Chami and Commissioner of Taxation (Taxation)
[2022] AATA 3797
•11 November 2022
Chami and Commissioner of Taxation (Taxation) [2022] AATA 3797 (11 November 2022)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2022/5431
Re:Bilal Chami
APPLICANT
AndCommissioner of Taxation
RESPONDENT
Decision
Tribunal:Senior Member D K Grigg
Date:11 November 2022
Place:Brisbane
Pursuant to s 43 of the Administrative Appeals Act 1975 (Cth), the Tribunal affirms the decision under review.
The Tribunal DIRECTS that the matter be transferred to the Taxation & Commercial Division.
................................[SGD]..................................
Senior Member D K Grigg
Catchwords
TAX – cancellation of Australian Business Number and GST registration – business activity statements revised to NIL – whether the applicant carried on an enterprise for GST and ABN purposes – where no corroborating independent material to support the applicant’s claim – where applicant claimed all corroborating material lost in flood – decision under review affirmed
Legislation
A New Tax System (Australian Business Number) Act 1999 (Cth)
A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Administrative Appeals Tribunal Act 1975 (Cth)
Business Names Registration Act 2011 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
Cases
Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212
Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation (1991) 91 ATC 4546; 22 ATR 148; [1991] FCA 276
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 11 FLR 203; [1979] AATA 179
Secondary Materials
Miscellaneous Taxation Ruling 2006/1 “The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number”, Australian Taxation Office
Practice Statement Law Administration 2011/25 “Reconstructing records and making reasonable estimates for taxpayers affected by disasters”, Australian Taxation Office
Reasons For Decision
Senior Member D K Grigg
11 November 2022
BACKGROUND
In 2021 the Applicant had a registered Australian Business Number (ABN) and was registered for Goods & Services Tax (GST).
On 12 January 2022 the Applicant lodged business activity statements (BAS) for the quarters ending 31 March 2021, 30 June 2021 and 30 September 2021.[1] The Applicant lodged his BAS for the quarter ending 31 December 2021 on 4 March 2022[2] (collectively, ‘2021 BAS’).
[1] Exhibit 1, T Documents, T3–T6, 22–41.
[2] Exhibit 1, T Documents, T12, 57–61, BAS for quarter ended 31 December 2021 lodged 4 March 2022.
The Applicant claimed the following in his 2021 BAS:
| Quarter | Sales ($) | GST on Sales ($) | Purchases ($) | GST on purchases ($) |
| March 2021 | 3,800 | 380 | 107,778 | 9,798 |
| June 2021 | 6,740 | 670 | 95,568 | 8,688 |
| September 2021 | 5,800 | 580 | 103,961 | 9,451 |
| December 2021 | 9,250 | 975 | 108,350 | 9,850 |
| Total | 25,590 | 2,605 | 415,657 | 37,787 |
On 7 March 2022, after lodging the final 2021 BAS, the Applicant registered a business name in New South Wales under the name “Blancos construction” (‘the Business’).[3]
[3] Exhibit 1, T Documents, T1, 10, Application for review of decision together with attachments dated 1 July 2022.
Pursuant to the information provided in the 2021 BAS the Applicant received a refund of approximately $21,000.
Following payment of the refund, the ATO decided to conduct an audit of the 2021 BAS and requested the Applicant provide the following documents and/or information to substantiate the claims made therein, such as:
6.1.Invoices;
6.2.Bank statements;
6.3.Building licenses;
6.4.Insurance;
6.5.Advertising material;
6.6.List of suppliers (to request invoices be re-issued);
6.7.List of clients (to perform third-party checks on services rendered);
6.8.Quotes completed;
6.9.Contracts;
6.10.Any relevant information stored electronically;
6.11.Any correspondence with business stakeholders.
The Applicant did not provide any records. The Applicant told the ATO:
7.1.all invoices were destroyed in the flood;
7.2.he conducted his business solely in cash;
7.3.he did not require any licenses to undertake his work;
7.4.he did not require any insurance to undertake his work;
7.5.he commenced advertising on both Facebook and Gumtree, but had deleted the accounts which posted the advertisements;
7.6.the invoices with supplier details were destroyed in the flood, and he could not recall who any of his suppliers were;
7.7.the invoices with customer details were destroyed in the flood, and he could not recall who any of his customers were;
7.8.he completed all quotes in a physical quotebook which was destroyed in the flood;
7.9.he did not enter any written contracts;
7.10.all electronic information was stored on his laptop, which was destroyed in the flood; and
7.11.communications with suppliers, customers & worksite contacts were mainly conducted in person or via telephone, any correspondence was destroyed in the flood.
The ATO determined that there was no evidence of business activity, and that the Applicant was not running an enterprise for tax purposes. As a consequence, the ATO decided that:
8.1.the Applicant could not charge and report GST payable on sales in his BAS and could not claim income tax credits (‘ITCs’); and, therefore
8.2.the Applicant was not entitled to the refunds he received.
Following the audit, the ATO revised the Applicant’s 2021 BAS for the period 1 January 2021 to 31 December 2021 (the ‘Period’) to NIL.[4]
[4] Exhibit 1, T Documents, T15–T18, 65–84.
10. On 11 April 2022 the ATO cancelled the Applicant’s ABN and GST registrations effective 31 December 2021.[5]
[5] Exhibit 1, T Documents, T13, 62, Cancellation of GST Registration dated 11 April 2022; Exhibit 1, T Documents, T14, 64, Cancellation of ABN dated 11 April 2022.
11. On 13 April 2022 the Applicant was advised by the ATO that, following the audit: [6]
11.1.it had determined that he was not running an enterprise for tax purposes;
11.2.he was not entitled to the refunds he had claimed; and
11.3.the changes made by the ATO to the BAS had created a tax debt which the ATO would recover from the Applicant.
[6] Exhibit 1, T Documents, T19, 85–86, Audit Notice of Decision dated 13 April 2022.
12. The result of the tax debt is as follows:[7]
[7] Exhibit 3, Statement of Facts, Issues and Contentions of the Respondent, undated.
Description
Amount
Reduced GST on sales
$1,555
Reduced GST on purchases
$19,301
13. The ATO has garnisheed Mr Chami’s bank account to recover the tax debt.
14. On 17 May 2022, the Applicant lodged an objection to the audit decisions claiming all his substantiating documents were destroyed in the 2022 floods in Villawood New South Wales on 8 March 2022.[8]
[8] Exhibit 1, T Documents, T20, 87–91, Objection form for taxpayers completed by the Applicant dated 17 May 2022.
15. On 1 July 2022 the Commissioner disallowed the Applicant’s objection (‘Decision’) on the grounds that the Applicant had not provided sufficient proof that he was carrying on a business for income tax purposes during the period 1 January 2021 to 31 December 2021.[9]
[9] Exhibit 1, T Documents, T2, 16–21, Reasons for decision dated 1 July 2022.
16. On 1 July 2022 the Applicant filed an application for a review of the Decision by the Tribunal.[10] 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 Taxation Administration Act 1953 (Cth) (‘TAA').
[10] Exhibit 1, T Documents, T1, 1-15, Application for review of decision together with attachments dated 1 July 2022.
ISSUES FOR THE TRIBUNAL
17. The issues for determination by the Tribunal are whether the Applicant:
17.1.was carrying on an enterprise during the Period pursuant to section 23-10 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘GST Act’) and section 8 of the A New Tax System (Australian Business Number) Act 1999 (Cth) (‘ABN Act’);
17.2.provided consideration of $415,657 for claimed creditable acquisitions and is entitled to claim ITCs of $37,787 in the Period pursuant to section 11-5 of the GST Act; and
17.3.received consideration of $25,590 for taxable supplies claimed to have been made during the Period resulting in the reporting of GST payable of $2,605 for the Period pursuant to section 9-5 of the GST Act.
LEGISLATIVE BACKGROUND
Goods & Services Tax
18. Pursuant to section 23-10(1) of the GST Act, you can only be registered for GST if you are carrying on an “enterprise”.
19. A person can only make taxable supplies and be entitled to claim input tax credits if they are carrying on an enterprise under the GST Act.[11]
[11] GST Act ss 7-1(1)–(2), 9-5, 11-5.
20. GST is payable on “taxable supplies”.[12]
[12] Ibid s 7-1(1).
21. A taxable supply is defined in section 9-5 of the GST Act as follows:
9‑5 Taxable supplies
You make a taxable supply if:
(a) you make the supply [for e.g., of goods or services: s 9-10] for *consideration [for e.g., through a payment: s 9-15]; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with the indirect tax zone; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST‑free or *input taxed.
22. An entitlement to an input tax credit arises on a creditable acquisitions and creditable importations.[13]
[13] Ibid s 7-1(2).
23. A creditable acquisition is defined in section 11-5 of the GST Act as follows:
11‑5 What is a creditable acquisition?
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable to provide, *consideration for the supply; and
(d) you are *registered, or *required to be registered.
24. GST and ITCs are set off against each other for each relevant period which results in either an amount needing to be remitted to the ATO or an amount refunded to the taxpayer.[14]
[14] Ibid ss 7-5, 7-15.
25. GST registration may be cancelled under section 25-55(2) of the GST Act if the Commissioner is satisfied a person is not carrying on an enterprise and believes on reasonable grounds that the person is unlikely to carry on an enterprise for at least 12 months.
ABN Registration
26. Pursuant to section 8(1)(a) of the ABN Act, you are only entitled to an ABN if you are carrying on an “enterprise”.
27. The meaning of “enterprise” under the ABN is the meaning given by section 9‑20 of the GST Act.[15]
[15] ABN Act s 41.
28. An ABN may be cancelled under section 18 of the ABN Act if, among other things, the registrant is no longer entitled to have an ABN because they are not carrying on an enterprise.
What is an “enterprise”?
29. An “enterprise” is defined section 9-20 of the GST Act to be, among other things:
(1) An enterprise is an activity, or series of activities, done:
(a) in the form of a *business; or
(b) in the form of an adventure or concern in the nature of trade.
30. An activity which has no reasonable expectation of making a profit is not considered to be an enterprise.[16]
[16] GST Act s 9-20(2).
31. Miscellaneous Taxation Ruling 2006/1 “The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number” (‘MT 2006/1’). MT2006/1 is administratively binding on the Commissioner of Taxation and provides assistance to entities in determining their entitlement to an Australian Business Number (ABN). The discussion in the Ruling is considered to also apply to the term 'enterprise' in the GST Act.[17]
[17] MT2006/1, [20].
32. The Ruling provides the following information regarding indicators of a business:
Indicators of a business
177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.
178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:
·a significant commercial activity;
·a purpose and intention of the taxpayer to engage in commercial activity;
·an intention to make a profit from the activity;
·the activity is or will be profitable;
·the recurrent or regular nature of the activity;
·the activity is carried on in a similar manner to that of other businesses in the same or similar trade;
·activity is systematic, organised and carried on in a businesslike manner and records are kept;
·the activities are of a reasonable size and scale;
·a business plan exists;
·commercial sales of product; and
·the entity has relevant knowledge or skill.
179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'.[18]
[18] Ibid [177]–[179].
33. While the Tribunal is not bound to apply the taxation rulings it may, and it should, apply it in exercising its discretion unless it is unlawful or “tends to produce an unjust decision”.[19]
[19] Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634; [1979] AATA 179, 645.
34. Brennan J explained the relevance of an adopted policy to decision-making in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 640:
Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions and enhance the sense of satisfaction with the fairness and continuity of the administrative process.
35. The Tribunal is not aware of any cogent reason for not following the Taxation Ruling.
Onus of Proof
36. Pursuant to section 14ZZK(b) of the TAA, the Applicant bears the onus of proof, in proving the decision to disallow the claiming of ITCs and the decision to cancel his GST and ABN registrations should have been made differently.
37. Section 900-205 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’) provides for what happens if a taxpayer’s documents are lost or destroyed:
(1)If you have a complete copy of a document that is lost or destroyed during the *retention period, it is treated as the original from the time of the loss or destruction.
(2) If you don’t have such a copy, but the Commissioner is satisfied that you took reasonable precautions to prevent the loss or destruction, the rest of this section explains what to do.
(3)If the lost or destroyed document was a travel record, log book or other document that is not written evidence of an expense under Subdivision 900-E, you do not need to replace it; your deduction is not affected by your failing to retain or produce the document.
(4) If the lost or destroyed document was written evidence, you must try to get a substitute document that meets all the original requirements (except the time limit for getting the original).
(5)If you succeed, your deduction is not affected by your failing to retain or produce the original document. The substitute document is treated as the original from the time of the loss or destruction.
(6)If it is not reasonably possible to succeed, your deduction is not affected by your failing to retain or produce the original document.
(7) If it is reasonably possible for you to get a substitute document, but you don’t get one, this section does not protect you from the consequences of failing to retain or produce the original.
(emphasis added)
38. Practice Statement PS LA 2011/25 “Reconstructing records and making reasonable estimates for taxpayers affected by disasters” (‘PS LA 2011/25’) provides the following in relation to substantiation of claims:
Income tax
56. Division 900 of the ITAA 1997 outlines the substantiation requirements that apply in respect of:
·work expenses
·car expenses calculated under either the one-third of actual expenses method or the log book method
·business travel expenses.
For other expenses incurred by individuals, a taxpayer must be able to show how they reasonably arrived at a claim, although the legislation does not specify the form that evidence must take.
57. Section 900-205 of the ITAA 1997 provides for relief, subject to certain conditions, if documents are lost or destroyed.
58. Tax officers should apply the policy concerning the application of section 900-205 of the ITAA 1997 as set out in Law Administration Practice Statement PS LA 2005/7 Substantiation of deductions claimed by individual taxpayers for work and car expenses incurred in the course of earning non-business and non-investment income, and Taxation Ruling TR 97/24 Income tax: relief from the effects from failing to substantiate.
Goods and services tax
59. Generally, a taxpayer must hold a tax invoice to claim an input tax credit; however under subsection 29-70(1B) of the GST Act the Commissioner has a discretion to treat as a tax invoice a particular document that does not meet the requirements for being a tax invoice.[3] Where it is reasonable to conclude from the available evidence that there is a creditable acquisition, tax officers should apply the policy set out in Goods and Services Tax Ruling GSTR 2013/1 Goods and services tax: tax invoices, and Law Administration Practice Statement PS LA 2004/11 – The Commissioners' discretion to treat a particular document as a tax invoice or adjustment note.
60. However, if there is no documentary evidence to support a creditable acquisition, the tax officer should consider whether it is possible to make an assessment of a net amount pursuant to section 105-5 of Schedule 1 to the TAA or for tax periods starting on or after 1 July 2012 under section 155-5 of Schedule 1 to the TAA.[20]
[20] PS LA 2011/25 [56]–[60].
39. In Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation (1991) 91 ATC 4546; 22 ATR 148; [1991] FCA 276, Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records:
31. A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.
(emphasis added)
40. Even if there are no records available, the evidence provided orally still has to be scrutinized: Commissioner of TaxationvCassaniti (2018) 266 FCR 385; [2018] FCAFC 212 (‘Cassaniti‘), at [88].
Was Mr Chami carrying on an enterprise?
41. The Applicant provided the following material evidence in support of his application:
Screenshots from the ATO’s website (ato.gov.au), explaining:
o what documentation will be accepted by the Commissioner where disaster has impacted the taxpayer this tax Period;
o what is required of a taxpayer to prove their claims in difficult times;
A screenshot from ASIC’s website (post.asic.gov.au) showing a summary of the Applicant’s business details for Blancos construction;
A screenshot of the result of an investigation of a complaint filed by the Applicant, circling an explanation of what approach the ATO undertakes where it is not reasonably possible for the taxpayer to provide substantiating documents for claims;
A photograph of the Applicant’s health care card;
Screenshots of the Commissioner’s objection decision;
A copy of his birth certificate;
A Statement of the Applicant dated 9 August 2022;[21]
[21] Exhibit 2.
Photographs of:
o A “Blanco’s Construction” business card;
o A SafeWork NSW Work Health & Safety General Construction Induction card (Date of Issue: 25 July 2008);
Full excerpt of ‘Have natural disasters impacted you this tax time?’ from ATO website (last modified 19 June 2020);[22]
Individual Tax Return for income year ended 30 June 2020 (received 1 February 2022);[23] and
Individual Tax Return for income year ended 30 June 2021 (received 31 January 2022).[24]
[22] Exhibit 4, Supplementary T Documents, ST2, 103–106.
[23] Exhibit 4, Supplementary T Documents, ST3, 107–139
[24] Exhibit 4, Supplementary T Documents, ST4, 140–173
42. In a written statement Mr Chami provided the following description of his activities during the Period and the impact of the flood in 2002:[25]
I operated as a contractor where I would go onto jobsites, where a licenced builder was present, conducted labourer work and would also purchase building supplies for the jobs.
…
the intention of opening this business was to make profit, I had regular and reoccurring work, I had an organised and systematic business where all the records were kept and also had a business plan.
During the NSW floods in January this year, building supplies that were purchased for upcoming jobs were damaged
I clearly explained on multiple occasions that my original documentation such as invoices, address book, laptop etc. was damaged in the floods. I was asked if I could get replacement documentation from shops where I brought supplies from however, I had all the addresses of the suppliers and customers written down. The documents that had relevant information, which I relied on were damaged. It is unreasonable to ask to remember the names and address of such places and people as running a new business comes with a lot of stress and struggles when trying to set the foundations of a profitable business. Remembering such things at the time was the least of my worries
[25] Exhibit 2, Statement of the Applicant dated 9 August 2022.
43. The Applicant contends that the amounts claimed in the 2021 BAS should be accepted, despite the lack of any documentary evidence that a business made those taxable supplies or creditable acquisitions, because:
43.1.he was a victim of the floods in New South Wales which he says damaged any records he may have had;
43.2.due to the lapse of time, he is unable to recall the names and particulars of clients and expenses; and
43.3.the ATO represents on its website that if documents have been destroyed in a natural disaster his claim would still be accepted.
44. At the hearing the Applicant stated that he had been operating a business during the Period and re stated the information provided in his witness statement.
45. The Commissioner submits that the Applicant has not provided sufficient evidence to demonstrate that he was conducting the Business during the Period.
Consideration
46. In this case there are no documents that can be considered. There is also no basis upon which the Commissioner could make an assessment of the likely acquisitions because there is no business history. The Period was purportedly the first year of the Business’ operation.
47. During the audit process officers of the ATO referred Mr Chami to PS LA 2011/25 which provides guidelines for tax officers assisting taxpayers to reconstruct records or make reasonable estimates where the taxpayer has been affected by a disaster.
48. Mr Chami simply says is “we have exhausted all reasonably possible ways to obtain the original and alternative documentation”.[26] This does not answer the obligations set out in section 900-205 of ITAA 1997.
[26] Exhibit 2, Statement of the Applicant dated 9 August 2022.
49. The Applicant has not articulated any business plan or description of how he organised his business. It is not sufficient to simply you had a business plan without descending into at least some detail of that plan.
50. No operating business records have been provided by the Applicant. The Applicant provided a business card which indicated that the Applicant’s name was Bilal Sabri. The Applicant said he changed his last name to Chami in 2019 or 2020. The business card was prepared in advance of his commencing business. The business card on its own is not particularly probative. The Applicant also provided a card indicating he had completed a construction safety induction course. It was issued 13 years prior to the Period. Again, this is not probative of the issues before the Tribunal.
51. The Applicant says all of his business records were damaged by the floods. He says he had an active ABN and was operating a business and that the ATO is not following its own policies. In fact, there is no corroborative evidence at all that he was subjected to the floods.
52. The policies on which the Applicant seeks to rely are as stated on the ATO’s website as follows:[27]
Have natural disasters impacted you this tax time?
If you are unable to substantiate your claims because the records have been destroyed, we may be able to accept the claim if it’s not possible to obtain the original and if it’s not possible to use alternative documents to support your claim. It is important to note this is not our general approach, but it can apply if your documents were destroyed in a natural disaster.[28]
Proving your claims
If you can’t prove claims made in your tax returns or activity statements because your records have been lost or destroyed, we can still accept the claim if it’s not reasonably possible to get the original or replacement documents.[29]
[27] Exhibit 1, T Documents, T1, 8–9, Application for review of decision together with attachments dated 1 July 2022.
[28] Australian Taxation Office, ‘Have natural disasters impacted you this tax time?’, Australian Taxation Office (Web Page, 19 June 2020) <
[29] Australian Taxation Office, ‘Reconstructing your tax records’, Australian Taxation Office (Web Page, 9 May 2022) < The policy statements do not state that the ATO will accept all claims, only that it “may” or it “can” accept a claim. This does not mean the ATO “must” accept a claim. Even if no documentation is provided, the taxpayer still has the burden of proving their claim.[30] In this instance an officer of the ATO provided Mr Chami with information about how to attempt to reconstruct some records. Mr Chami made no attempt to do so.
[30] Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation (1991) 91 ATC 4546; 22 ATR 148; [1991] FCA 276..
54. At the hearing Mr Chami said he relied on PS LA 2011/25 and ITAA 1997 section 900-205. That section provides that where documents are lost and destroyed there is a process that needs to be undertaken. The section only provides that a taxpayer may be relieved. It is not a guarantee. The question remains — in what circumstances can a taxpayer be relieved from providing any substantiation for the claims made?
55. The Tribunal asked Mr Chami what reasonable precautions he took to protect his business records and tax information. The answer was that he left the records, including his laptop, in the garage at his home and they were subject to flash floods.
56. At the hearing Mr Chami was asked why he made no attempt to reconstruct records and a history of the Business during the Period. Mr Chami said “I did try to attempt it” but he then said “he thought he was exempt from that because” of the ATO policy, PS LA 2011/25 and section 900-205, ITAA 1997. In other words, we are led to believe he did not attempt to reconstruct his records. As already referred to earlier, the policy does not make it an absolute requirement for the ATO to accept a claim without corroboration even in the circumstance of a natural disaster. PS LA 2011/25 paragraph 9 and ITAA 1997 section 900-205 make it clear that, where records have been lost because of disaster, the taxpayer may be relieved of having to substantiate reconstructed records if they:
56.1.can demonstrate how they reasonably arrived at a claim;
56.2.have a substitute document (i.e., not the original document) that sets out all the required information; or
56.3.took reasonable precautions to prevent the loss or destruction and it was not reasonably possible for the taxpayer to get a substitute document.
57. None of these pre-conditions are satisfied here. It appears to the Tribunal that Mr Chami has made no attempt to reconstruct records and or even to provide a timeline of activity. Mr Chami told the hearing he had not taken any steps to prevent loss or destruction of records.
58. The Tribunal may be prepared to accept that a full suite of documents cannot be provided but it would have expected some evidence could have been available before the Tribunal could find on the balance of probabilities that the Applicant was carrying on an enterprise.
59. The following list is an example of the evidence the Applicant could have sought to collate:-
Business records – even if not complete
Particulars of or statements from clients or persons who were aware of the Applicant’s business
Photographs of business records or flood damage
Accounting records
Calendar entries (electronic or otherwise) to show jobs undertaken/quotes given
Bank statements – which would indicate to and from whom monies were paid and records of cash being withdrawn
Client names
Addresses of worksites
Particulars of the materials purportedly purchased
60. The Applicant has not demonstrated that any attempt has been made by him to collate this evidence in support of his application. Mr Chami said he had told the ATO that it was not possible for him to dive underwater and take photos of ripped paper.
61. It is implausible, given that he was asked for this information only a few months after lodging his BAS that he cannot recall any information whatsoever.
62. According to the 2021 BAS, the Applicant purchased more than $415,000 worth of good/services yet generated only $25,000 worth of supplies. At the hearing Mr Chami repeatedly said he lost all his records in the floods. He said there were two floods. He claims lost records in a flood in January 2022, yet was able to lodge his December BAS in March 2022. Mr Chami was asked what information he was able to use to prepare his December 2021 BAS if all his records had been destroyed. Mr Chami then said he did not lose all his records in January, and that the remainder was lost in March. It is highly implausible that flood waters would have destroyed everything except what was needed to prepare the December 2021 BAS.
63. In relation to the creditable acquisitions totalling more than $415,000, Mr Chami said the money was spent on supplies (bricks, gyprock, tools etc) and that unfortunately he did not finish a lot of the jobs and hence was not recompensed for those outlays. He said he got paid but could not finish off the jobs and could not obtain a refund. When asked where the supplies were now, he said damaged from the floods. There is no evidence to support these statements. There are no photographs of the damaged supplies. $415,000 is a significant outlay in a 12 month period for a fledging business.
64. No explanation was provided as to how the Applicant was able to fund such significant purchases, and why he had not been compensated by his clients for those purchases.
65. An application for the business name did not occur until after the Period. Under section 18 of the Business Names Registration Act 2011 (Cth) it is an offence to carry on a business under a name which is not your own without registering the name.
Conclusion
66. Despite being provided with information regarding how to reconstruct his business activities, Mr Chami has not provided the following crucial information:
66.1.particulars of any transactions to support the figures claimed in the 2021 BAS;
66.2.evidence of attempts he has made to reconstruct his records or obtain substitute documents; and
66.3.evidence of any precautions taken to prevent the loss of his business records.
67. Taking all the relevant factors into account outlined above, together with the evidence submitted by the Applicant, the Tribunal is not satisfied, on the balance of probabilities, that the Applicant was carrying on an enterprise as defined in the GST Act.
68. There is no independent or supporting evidence that the Applicant was carrying on a business.
69. It follows that the Applicant has not made taxable supplies or creditable acquisitions.
70. The Applicant has failed to discharge his onus of proof.
Decision
71. The decision under review is affirmed.
I certify that the preceding 71 (seventy-one) paragraphs are a true copy of the reasons for the decision herein of Senior Member D K Grigg
............................[SGD]...........................
Associate
Dated: 11 November 2022
Date of hearing:
28 October 2022
Applicant: By video link Advocate for the Respondent:
Respondent:
Ms Kosev (by video link), Solicitor, Australian Taxation Office
Australian Taxation Office
Key Legal Topics
Areas of Law
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Tax Law
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Administrative Law
Legal Concepts
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Judicial Review
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Statutory Construction
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Procedural Fairness
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