Craig Robert Pettiford and Commissioner of Taxation
[2014] AATA 937
•5 December 2014
[2014] AATA 937
Division GENERAL ADMINISTRATIVE DIVISION File Number
2014/4508
Re
Craig Robert Pettiford
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President I R Molloy
Date 5 December 2014 Place Brisbane The Tribunal affirms the decision under review.
.................................[Sgd].......................................Deputy President I R Molloy
CATCHWORDS
TAXATION – Capital gains tax – Objection to Commissioners calculation – No evidence provided by applicant proving incorrect calculation – Applicant is not displaced by calculation – Decision under review affirmed.
LEGISLATION
Queensland Building & Construction Commission Act 1991 (Qld)
REASONS FOR DECISION
Deputy President I R Molloy
5 December 2014
This is an application by Craig Pettiford to review an objection decision relating to the year ended 30 June 2012. In broad terms, the application concerns the applicant's net capital gain from the sale of property at 2A Glennie Street, Warwick, Queensland. According to the objection decision, the net capital gain was $102,569.00.
The applicant contends that the consequent amended assessment is excessive. That, in turn, depends on the cost base that is used in the calculation for the purpose of capital gains tax. Some elements of that cost base are not in dispute. They include the purchase price of the land, agent's fees, legal costs on the sale, rates, and stamp duty.
The major item of dispute is the cost of construction to the applicant. Another item is interest on a loan to the applicant from his father, Ian Pettiford.
The applicant is a builder residing in Warwick. He is the sole director of a company, Craig Pettiford Building Pty Ltd. The applicant purchased the land in July 2011 for $66,000.00. A house was constructed on the property in late 2011 and the property, with the improvement, was sold in February 2012 for $266,000.00. The purchase of the land and the construction of the house were largely financed by a loan, or loans, of approximately, in total, $200,000.00 from Ian Pettiford
Central to the question of the construction costs is the applicant's contention that the construction was undertaken by the company. He asserts that he purchased the land in his name, and then entered into a contract to build the house, with his company. The company billed him for regular progress payments, by invoice. These were all paid and receipted promptly by him and funded from his father Ian Pettiford. The total of these invoices amounted to $178,881.65. Unfortunately I do not accept that this was the arrangement for a number of reasons.
Firstly, the construction contract relied on is not between the company and the applicant at all. It is expressed to be between the applicant and his wife, as the owners, and the applicant himself as the contractor.
Secondly, the company does not have a licence under the Queensland Building & Construction Commission Act 1991 (Qld) to enter into such a contract or undertake such construction. A licence is a requirement under the Act.
Thirdly, the applicant said in evidence that the company had never entered into a construction contract, and that is obviously for good reason.
Fourthly, the applicant has produced invoices from the company to himself. He said that these invoices were prepared on or about the dates that they bear. The invoices include expenses in respect of supplies from third parties for which there are invoices from later dates, sometimes much later dates. The applicant said this was possible because he would obtain quotations for those supplies and, if necessary, make a later adjustment if the actual price varied. There are no instances of any adjustments at all. I find it highly improbable that the applicant could have obtained accurate quotations for all of the matters that are included in those invoices in respect of supplies invoiced at later dates. A more probable explanation, based in part upon my observation of the applicant and hearing his evidence, is that the invoices were backdated.
Furthermore, overwhelmingly the invoices were made out to persons, or a person, other than the company. If the company was the entity undertaking the construction, as the applicant contends, it could be expected that those invoices from third parties would have been addressed to the company. I take into account that the formalities are not always adhered to when dealing with retailers, that is to say they may take a shorthand way of invoicing and leave off the ‘proprietary limited’ or any other reference to the company as such. But in this case, there are virtually no invoices to the company.
The applicant has produced no company credit union statements. The document at exhibit 6, a printout of the company ledger, was apparently based upon those statements, and yet no satisfactory explanation has been given for not producing the statements themselves. The applicant and his wife's own credit union statements indicate that some of those third party invoices, at least some of them, were paid directly by them.
In the end, I am not satisfied that the arrangement was as the applicant says. That is to say I am not satisfied that there was any arrangement, as he says, between himself and the company, or that the company was the entity that constructed the house.
My finding is that the applicant constructed the house himself and that he can only include amounts he directly incurred in the construction in the cost base. In that respect the Commissioner's calculation has not been disturbed.
The other amount that I referred to was in respect of interest. The applicant contends that interest of $20,432.03 was paid. This figure is referred to in a document signed by the applicant's father a few weeks ago. I accept Ian Pettiford's oral evidence. He says that there was no specific arrangement concerning interest. The applicant in fact has repaid his father $205,430.00. That is a figure of, on my calculation, $5,152.40 in excess of the loan amount.
There is no satisfactory evidence that any other amount, whether for interest or anything else, has been paid or is owed. The Commissioner has allowed an amount of $3,634.16 for interest. The applicant has not displaced this calculation or shown it to be wrong.
DECISION
In consequence of all that, the objection decision is affirmed.
I certify that the preceding 16 (sixteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy. ..............................[Sgd]..........................................
Associate
Dated 5 December 2014
Date of hearing 5 December 2014 Advocate for the Applicant Owen Free, Blue Chip Accounting Advocate for the Respondent Allison Roberson, Australian Taxation Office
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