)for the year ended 30 June 2013 which assessed Ms Campbell’s taxable income as $109,057 and tax payable as $28,298.09;[5] and
(ii)for the year ended 30 June 2014 which assessed Ms Campbell’s taxable income as $354,130 and that the assessed tax payable as $132,905.50.[6]
(b)issued the Applicant with the following penalties (“the Penalties”):
(i)a penalty of $23,801.25 for failing to provide a document as required for the financial year ending 30 June 2013;[7] and
(ii)a penalty of $108,175.50 for failing to provide a document as required for the financial year ending 30 June 2014.[8]
[5] Exhibit 1, T Documents, T9, page 182, Notice of assessment – year ended 30 June 2013.
[6] Exhibit 1, T Documents, T8, page 180, Notice of assessment – year ended 30 June 2014.
[7] Exhibit 1, T Documents, T7, page 178, Notice of assessment of penalty dated 27 May 2016.
[8] Exhibit 1, T Documents, T6, page 176, Notice of assessment of penalty dated 27 May 2016.
On 20 February 2017 Ms Campbell lodged an objection to the Default Assessments and imposition of the Penalties.[9]
[9] Exhibit 1, T Documents, T3, pages 22 – 154, Objection and supporting documents lodged by Ms Campbell on 20 February 2017.
On 15 January 2018 the ATO advised Ms Campbell that they had considered her objection and determined that:[10]
(a)the amounts totalling $109,057 received by Ms Campbell, representing distributions from the Trust, are assessable to Ms Campbell in the income year ended 30 June 2013 and the ATO did not “accept that these amounts represent corpus of the trust estate”;
(b)the amounts totalling $354,113, representing distributions from the Trust, are assessable to Ms Campbell in the income year ended 30 June 2014 and the ATO did not “accept that these amounts represent corpus of the trust estate”; and
(c)the Penalties for failing to provide a document for the 2013 and 2014 income years were correctly applied and will not be remitted.
[10] Exhibit 1, T Documents, T2, pages 12 – 21, Reasons for decision dated 15 January 2018.
On 22 May 2018 Ms Campbell applied to this Tribunal for review of the ATO’s decision.[11]
[11] Exhibit 1, T Documents, T1, pages 1- 11, Application for Review of Decision dated 22 May 2018.
The Tribunal has jurisdiction to review decisions under the Act pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) and Part IVC of the TAA.
LEGISLATIVE BACKGROUND
Default Assessments
Pursuant to section 166 of the ITAA 1936 the Commissioner must make an assessment of the taxable income of a person, the tax payable thereon, and any tax offset refunds from returns and/or from any other information in the Commissioner's possession.
Section 167 of the ITAA 1936 provides that, where, as here, a person fails to lodge a tax return, and the Commissioner has reason to believe that person has derived taxable income, the Commissioner may make an assessment of the amount upon which income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.
The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice Statement Law Administration 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 (version current as at 21 February 2019) (“PS LA 2007/24”) provides, among other things, that:
(a)the reasonable grounds on which a default assessment may be made include information obtained from third parties;[12] and
(b)the taxpayer should be notified of the intention to raise default assessments and be provided with an opportunity to respond.[13]
[12] PS LA 2007/24, para 5; the version in force at the relevant time (PS LA 2007/24 as at 16 July 2013) provided similarly in paras 8 and 9.
[13] PS LA 2007/24, para 9; the version in force at the relevant time (PS LA 2007/24 as at 16 July 2013) provided similarly in para 17.
Section 175 of the ITAA 1936 provides that “the validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with”.
Section 175A(1) of the ITAA 1936 provides: “A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.”
Gummow, Hayne, Heydon and Crennan JJ explained in Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32, at [24] that:
“Section 175 must be read with s 175A and s 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in s 14ZZK and s 14ZZO of the Administration Act...”
Where there is an allegation that the ATO has not acted in good faith rendering the assessment capable of being set aside, the Full Federal Court has held, with the approval of the High Court, that such allegations should not be made lightly and rarely succeed.[14]
[14] Kordan Pty Ltd v Federal Commissioner of Taxation (2000) 46 ATR 191 at 193; [2000] ATC 4812 at 4815; [2000] FCA 1807 at [4] approved by the High Court in Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32, at [60].
Burden of Proof
Section 14ZZK(b)(i) of the TAA provides that the applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been.
The High Court decision in Commissioner of Taxation v Dalco (1990) 168 CLR 614 (“Dalco”) confirms that the onus is on the taxpayer to establish that default assessments issued by the Commissioner are excessive. The High Court explained that where the Commissioner and taxpayer have not agreed on the assessment:[15]
“… the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment.
…
unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail.”
[15] Commissioner of Taxation v Dalco (1990) 168 CLR 614, at 624.
In Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 (“Trautwein”) Latham CJ found that as a general rule:
[2].“…the taxpayer must…go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right.”
In Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 Mason J explained:[16]
[6].“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.”
[16] (1975) 135 CLR 81, at 89.
The Commissioner does not bear the burden of demonstrating the default assessments were correctly made or supported by evidence.[17]
[17] Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614.
Assessability of Trust Distributions to Beneficiaries
Section 99B of the ITAA 1936 concerns the assessability of trust income, earned by an Australian resident beneficiary that has not already been subject to Australian taxation.
Section 99B(1) of the ITAA 1936 provides:
Receipt of trust income not previously subject to tax
(1)Where, at any time during a year of income, an amount, being property of a trust estate, is paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income, the assessable income of the beneficiary of the year of income shall, subject to subsection (2), include that amount.
(2)The amount that, but for this subsection, would be included in the assessable income of a beneficiary of a trust estate under subsection (1) by reason that an amount, being property of the trust estate, was paid to, or applied for the benefit of, the beneficiary shall be reduced by so much (if any) of the amount, as represents:
(a)corpus of the trust estate (except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income);
(b)an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income
…
(emphasis added)
Also relevant in this matter is section 99C of the ITAA 1936. It provides relevantly:
Determining whether property is applied for the benefit of a beneficiary:
(1)In determining for the purposes of section 99B whether an amount has been applied for the benefit of a beneficiary of a trust estate, regard shall be had to all benefits that have accrued at any time to the beneficiary… irrespective of the nature or form of the benefits.
(2)Without limiting the generality of subsection (1), an amount shall be taken, for the purpose of section 99B, to have been applied for the benefit of a beneficiary if:
(c) the beneficiary has received, or become entitled to receive, any benefit (including a loan…)…
…
(emphasis added)
29. Section 99B, and section 99C, were introduced into the ITAA 1936 by the Income Tax Assessment Amendment Bill (No.5) of 1978. The Explanatory Memorandum provides that it is intended to deal:
“...primarily with the receipt by resident beneficiaries of distributions from non-resident trust estates of previously untaxed foreign sourced income…
[and that]
Proposed section 99B will require the inclusion in a beneficiary's assessable income of amounts paid to or applied during a year of income for the benefit of a resident beneficiary where that amount represents trust income of a class which is taxable in Australia but which has not previously been subject to Australian tax in the hands of either the beneficiary or the trustee. It will normally apply where accumulated foreign-sourced income of a non-resident…is distributed to a resident beneficiary.
…
Proposed section 99C is complementary to section 99B and is designed to ensure that a beneficiary will not escape the provisions of section 99B where indirect or artificial means are used to provide the beneficiary with the benefit of accumulated trust income.”
Essentially, where a beneficiary of a trust is paid money from the trust or has a trust distribution applied for their benefit it will be included in their assessable income unless it is subject to reduction under section 99B(2) of the ITAA 1936.
In this matter, the issue is whether the amounts distributed to Ms Campbell from the Trust are what is known as the “corpus” or principal of the trust estate and whether those amounts should be included as part of her assessable income.
Penalties
Administrative penalties are able to be imposed pursuant to section 284–75(3) of Schedule 1 to the TAA in the following circumstances:
284-75 Liability to penalty
(3) You are liable to an administrative penalty if:
(a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b)that document is necessary for the Commissioner to determine a * tax-related liability (other than one arising under the * Excise Acts) of yours accurately; and
(c)the Commissioner determines the tax-related liability without the assistance of that document.
Note:You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286-C.
(emphasis added)
The base penalty is 75% of the relevant tax related liability.[18]
[18] Section 284–90(1) item 7 of the Schedule to the Act.
Pursuant to section 298–20 of Schedule 1 to the TAA, the Commissioner has the power to remit all or part of the penalty amount calculated.
Practice Statement Law Administration 2014/4
Administration of the penalty imposed under subsection 284 75(3) of Schedule 1 to the Taxation Administration Act 1953
(“PS LA 2014/4”) explains the circumstances in which an entity will become liable to a penalty pursuant to section 284-75(3) of Schedule 1 to the TAA and how that penalty is to be assessed including any remission.
Pursuant to paragraph 27 of PS LA 2014/4 a relevant matter for the remission of a penalty includes “a major objective of the penalty regime…to promote a consistent treatment by reference to specified rates of penalty” and that this objective could be compromised if penalties are omitted without cause or as a matter of course.
Paragraph 28 of PS LA 2014/4 goes on to provide that the discretion to remit penalties should be approached in a fair and reasonable way and sets out that a remission, either in full or in part will generally occur, as follows:
· an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, their obligation
· an entity understood their obligation to lodge but circumstances beyond their control affected their ability to lodge
· the amount of penalty imposed by law causes an unjust result
· there were credits available to offset the amount of the tax-related liability payable, or
· there was extraordinary cooperation during an examination.
ISSUES FOR THE TRIBUNAL
The issues for determination by the Tribunal are whether:
(a)the default assessments for the financial years ended 30 June 2013 and 2014 are excessive. This involves determining whether
the cash distribution received by
Ms Campbell from the Trust in the 2013 and 2014 financial years constitute the corpus of the trust estate such that they are not assessable as income under section 99B(2)(a) of the ITAA 1936;
(b)the administrative penalties were correctly imposed under section 284-75(1) and section 284-75(3) of Schedule 1 of the TAA; and
(c)the discretion to further remit the penalty under section 298-20(1) of Schedule 1 of the TAA should be exercised.
APPLICANT’S CONTENTIONS
Ms Campbell was represented at the hearing by Mr Mel James of MWJames & Co Chartered Accountants. Mr James is Ms Campbell’s Australian Accountant.
Ms Campbell did not appear at the hearing and provided no witness statement. Mr James assisted Ms Campbell in corresponding with the ATO regarding the Default Assessments and the lodging of the objection to those assessments.Mr James submitted that the reason Ms Campbell did not lodge her tax returns was because her New Zealand advisers had determined that the transfers were Capital payments from the corpus of the Trust.
Mr James contended on Ms Campbell’s behalf that the Default Assessments were excessive because:[19]
(a)the Commissioner of Taxation has not taken into consideration the presence of corpus in the distributions received by Ms Campbell;
(b)they were issued without regard to PS LA 2007/24;
(c)the Commissioner of Taxation has not made a genuine attempt to ascertain the taxpayer’s taxable income;
(d)the Commissioner of Taxation has not taken into consideration the Double Tax Agreement between Australia and New Zealand;
(e)the Commissioner of Taxation has issued Default Assessments for the incorrect periods of income, using AUSTRAC information based on an Australian income tax year ending on 30 June, and not the New Zealand income tax year ending on 31 March;
(f)the Commissioner of Taxation did not seek information from the Inland Revenue Service of New Zealand concerning the tax affairs of the Trust (and, in particular, did not take into account the New Zealand income tax returns of the Trust for the 2013 and 2014 financial years); and
(g)the Commissioner of Taxation has imposed penalties and interest on the Default Assessments issued for the years of income ended 30 June 2013 and 2014 without regard to the fact that the taxpayer and her Australian accountants were relying on the New Zealand advisers and accountants as to the correctness of the accounts and the minutes and trust resolutions prepared for the Trust.
[19] Exhibit 7, Applicant’s Statement of Facts, Issues and Contentions, undated, received 20 March 2019.
RESPONDENT’S CONTENTIONS
The Respondent contends that the Default Assessments were based on reasonable information from a third party, AUSTRAC, and that the amounts deposited into
Ms Campbell’s personal bank account from the Trust (plus $17 interest in 2014), are considered to be included in assessable income under section 99B of the ITAA 1936 in the absence of sufficient reliable probative evidence to the contrary.[20]
[20] Exhibit 8, Respondent’s Statement of Facts, Issues and Contentions dated 22 May 2019.
ESTABLISHMENT OF THE TRUST
At the hearing Mr James described the establishment of the Trust and distribution of trust property. Mr James acknowledged that his summary was based on what he understands the available documents suggest:
“A trust set up on 1957 was the [Trust 1] and [Trust 2] Trust. It held assets that were primarily land which had been purchased in 1925 and was held right up to the dissolution of the trust in 2000. The other asset… was a building which was a development by the trust in Auckland occupied by [a utilities provider]. Evidence suggests that that building, when it was sold, was sold at a loss.
…
… shares in [Company A] were owned by the [Trust 1]. The shares in [Company A] were then sold 7 February 2001. The primary asset of value in that was the land that was purchased in 1925. That’s outside of capital gains tax. We got $20 million’s worth of vendor finance and this is the money that flowed into the [Trust 1] and then the [Trust 1] was wound up and then the proceeds of that sale were split into three or four trusts for the children, Sandra Campbell, being the daughter of one of the original settlers.”[21]
“The Sandra Campbell Trust was set up on 9th May 2001 with an independent trustee …
The original settled sum of $1,000 was a distribution from the [Trust 3].
Further settled sums were paid to the Sandra Campbell Trust by [the Applicant’s] father, … (deceased). The distributions paid were from the dissolution of a previous trust. The Sandra Campbell Trust was not a resettlement of the [Trust 4].
The proceeds received from [the Applicant’s Father] were from the dissolution of the [Trust 2], on the sale of their New Zealand assets. The New Zealand assets sold were not subject to tax and not liable to Australian Capital Gains Tax as the underlying assets were acquired prior to 19 September 1985.
Proceeds settled on the Sandra Campbell Trust were tax free, as determined by documents provided by the applicant’s Australian advisers to the Commissioner of Taxation, the amount settled was approximately $3,000,000.”[22]
“…the corpus of the trust, the $3 million that was paid in, was not subject to tax. It was tax-free distributions simply because it doesn’t fall within the Australian capital gains tax jurisdiction that started in September 1985. All of these assets were procured long before that date. There was no resettlement of the trust, as is attested. It was a change of trustee in the [Trust 1] in 1997 but that was simply just a change of trustee. That trust was wound up and the Sandra Campbell Trust came into being… the original corpus of $3 million was a settled sum. It has no tax consequences for Australian tax regime and then we see the distributions coming out of the trust.”[23]
[21] Transcript, pages 15 – 17.
[22] Exhibit 7, Applicant’s Statement of Facts, Issues and Contentions, undated.
[23] Transcript, page 17.
In support of his summary Mr James pointed to:[24]
(a)Purported minutes of a meeting of “Company A” held in February 1988 which refers to a valuation of a project which had dropped in market value by $1,700,000;
(b)A settlement sheet which indicates a property was sold for $47,500,000;
(c)A share sale settlement statement showing sale of shares in “Company A” for $47,500,000 by “a Trust Company”;
(d)A table which apparently shows the movement in corpus and income since settlement of the trust, which Mr James says was provided by RPL Accountants (the accountants of the Trust up until 2013). Mr James says the table traces the settled sums, the investment gains and losses, the difference between income and capital and a taxable income in New Zealand; and
(e)Assorted other documents of numerous company extracts, certificates of title etc.
[24] Exhibit 3, Documents as part of confidentiality order.
While the Tribunal appreciates Mr James’ attempt to summarise the material he has obtained concerning the trust’s history, no evidence was given by anyone with knowledge of the documents or the Trust.
CONSIDERATION – WERE THE ATO AMENDED ASSESSMENTS EXCESSIVE?
It is not in dispute that:
(a)Ms Campbell is an Australian resident and a beneficiary of the Trust;[25]
[25] Exhibit 1, T Documents, T3, page 28, Objection and supporting documents lodged by Ms Campbell on(b)the Trust:[26]
[26] Exhibit 1, T Documents, T3, page 28, Objection and supporting documents lodged by Ms Campbell on(i)was settled on 9 May 2001;
(ii)had settlors of four persons (who were also the Trustees of two other trusts being the [Trust 3] and the [Trust 5]);
(iii)was settled with $1,000 and had further contributions of $1,265,683, $1,700,000 and $11,799 in 2003 and 2004 by [Trust 3] and the [Trust 5] ;
(iv)at all relevant times, had a New Zealand resident Trustee for Australian income tax purposes; and
(v)at all relevant times, was in the business of investing and its income was derived from interest, dividends, overseas income and business/rental activities pursuant to its New Zealand income tax returns.
(c)The Trust deed provides that income and/or capital (undefined terms) may be applied towards the personal support, maintenance and comfort of the beneficiaries. Any income not distributed within six months after the end of an income year will be accumulated and added to the capital of the Trust fund.[27]
(d)Ms Campbell:
(i)received distributions from the Trust for the years ended 31 March 2013 and 2014, relevant to the Australian Taxation years of 30 June 2013 and 2014; and
(ii)did not provide tax returns for the years ended 30 June 2013 and 2014.
(e)AUSTRAC information for the Australian Taxation years of 30 June 2013 and 2014, which was available to the ATO, shows the following international fund transfers were made to Ms Campbell’s personal bank account:
[27] Exhibit 1, T Documents, T3, pages 22 – 154, Objection and supporting documents lodged by Ms Campbell on 20 February 2017.
Transaction date
Payer Name Amount 12/12/2012 THE SANDRA CAMPBELL TRUST $19,000 1/02/2013 THE SANDRA CAMPBELL TRUST $9,500 8/03/2013 THE SANDRA CAMPBELL TRUST $15,500 8/04/2013 THE SANDRA CAMPBELL TRUST $17,390 8/05/2013 THE SANDRA CAMPBELL TRUST $20,000 4/06/2013 NZ FUNDS MANAGEMENT LIMITED $17,957 13/06/2013 HUMPHRIES ASSOCIATES LIMITED TRUST $9,711 31/01/2014 FORTUNE MANNING LAWYERS $102,012 21/03/2014 FORTUNE MANNING LAWYERS $132,100 13/06/2014 FORTUNE MANNING LAWYERS $120,000 (f)the transfers made by Fortune Manning Lawyers on 31 January 2014, 21 March 2014, and 13 June 2014 were made on behalf of the Trustee.
(g)during the 2013 and 2014 financial years, Ms Campbell received the following funds into her bank account:[28]
[28] Exhibit 1, T Documents, T18, pages 354 – 707, Bank Statements; Exhibit 5, Supplementary T Documents, ST1, pages 1 – 32, Bank Statements.
Date Description on statement Amount 21/08/2012 OFF SHORE TELEGRAPHIC TRANSFER
RECEIVED xxxxxxx97$18,987.00 9/10/2012 OFF SHORE TELEGRAPHIC TRANSFER
RECEIVED xxxxxxxx66$19,000.00 12/12/2012 TRANSFER REFERENCE xxxxxxxx85 $18,987.00 4/02/2013 TRANSFER REFERENCE xxxxxxx19 $9,487.00 11/03/2013 TRANSFER REFERENCE xxxxxxx98 $15,487.00 8/04/2013 TRANSFER REFERENCE xxxxxxx03 $17,377.00 8/05/2013 TRANSFER REFERENCE xxxxxxx29 $19,987.00 4/06/2013 TRANSFER REFERENCE xxxxxxx03 $17,932.66 13/06/2013 TRANSFER REFERENCE xxxxxxx27 $9,692.65 21/08/2013 TRANSFER REFERENCE xxxxxxx98 $262,304.14 6/11/2013 TRANSFER REFERENCE xxxxxxxx01 $103,658.40 31/01/2014 OFF SHORE TELEGRAPHIC TRANSFER
RECEIVED xxxxxxx99$99,921.40 21/03/2014 OFF SHORE TELEGRAPHIC TRANSFER
RECEIVED xxxxxxx24$129,111.28 13/06/2014 DEPOSIT $5,600.00 13/06/2014 TRANSFER REFERENCE xxxxxxx02 $120,000.00
Contention that the Commissioner of Taxation has not taken into consideration the presence of corpus in the distributions received by the applicant.
It is not in dispute that the distributions from the Trust in 2013 to 2014 are applicable to section 99B(1) of the ITAA 1936, unless subject to reduction under subsection 99B(2) of the ITAA 1936.
The material before the Tribunal included the following:
(a)Two different sets of financial statements of the Trust for the 2013 and 2014 financial years prepared by Humphries Associates Limited, the NZ Accountants for the Trust;
(b)Trustee resolutions and minutes for the 2013 and 2014 financial years; and
(c)New Zealand income tax returns of the Trust for the 2013 and 2014 financial years.
The Financial Statements
The first set of financial statements was provided to the ATO by Mr James on
Ms Campbell’s behalf, in response to the Default Assessments, on 26 May 2016.[29] The second set of financial statements was provided to the ATO on 20 February 2017 with the objection.[30] The two sets are substantially different in relevant respects.
[29] Exhibit 1, T Documents, T10, pages 184 – 222, Material supplied by Ms Campbell’s Accountant to the ATO on 26 May 2016.
[30] Exhibit 1, T Documents, T3, pages 22 – 154, Objection and supporting documents lodged by Ms Campbell on 20 February 2017.
The first set of financial statements of the Trust, provided in response to the Default Assessment on 20 May 2016, indicate that:
Financial Year Net Surplus Total Trust Funds Total Trust Capital (opening balance) Total Trustee Accumulated Income Advances to
Ms Campbell2013 $72,329 $1,589,004 $(361,927) $1,950,931 $181,922 2014 $24,936 $1,613,941 $(361,927) $,1,975,868 $931,837
“The Sandra Campbell Trust notes to and forming part of the financial statements” for the 2013 financial year provide in note 5 “During the year, funds were advanced from the trust to Sandra Campbell” totalling $181,922.[31]
[31] Exhibit 1, T Documents, T10, page 221, Email from Applicant’s Accountant to ATO with attachments, sent 26 May 2016.
“The Sandra Campbell Trust notes to and forming part of the financial statements” for the 2014 financial year provide in note 5 “During the year, funds were advanced from the trust to Sandra Campbell” totalling $931,837.[32]
[32] Exhibit 1, T Documents, T10, page 210, Email from Applicant’s Accountant to ATO with attachments, sent 26 May 2016.
The second set of financial statements for the Trust, being the ones submitted to the ATO with the notice of objection in February 2017, indicate that:[33]
[33] Exhibit 1, T Documents, T3, page 154, Objection and supporting documents lodged by Ms Campbell on
Financial Year Net Surplus Total Trust Funds Total Trust Capital Total Trustee Accumulated Income Advances to
Ms Campbell2013 $72,329 $1,589,004 $971,969 $617,035 $181,922 2014 $24,936 $1,613,941 $971,969 $641,971 $931,837
The same notes as outlined in paragraphs 51 and 52 above were also included in the statement submitted to the ATO in February 2017.
The two sets of accounts clearly show different amounts of “total trust capital” and “total trustee accumulated income”.
As to exactly why two different sets of statements were prepared and provided to the ATO in May 2016 and February 2017 respectively was explained by Mr James as follows:
(a)the accounts of the Trust were prepared correctly until there was a change in accountant and trustee;
(b)the trustee and accountant for the Trust changed in 2013;
(c)he informed the trustees of their Australian taxation obligations in correspondence going back to 2007, 2010 and 2012;
(d)in 2012 the amount of corpus left in the Trust was $1,900,000;
(e)he advised the new accountants that there were two problems with the Trust accounts they had prepared for the 2013 and 2014 financial years that should be rectified. Mr James says the problems were that:
(i)where they have income that was being taxed in New Zealand, but not remitted to the beneficiary in Australia, it was going to present a problem in the future as once it was received by the Australian beneficiary, it would be taxed but there would also be interest payable; and
(ii)simply because capital gains tax was not relevant in New Zealand did not assist the taxpayer in their Australian tax obligations and they needed to keep records of distinguishing between the original corpus and any capital gains that may have been made or capital losses that had been realised during the period;
(f)when he looked at the 2013 and 2014 accounts he asked for them to be restated because, in his opinion, they were drawn in error and not in accordance with Australian accounting standards.
The ATO assessed Ms Campbell’s income for the 2013 and 2014 financial years at less than the amount of the advances/loans from the Trust to Ms Campbell. The Default Assessments may in fact understate Ms Campbell’s assessable income. The New Zealand income tax return for the Trust for the year ended 31 March 2013 also reflects that there were drawings of $181,922.00.[34]
[34] Exhibit 1, T Documents, T10, page 189, Email from Applicant’s Accountant to ATO with attachments, sent 26 May 2016.
Mr James says he asked for the statements to be amended but there is no copy of that instruction provided. The Tribunal also notes that despite amendment, the statements are stated to have been prepared on 4 March 2015. There is no indication that having amended the statements, the income tax returns for the Trust were also amended.
Nothing was provided to the ATO before the Default Assessments were issued. The first set of accounts were provided on 26 May 2016 and the second set of accounts were enclosed with the objection on 20 February 2017. The explanation given at the time the objection was lodged was that “The changes were necessary in order to accord with Australian accounting standards”… “Also attached, financial statements for the trust for the years ended 31 March ‘13 and ‘14 which are subject to the default assessments. The accounts have been restated to reflect the appropriate Accounting Standards applicable for Australian based reporting.”[35]
[35] Exhibit 1, T Documents, T3, pages 27 – 29, Objection and supporting documents lodged by Ms Campbell on 20 February 2017; Transcript, pages 35 - 36.
There is no detail provided. The first set of accounts shows a negative capital whereas the “revised” second set of accounts show positive capital. There is also no evidence from anyone with an understanding of New Zealand Accounting Standards, in particular to explain how a negative capital turns into positive capital.
Trustee Resolutions/Minutes
The Trust resolutions/minutes provided relate to the first set of financial statements. No “revised” Trust resolutions/minutes to reflect the second set of financial statements were tendered or referred to.
The Trust resolutions between 2002 and 2014[36] recorded the following:
[36] Exhibit 1, T Documents, T3, pages 36 – 49, Objection and supporting documents lodged by Ms Campbell on 20 February 2017; T4, pages 163 – 173, Email attachments sent to ATO by Applicant’s Accountant on 2 June 2016.
Income year Distributions
to Sandra Campbell
Retained income ($) Income ($) Capital ($) 2002 38,877 31,549 2003 668,736 52,792 2004 54,462 81,265 2005 48,228 72,782 2006 19,886 98,769 2007 128,081 90,665 2008 28,655 229,799 68,730 2009 15,513 124,021 66,202 2010 144,856 -150,225 2011 162,215 -90,760 2012 285,315 -45,562 2013 72,329 2014 24,936
The resolutions of the trustee of the Trust for the 2013 financial year were:[37]
(a)the financial statements for the year ended 31 March 2013 were approved and adopted and showed there was a surplus of $72,329;
(b)“… all income be retained as Trustee income”;
(c)“That there be no capital distributed to the beneficiaries”;
(d)“That there be no retained earnings distributed to beneficiaries”;
(e)“That there be no tax distributed to beneficiaries”; and
(f)“That there be no advance/loan to beneficiaries.”
[37] Exhibit 1, T Documents, T3, page 37, Objection and supporting documents lodged by Ms Campbell onThe resolutions of the trustee of the Trust for the 2014 financial year provide:[38]
(a)The financial statements for the year ended 31 March 2014 were approved and adopted;
(b)There was a surplus of $24,936;
(c)“… all income to be retained as Trustee Income”;
(d)“That there be no capital distributed to beneficiaries”;
(e)“That there be no retained earnings distributed to beneficiaries”;
(f)“That there be no tax distributed to beneficiaries”; and
(g)“That there be no advance/loan to beneficiaries.”
[38] Exhibit 1, T Documents, T3, page 36, Objection and supporting documents lodged by Ms Campbell on 20 February 2017.
The Trust minutes for the New Zealand income years ended 31 March 2013 and
31 March 2014[39] recorded there were no allocations to beneficiaries and that all income would be retained.
[39] Exhibit 1, T Documents, T4, pages 163 – 164, Email attachments sent to ATO by Applicant’s Accountant on 2 June 2016.
There is no evidence or explanation regarding why the Trustee adopted the financial statements when the resolutions do not accord with the information contained within those statements – namely concerning the advances to Ms Campbell. The documents do not reflect what actually occurred. The person who prepared the statements has not given evidence, nor has the Trustee. The statements show one set of financials and the resolutions state another and no explanation has been provided by any relevant witness.
Mr James submits that the first accounts are unreliable and he requested they be redone and corrected and that the Tribunal should rely on the second set of accounts. If the Tribunal accepted that the first set of accounts are unreliable, there are no trustee resolutions/minutes before the Tribunal regarding the second set of statements. Why the changes were necessary has not been adequately explained.
The evidence is entirely inconsistent and unreliable.
The evidence relating to the loans and the resolutions passed by the Trustee of the Trust, do not establish that the distributions to Ms Campbell were from corpus and are directly contradictory to her position.
If it was assumed that the distributions were from the corpus, one still has to consider the exception in section 99B(2)(a) of the ITAA 1936.
Pursuant to section 99C of the ITAA 1936, these loans are to be taken into account in determining the amount applied to Ms Campbell’s benefit as a beneficiary of the trust.
Mr James acknowledged at the hearing that:[40]
“The problem with this case is the amount of paperwork, and a lot of it, and it goes up blind allies, you know.”
and said:
“So a lot of it is in some respects irrelevant. I think the important documents are the New Zealand income tax returns, the ‘13 and ‘14 accounts. We had - as I said, we had problems with these, we asked them to be redrawn. We don’t believe that the accountants have done a very good job on that. We would actually advise the client to commence professional misconduct dealings against those accountants because we believe that ‘15/’16 is also an issue. We believe that up to 2012 when we were dealing with RPL accounts, that everything seems to be accurate. If we go back and have a look at the minutes from 2002 up to 2012, they’re drawn up in the correct manner. The problem with the minutes in 2013/2014, and this is a failing of a lot of small practices. I’ve no idea how big Humphries is, but it certainly is a failure of a lot of small practices. They just punch out pro forma minutes, which don’t really tell the correct story, and are not in compliance with the tax laws, whether it be here or in New Zealand. I don’t think the New Zealand Inland Revenue would accept those minutes. Up to 2012 the minutes reflected precisely what the taxable income, or the accounting income was in the trust; the difference between accounting and tax, the add backs, the information that’s in those accounts is insufficient for me to determine the New Zealand income tax amounts arrived at, but we have had a clearance certificate from the New Zealand tax authorities saying that everything is fine with the trust, there are no audits planned, there’s nothing untoward. That certificate was also provided to the ATO as part of our evidence.
I think we find ourselves in this position because of the incompetence of the accountants in 2013/14, and I stress the word incompetence without reservation, because that seems to be where the issues have arisen. According to our calculations, the first three million dollars, and I will try and locate in the lunchbreak the information that was sent to the AAT concerning that; we advised - the $3 million again, we’re saying the ATO is still not accepting that’s not taxable. We’re saying that’s totally incorrect, the evidence refutes that. From the documentation that has been provided in both confidentiality agreements that we have before the AAT, there is no doubt that the $3 million is not taxable in the hands of the beneficiary.
Now, the degradation of that $3 million over a period of time, we’ve estimated that capital distributions to the taxpayer have been - around $1.99 million of that has been distributed, but we’re not disputing the fact that the taxpayer has received any of those funds, we’re not disputing any of the information that’s in the bank statements. What we are still disputing is the character of the funds, and we still maintain that even if they were deemed to be loans, 99B(2) would still knock them out for being taxable. We don’t believe they are loans, we believe that the accounts have been drawn up incorrectly, and they should’ve always been classified as capital distributions to the beneficiary.”
(emphasis added)
[40] Transcript, page 47.
Regardless of what Ms Campbell may have believed, which is not in evidence, the distributions are referred to in the first set of statements as “advances” for Ms Campbell’s benefit.
Mr Dan Butler, Counsel for the Respondent, made the point that the income tax returns record negative capital for both financial years, both income years and if there is negative capital how could a distribution of corpus have been made as Ms Campbell contends?
Mr Butler also noted:[41]
“… there’s evidence before the tribunal that in both income years, ‘13 and ‘14, sitting on the accounts was $1.9 million in accumulated income. So putting capital aside for a minute, $1.9 million available in both years in accumulated income, and we’re not told anything about whether it was that accumulated income which was used to pay the distributions, or whether the money for the distributions came from somewhere else.
…if it was that accumulated income of $1.9 million that was used, then that brings us fairly and squarely back to 99B(2)(a), the words in brackets, that a payment from corpus, except to the extent that the payment is attributable amounts that would’ve otherwise been income. And here we’ve got financial statements which on their face say they’re dis-accumulated income, $1.9 million, clearly enough money sitting there for the distributions in the values that we’ve seen to Ms Campbell.
If, and we don’t know whether it was; I say if it was that pool of money which was called upon to make the distributions, that that fairly and squarely raises the question for Ms Campbell, was the source of that accumulated income nonetheless assessable 99B(2)(a), and there’s simply no evidence before the tribunal to answer that question with any confidence; they simply don’t know.”
(emphasis added)
[41] Transcript, page 49.
The Trust minutes for the years ended 31 March 2013 and 31 March 2014 do not record any distributions of capital being made to Ms Campbell during those financial years and specifically state that no capital or retained earnings are to be distributed to the beneficiaries. Mr Butler suggested that in the event that the corpus of the Trust estate was to be distributed, it would have been recorded in the Trust minutes. This is a reasonable suggestion to make. One would expect to see a resolution in the Trust minutes which recorded the distribution of capital to a beneficiary, as can be seen in the Trustee resolutions in previous years.[42]
Contention that the Default Assessments were issued without regard to PS LA 2007/24 and that the Commissioner of Taxation has not made a genuine attempt to ascertain Ms Campbell’ income
[42] Exhibit 1, T Documents, T3, page 38, Trustees Resolutions for year ended 31 March 2012 indicate that a capital distribution to Ms Campbell.
In the objection letter Mr James contended that pursuant to paragraphs 14, 16 and 55 of the PS LA 2007/24 the ATO did not take Ms Campbell’s taxable income (as opposed to assessable income) into account or advise Ms Campbell in advance of the issuance of the default assessments. The version of PS LA 2007/24 that was in existence at the time (although this was not pointed out to the Tribunal) provided:
14. ATO personnel should generally make a decision as to the taxpayer's taxable income, not merely their assessable income. This means that ATO personnel should consider obvious deductible outgoings, such as those incurred in carrying on a business of the relevant type.
16. ATO personnel must ensure that the basis for the default assessment under section 167 is clearly communicated to the taxpayer in all circumstances
55. A valid assessment requires that the Commissioner make a genuine attempt to determine a taxpayer's taxable income. The High Court established in Trautwein v. FCT (1936) 56 CLR 63 that the estimation process may go close to guesswork and yet be lawful. However, a figure cannot simply be 'plucked from the air' (Re DCT (WA); Ex Parte Briggs (1986) 17 ATR 1031) or an estimate 'made upon no intelligible basis' (Trautwein v. FCT (1936) 56 CLR 63). The primary requirement is that the judgment of a taxpayer's taxable income is based on some reasonable or rational grounds. Where this occurs the assessment is defensible from challenge on the basis that the assessment was arbitrary, lacked rational foundation and was therefore not a bona fide exercise of power.
(emphasis added)
The current version of PS LA 2007/24 now provides:
3. Making a valid default assessment
…
The combined effect of section 175 and item 2 of subsection 350-10(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) (formerly subsection 177(1)) means that provided we have made a genuine attempt to ascertain the taxpayer's taxable income, the taxpayer cannot challenge the assessment except under a Part IVC of the TAA objection.
Errors in calculating a taxpayer's taxable income during the process of making the default assessment do not mean that the assessment is invalid. The Commissioner is not limited to using a particular methodology to calculate an amount on which to tax the taxpayer. The assessment is valid provided that the Commissioner has undertaken a logical process to arrive at that amount.
Circumstances that do not amount to a genuine attempt to assess include simply plucking a figure from the air, or where the assessment is made upon no intelligible basis. A genuine attempt will arrive at a definitive taxable income for the taxpayer. The fact that an assessment may be amended later (for example, on the provision of further information) or that alternative assessments are issued does not mean that it is not definitive.
…
5. Determining reasonable grounds on which to make the assessment
When making a default assessment, you should generally make allowance for usually incurred deductions. However, due to the nature of a default assessment it is not necessary to calculate assessable income and then applicable deductions; depending on the circumstances it may be entirely appropriate for you to make a direct judgment of taxable income.
…
9. Notifying the taxpayer
In accordance with usual audit practices you should advise the taxpayer that you intend to raise a default assessment and provide them with the opportunity to comment on that proposed default assessment.
It is not clear what exactly Ms Campbell submits should have been deducted from the payments made to her by the Trust. Mr James did not identify any allowable deductions.
Ms Campbell was notified several times of the intention to issue a Default Assessment. Ms Campbell was notified, in advance of the Default Assessments being issued, of the information the ATO had obtained from AUSTRAC and was given an opportunity to respond to explain why that information did not form a reasonable or rational basis upon which her taxable income could be assessed.
The Default Assessments were based on reasonable grounds. The information relied upon by the ATO was from an independent third party and is accepted by Ms Campbell as a correct reflection of the transactions between herself and the Trust. There is no basis for the assessments to be challenged on the basis that the assessment was arbitrary, lacked rational foundation and was therefore not a bona fide exercise of power. In accordance with Trautwein the Tribunal finds that the ATO made a genuine attempt to ascertain
Ms Campbell’s assessable income.The Tribunal is not satisfied that the steps/actions of the ATO were incompatible or not in compliance with PS LA 2007/24.
Contention that the Commissioner of Taxation has not taken into consideration the Double Tax Agreement between Australia and New Zealand.
The International Tax Agreements Act (No 1) 2010 (Cth) enacted the Convention between Australia and New Zealand for the Avoidance of Double Taxation (“DTA”) with respect to taxes on income and fringe benefits and the prevention of double taxation. The DTA came into force on 19 March 2010. No substantive explanation or submission was made in relation to the DTA and in what respects it would change the Default Assessments.
The Tribunal is not satisfied, on the state of the evidence, that the DTA renders the Default Assessments excessive.
In the objection lodged to the ATO, Mr James contended that Article 26 of the Convention required an exchange of information between Australia and New Zealand. The Tribunal is not clear how this means that the Default Assessments are excessive. It also does not mean that the ATO has not made a genuine attempt to ascertain Ms Campbell’s taxable income.
Even if it could be argued that the ATO should or could have done more to determine
Ms Campbell’s financial circumstances, how does this bear on whether the Default Assessments are excessive? Without more evidence Ms Campbell has not met her burden of proof.
The Commissioner of Taxation has issued Default Assessments for the incorrect periods of income, using AUSTRAC information based on an Australian income tax year of 30 June, and not the New Zealand income tax year of 31 March.
The relevant tax years for the Applicant’s tax obligations in Australia are those ending on 30 June 2013 and 30 June 2014.
In relation to the different start and end dates for financial years of Australia and New Zealand:
(a)the default assessments are based on AUSTRAC records and those records refer to funds received during the Australian tax year; and
(b)
regardless of the timing, the financial statements show at either 2013/2014
Ms Campbell received a $931,000 advance which is nearly $600,000 more than the amount of income on which she had been assessed. Given the unreliability of the financial statements, the Tribunal is not satisfied that the Default Assessments are excessive because of the different financial year periods.
No explanation was given for what adjustments should be made to the Default Assessments to take this into account.
The Commissioner of Taxation did not seek information from the Inland Revenue Service of New Zealand concerning the tax affairs of the Sandra Campbell Trust.
In relation to the NZ income tax returns for the Trust it has not been adequately explained how they are consistent with a case that the distribution was from corpus.
The NZ income tax returns of the Trust state that:
(a)for the year ended 31 March 2014 the Trust had a carried forward loss of $294,798,94;[43] and
(b)for the year ended 31 March 2013 the Trust had a carried forward loss of $288,077.12.[44]
[43] Exhibit 1, T Documents, T3, page 54, Objection and supporting documents lodged by Ms Campbell on 20 February 2017.
[44] Exhibit 1, T Documents, T3, page 68, Objection and supporting documents lodged by Ms Campbell on 20 February 2017.
Mr James told the Tribunal:[45]
“If we’re looking at the New Zealand income tax returns, if we have a loss in the … 2014 year, how do we have distributable income to the beneficiary? We also have a carried forward loss on page 54 of $294,798.94. If we go back to 2010, or we have information going back to 2008, I think we provided; we see that in 2008 we’ve got taxable income of $102,582. We’ve got - - -
MEMBER: What page are you looking at?
MR JAMES: It commences on 101; yes, 101. Sorry, no, that’s 2010. We need to go back a bit further than that. If we go back to page 132 is the income tax return in 2008. Now, that has a taxable income there of $102,582 but attached to that are New Zealand imputation credits of $14,790.23. There is resident withholding tax of $23,180.97, and both those amounts are evidenced on page 139. Again in part of the correspondence we had with the ATO we pointed out that under article 23, the double tax agreement, that there’d been no allowance for these types of credits. And these credits occur in 2008, 2009, 2010, in 2011 there’s substantial revenue loss. In 2010 there’s a substantial revenue loss of $88,582.38. In 2011 another loss of $101,259. 2012, another loss of $84,093.80. 2013, we have a small profit, $7956. And in 2014 there’s another loss of $6721.”
[45] Transcript, page 46.
CONCLUSION
There is no dispute about the receipt of the money, or that Ms Campbell is a beneficiary falling within section 99B(1) of the ITAA 1936. The relevant questions are: what is the characterisation of what was received from the Trust; and is it corpus or income?
Ms Campbell relies on section 99B(2)(a) of the ITAA 1936 which provides that the assessment amount is to be reduced by the amount that represents the corpus of the Trust estate. That, however, is not the end of the story. The section goes on to provide for an exception as follows:
“(except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of the year of income);”
Further, section 99C of the ITAA 1936 provides that a loan to a beneficiary is taken to be an amount applied for the benefit of a beneficiary and therefore assessable.
The Tribunal is not satisfied on the sparse and inconsistent evidence that the Trust distributions received by Ms Campbell should not be included as part of her assessable income. The Trust records provided are inconsistent and therefore unreliable. No relevant witnesses were called on Ms Campbell’s behalf to explain why the records were inconsistent and, most importantly, to address which version of the records are correct and why.
A complicated history of how the Trust came into being was provided by Mr James based on some documents he was able to obtain without any corroborating witness to attest to or explain the documents. The Commissioner has not been given an opportunity to test the version of events that has been put forward.
There is no evidence before the Tribunal to corroborate Mr James’ history of the establishment of the Trust and the characterisation of the money held therein. There are no witness statements, particularly from Ms Campbell. No reason was given to the Tribunal to explain why Ms Campbell did not appear to give evidence on matters which she must clearly have some knowledge. The Trustee did not provide a statement or give evidence; neither did the lawyers or accountants for the Trust.
Given the state of the records and the lack of corroborating, or any, explanation by
Ms Campbell, the trustee of the Trust, the lawyers or accountants for the Trust, the Tribunal is not satisfied that the distribution in question was corpus of the Trust.
Ms Campbell has not discharged her onus of establishing that the Default Assessments were excessive.The Commissioner’s decision to disallow Ms Campbell’s objection against the Default Assessments for payment of income tax for the 2013 and 20124 financial years should be affirmed.
Was the Administrative Penalty correctly imposed?
Ms Campbell failed to give the Commissioner required tax returns necessary to determine the liability to tax the income years ended 30 June 2013 and 30 June 2014.
The Tribunal finds that the administrative penalties were correctly imposed under sections 284-75(3) and 284-90(1) of Schedule 1 of the TAA.
Should the Penalty be remitted further in part or in full?
Ms Campbell did not lodge an income tax return for the 2013 and 2014 financial years despite letters sent by the ATO requesting Ms Campbell lodge her income tax returns.
In terms of the penalties imposed and the reason for the delay in providing information to the ATO, Mr James explained that:
(a)the Commissioner also “stood up” in a house committee and said that default assessments are only ever issued when the taxpayer’s not corresponding with ATO or some other reason;
(b)he was in correspondence with the ATO;
(c)“they” were dealing with a “very difficult situation spread over something like - trying to find documents from 40 or 50 years ago”;
(d)the ATO issued a letter saying that they were to issue a default assessment and he wrote to them on 4 April 2016 and, again, and advised the ATO that we’re now in contact with the accountants there and we’re tracking down the information through various different sources;
(e)he had difficulty tracking down Ms Campbell;
(f)Ms Campbell has been difficult to contact and on several occasions he had written to her saying that he would not act for her because she was not providing information in a timely manner;
(g)he informed the ATO on 4 April 2016 that they were trying to find all of these other documents;
(h)“it took a significant amount of effort and detective work to find out exactly because most of the people who could bear witness to it were either dead or infirmed because we’re dealing with a very old set of accounts, you know, stuff from 1925. That’s 70, you know, 80, 90 years ago”;
(i)after the letter of 4 April 2016 there was no further correspondence with the ATO until the Default Assessments were issued;
(j)he was undergoing cancer treatment and not in the office all the time;
(k)he had a conversation with an officer from the ATO who was handling the case and he told them Ms Campbell was going on holiday for seven weeks, the officer said “there wouldn’t be any default assessments issued.” Despite this assurance, “all of a sudden out of the blue we received two default assessments”;
(l)“So, we’re really not extremely happy with the way the ATO has handled itself in this situation and it seems it’s like a blitzkrieg, if you ask me, against a taxpayer who was trying to comply with the Australian tax obligations but because their recordkeeping has been quite poor, trying to cobble together what exactly is the situation is extremely difficult but we still stand by the documents … that the original $3 million of corpus has not been extinguished in the trust and does form part of the distributions that have been paid to the taxpayer over the course of these accounts”; and
(m)“they” have tried to provide the information given to them by the New Zealand accountants.
Penalties were imposed because of a failure to provide a document, namely tax returns, for two years. Mr James contended that, given the amount of time it was going to take for them to collect relevant information, the ATO did not allow sufficient enough time before issuing the Default Assessments and the Penalties. Mr James contends it is “unfair” in that he was attempting to obtain the relevant information on Ms Campbell’s behalf.
The ATO initially wrote to Ms Campbell on 3 February 2016 and gave her until
9 March 2016 to lodge her returns.[46] Ms Campbell did not contact the ATO to say she had no assessable income. The ATO wrote to her again on 30 March 2016 and she was given a further extension to 4 May 2016 to lodge her returns.[47] Ms Campbell was warned in those notices that she may face penalties of up to 75%.
[46] Exhibit 1, T Documents, T14, pages 297 – 300, Correspondence from ATO to Ms Campbell, dated 3 February 2016.
[47] Exhibit 1, T Documents, T15, pages 301 – 306, Correspondence from ATO to Ms Campbell, dated 30 March 2016.
Mr James then writes to the ATO on 4 April 2016 on Ms Campbell’s behalf and advises that he has “been attempting to contact the tax payer…we have now managed to track down the taxpayer and have communicated the ATO position”. Mr James acknowledged receipt of the 3 February 2016 and 30 March 2016 letters.
As noted by the Commissioner, Mr James did not request an extension of time or give any indication of how long it would be before tax returns/or some kind of substantive response would be made. Mr James says he was dealing with cancer and some warning from the ATO should have been given. But a warning was given, several times. Mr James is not at fault here. The taxpayer is.
There is no explanation given by Ms Campbell for her tardiness in providing instructions, or for why, in the middle of this situation, she needed to go on a seven week holiday instead of attending promptly to her taxation affairs.
Ms Campbell did not make it easy for Mr James to assist her. Mr James told the Tribunal he was having difficulties contacting Ms Campbell and that he had threatened to discontinue acting on her behalf. Ms Campbell has not explained why she did not assist Mr James. As already stated, no explanation was given as to why Ms Campbell did not appear at the Tribunal to give evidence in her own matter.
Did the Applicant have a genuine, yet mistaken belief that lodgement was not required? Contention that the Commissioner of Taxation has imposed penalties and interest on the Default Assessments issued for the years of income ended 30 June 2013 and 2014 without regard to the fact that the taxpayer and her Australian accountants were relying on the New Zealand advisers and accountants as to the correctness of the accounts and Minutes prepared for The Sandra Campbell Trust.
There is no evidence that Ms Campbell acted in reliance on advice in failing to lodge her tax returns. There is also no evidence of the substance of the advice purportedly given to her.
There is no basis to remit the matter on the grounds of a mistaken belief. No evidence was given by Ms Campbell.
Were there circumstances beyond the Applicant’s control that affected her ability to lodge?
No evidence was given by Ms Campbell that there were circumstances affecting her ability to lodge her returns on time, when they originally due, or later in compliance with the extensions granted by the ATO.
There is no basis to remit the matter on the grounds of extenuating circumstances.
Does the amount of the penalty imposed provide an unjust result?
Pursuant to PS LA 2014/4:
36.“An unjust result may occur where the culpable behaviour of the taxpayer associated with the failure to provide a document to the Commissioner is disproportionately insignificant to the amount of penalty and charges imposed…”.
There is no evidence that Ms Campbell was unaware of her obligations as a taxpayer.
In the circumstances, the Tribunal finds that the amount of the penalty imposed is not unjust. Ms Campbell ignored the ATO’s repeated requests for her to lodge her tax returns and the warning given regarding the potential for penalties to be imposed.
No explanation was proffered by Ms Campbell for why she considered she had no assessable income.
Ms Campbell’s failure to appear at the hearing or provide a witness statement or any explanation for her conduct or failure to appear, weighs against her.
Remaining Grounds set out in paragraph 28 of PS LA 2014/4
The remaining grounds provided for in paragraph 28 of PS LA 2014/4 which would justify remitting the penalty in part or in full are not relevant to Ms Campbell.
DECISION
The Tribunal finds that the default assessments were not excessive and that there is no basis for the penalty to be remitted. The decision under review is affirmed.
122. I certify that the preceding 121 (one hundred and twenty-one) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg
...................................[SGD]..................................
Associate
Dated: 22 July 2019
Date of hearing:
23 May 2019
Advocate for the Applicant:
Mr M James
Agent for the Applicant:
MW James & CO
Counsel for the Respondent:
Mr D Butler
Representative for the Respondent:
Commissioner of Taxation
Attachment A
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2018/2874
TAXATION AND COMMERCIAL DIVISION )Re: Sandra Campbell
Applicant
And: Commissioner of Taxation
RespondentORDER
TRIBUNAL: Senior Member Theodore Tavoularis
DATE: 19 November 2018
PLACE: Brisbane
Pursuant to section 35(4) of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal DIRECTS that:
1.The publication or disclosure of the thirteen documents named in the Applicant’s letter dated 7 November 2018, and the names and of the companies and individuals listed therein, be prohibited, except to:
a.The parties and their representatives; and
b.The Tribunal, its staff and Members.
....................[Sgd].................
Senior MemberAdministrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2018/2874
TAXATION AND COMMERCIAL DIVISION )Re: Sandra Campbell
Applicant
And: Commissioner of Taxation
RespondentORDER
TRIBUNAL: Senior Member Theodore Tavoularis
DATE: 27 November 2018
PLACE: Brisbane
The Tribunal varies the ORDER dated 19 November 2018, and pursuant to section 35(4) of the of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal DIRECTS that:
1.The publication or disclosure of the thirteen documents named in the Applicant’s letter dated 7 November 2018, and the names and of the companies and individuals listed therein, be prohibited, except to:
a.The parties and their representatives; and
b.The Tribunal, its staff and Members.
2.The publication or disclosure of items one to three of the documents named in the Applicant’s letter dated 22 October 2018, and the names of the companies and individuals listed therein, be prohibited, except to:
a.The parties and their representatives; and
b.The Tribunal, its staff and Members.
…….......[SGD]...........................
Senior Member
20 February 2017.
20 February 2017.
20 February 2017.
20 February 2017,
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