Dobie and Commissioner of Taxation (Taxation)
[2020] AATA 292
•31 January 2020
Dobie and Commissioner of Taxation (Taxation) [2020] AATA 292 (31 January 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2018/1420
Re:Keith Dobie
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member Theodore Tavoularis
Date: 31 January 2020
Place:Brisbane
The Tribunal decides that:
1.The reviewable decision made by the Respondent on 19 October 2012 with respect to input tax credits and administrative penalties for the quarterly periods ending 31 December 2010, 31 March 2011, and 30 June 2011 are varied in accordance with paragraph 75 of this Decision.
2.Save as aforesaid, the reviewable decision is otherwise affirmed.
......................[sgd]..................................
Senior Member Theodore TavoularisCatchwords
TAX AND COMMERCIAL – decision at audit to disallow Input Tax Credits – GST shortfall – application of a General Interest Charge - administrative penalty – decision under review varied
Legislation
A New System (Goods and Services Tax) Act 1999 (Cth)
Administrative Appeals Tribunal Act 1975 (Cth)
Taxation Administration Act 1953 (Cth)Cases
Briginshaw v Briginshaw (1938) 60 CLR
Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623.
Commissioner of Taxation v White (No. 2) (2010) FCA 942
Federal Commissioner of Taxation v Dalco (1989) 168 CLR 614
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
GH1 Pty Ltd, in Liquidation v Commissioner of Taxation [2017] AATA 1100
Hua-Aus Pty Ltd v Federal Commissioner of Taxation [2010] FCA 341
Imperial Bottleshops Pty Ltd and William John King Egerton & Commissioner of Taxation (1991) 22 ATR 148
Palassis v Commissioner of Taxation [2011] FCA 1305
Rejfek v McElroy (1965) 112 CLR 517
Repatriation Commission v Smith (1987) 74 ALR 537
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63Secondary Materials
Law Administration Practice Statement 2006/8
Law Administration Practice Statement 2012/5
Miscellaneous Taxation Ruling 2008/1
REASONS FOR DECISION
Senior Member Theodore Tavoularis
31 January 2020
INTRODUCTORY AND PROCEDURAL DETAILS
Mr Keith Dobie (‘the Applicant’) is an individual that was formerly registered for GST[1], who submits that he operates a business in hairdressing. The Applicant disagreed with the Commissioner of Taxation’s (‘the Respondent’ or ‘the Commissioner’) decision at audit to disallow Input Tax Credits (‘ITCs’), and to impose an administrative penalty for seven quarterly tax periods spanning more than four years ending (‘the Relevant Quarterly Tax Periods’):
[1] Acronym for “Goods and Services Tax” as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘the GST Act’).
·31 December 2006;
·31 March 2007;
·30 June 2007;
·30 September 2007;
·31 December 2010;
·31 March 2011; and
·30 June 2011.
2.The Applicant disagreed with the Commissioner’s decision at audit to apply administrative penalties and the application of a General Interest Charge (‘GIC’) to a GST shortfall, for the above quarters.
The Applicant brought the disagreement to the Respondent’s attention via lodgement of an objection to the amended assessments that were issued by the Respondent after an audit into the Applicant’s taxation affairs. On 19 October 2012, the Respondent had disallowed the objection (‘the reviewable decision’). The Applicant was dissatisfied with the objection outcome and, pursuant to s14ZZK of the Taxation Administration Act 1953 (Cth) (‘TAA’), he appealed the Respondent’s reviewable decision to the Administrative Appeals Tribunal (or this ‘Tribunal’).
The hearing for this application was originally listed to commence on 10 December 2018. It transpired that it was in the best interests of the Applicant to file additional material in order to safeguard the procedural sanctity of the hearing. As a consequence, the hearing was adjourned[2] and resumed on 5 April 2019 (with directions for the filing of additional materials made in the interim period).
[2] See Directions Order made on 10 December 2018.
Following the resumption of the hearing on 5 April 2019, the Applicant had submitted additional documents on the day of the hearing. The Respondent required time to review these documents and sought a further adjournment which was granted (again, with directions for the filing of additional materials made in the interim period).
The final day of the hearing resumed and concluded on 20 May 2019.
BASIC FACTUAL SUMMARY
The Applicant submitted that he conducted a hairdressing business and was registered with an Australian Business Number from 8 December 2004 to 3 November 2008, and again from 18 October 2010 to 10 June 2015. In addition the Applicant was registered for GST on a cash basis with quarterly tax periods from 2 July 2006 to 30 June 2008 and 1 December 2010 to 30 June 2011[3].
[3] Exhibit 5, Respondent’s Statement of Facts, Issues and Contentions dated 28 May 2018, page 3, paragraph 12.
On 29 November 2010, the Applicant lodged a BAS[4] for the quarters ending 31 December 2006 through to 30 September 2007 under the trading name Chocolate Blonde Enterprises[5]. Then in the first half of 2011, the Applicant lodged further BASs for the quarters ending 31 December 2010 through to 30 June 2011, again under the trading name Chocolate Blonde Enterprises[6].
[4] Acronym for “Business Activity Statement” as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘the GST Act’).
[5] Exhibit 1, T3, pages 96 to 103.
[6] Exhibit 1, T3, pages 104 to 109 - for the quarter ending 31 December 2010, the further BAS was lodged on 21 January 2011 (pages 104 and 105); for the quarter ending 31 March 2011, the further BAS lodged on 5 April 2011 (page 106 and 107); and for the quarter ending 30 June 2011, this was lodged on 30 June 2011 (pages 108 and 109).
On 15 July 2011, the Respondent wrote to the Applicant notifying of his intent to conduct an audit and requesting the Applicant complete a business questionnaire and provide documents[7]. The Applicant replied to the Respondent’s request on 19 July 2011 by way of fax[8].
[7] Exhibit 1, T4, pages 110 to 117.
[8] Exhibit 1, T6, pages 118 to 171.
The Respondent wrote to the Applicant on 27 July 2011 requesting the Applicant provide additional documentation that had been omitted from the Respondent’s original request of 15 July 2011[9].
[9] Exhibit 1, T8, pages 174 to 176.
On 18 August 2011, the Respondent concluded the audit of the Applicant’s BASs (after not receiving a further response from the Applicant) and notified the Applicant that the BASs for the quarterly tax periods outlined in paragraph 1 of this Decision had been revised. The Applicant was advised that this resulted in a GST net amount to be paid, with an administrative penalty applied and that a GIC may also apply. As part of the audit, the Respondent made revisions to the Applicant’s BASs for the quarters ending 31 December 2010, 31 March 2011 and 30 June 2011[10].
[10] Exhibit 1, T9, pages 177 to 185.
On 6 September 2011, the Respondent issued a Notice of Assessment for the periods of 1 October 2006 to 30 September 2007, and 1 December 2010 to 30 June 2011. The Respondent advised the Applicant that an assessment was made on the net amount under s105-5(1) of Schedule 1 of the TAA, and that a liability exists with the outstanding balance requiring payment (which may accrue a GIC)[11].
[11] Exhibit 1, T10, pages 186 to 188.
On 26 June 2012[12], the Applicant signed an objection against the assessment and penalties which was received by the Australian Taxation Office (‘ATO’) on 30 June 2012[13]. The ATO wrote back to the Applicant on 6 July 2012 requesting further information and documents by 3 August 2012 before the ATO could make a decision on the grounds the Applicant set out in their objection[14].
[12] Exhibit 1, T12, pages 193 to 196.
[13] Exhibit 1, T13, pages 197 to 201.
[14] Ibid.
On 19 October 2012, the ATO wrote back to the Applicant in relation to their objection, notifying the Applicant that in respect of the Applicant’s objection the[15]:
(a)Decision to cancel GST made by the Commissioner under s25-55(2) of the GST Act – Disallowed.
(b)Decision on the date of effect of the cancellation of GST registration – Disallowed.
(c)Decision on administrative penalty assessments for the Relevant Quarterly Tax Periods – Disallowed.
[15] Exhibit 1, T14, pages 202 and 203.
On 14 March 2018 the Applicant applied to this Tribunal for a review of the Commissioner’s decisions[16].
[16] Exhibit 1, T1, Pages 3 to 7.
ISSUES FOR DETERMINATION
As a result of the Respondent’s above mentioned determinations made on 19 October 2012, the residual issues can be stated thus:
(i)Is the Applicant entitled to be registered for GST on the basis that they are carrying on an enterprise?
(ii)Can the Applicant claim ITCs for the Relevant Quarterly Tax Periods?
And as a consequence of the shortfall in remitted taxation arising from the ITCs for Acquisitions Issue:
(iii)Whether the Commissioner correctly applied the relevant penalties[17];
Or, if the answer to issue (ii) is affirmative:
(iv)Whether the circumstances of this case are such as to engage the discretion of the Commissioner to remit the applicable shortfall penalties in whole or in part[18].
[17] Pursuant to s284-75(1) of 284-90 of Schedule 1 of the TAA.
[18] Pursuant to s298-20 of Schedule 1 of the TAA.
WHO BEARS THE ONUS OF PROOF?
Section 14ZZK of the TAA provides that the Applicant bears the burden of proving that assessments are excessive:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b)the applicant has the burden of proving:
(i)if the taxation decision concerned is an assessment—that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
(ii)in any other case—that the taxation decision concerned should not have been made or should have been made differently.
In this review, the Applicant can only agitate matters arising from the grounds stated in the reviewable decision. Section 14ZZK of the TAA provides than an applicant in a matter such as this can only agitate additional issues if the Tribunal so orders. The Tribunal has not done so during the hearing, nor has any such order been made at any of this application’s interlocutory stages[19].
[19] Section 25(4A) of the Administrative Appeals Tribunal Act 1975 (Cth) (‘AAT Act’) sits squarely within s14ZZK of the TAA because it provides “The Tribunal may determine the scope of the review of a decision by limiting questions of fact, the evidence and the issues that it considers”.
The Applicant bears the onus of proof in these proceedings. The relevant onus is on the civil standard, specifically, on the balance of probabilities. In essence, this requires the Applicant to establish it is more likely than not that the Respondent’s assessments for the Relevant Quarterly Tax Periods were excessive and thus wrong. This standard is to be contrasted to the criminal or “beyond reasonable doubt” standard of proof, which the High Court has held to be, “…inappropriate to the determination of any such fact in any civil action tried in any court in Australia where there are no statutory provisions to the contrary…”[20]. This application is clearly not a criminal proceeding and, in the absence of any statutory provisions to the contrary, the civil or “balance of probabilities” burden of proof applies. The Full Court of the Federal Court has instructively differentiated between actual “probabilities” compared to “mere probabilities”: “There is… a distinction of substance to be drawn between the probabilities on the one hand and mere possibilities, even if they are real as distinct from fanciful, on the other…”[21].
[20] Rejfek v McElroy (1965) 112 CLR 517 at 520.
[21] Repatriation Commission v Smith (1987) 74 ALR 537 at 538 per Beaumont J, with who Northrop and Spender JJ agreed.
In addition to negatively proving that the assessments for the Relevant Quarterly Tax Periods were excessive and therefore wrong, the Applicant must also positively prove what the correct assessment should be so that each of the two amended assessments are made right or “more nearly right”[22]. It is necessary that “[t]he amounts assessed represent the Commissioner’s bona fide judgement as to the amount of the taxpayer’s taxable income and the power to make the assessment was validly exercised. The assessments being valid, the burden was on the taxpayer to prove the amounts were excessive”[23].
[22] Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63, as per Latham CJ at 88; see also Federal Commissioner of Taxation v Dalco (1989) 168 CLR 614 as per Brennan J at 623-625 and Toohey J at 632-634; and recently Palassis v Commissioner of Taxation [2011] FCA 1305 at [9] per McKerracher J.
[23] Federal Commissioner of Taxation v Dalco (1989) 168 CLR 614 at 623-625 per Brennan J.
There is no compulsion on the Respondent to demonstrate that the assessments were correctly made. As noted by Latham CJ, “… conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the Commissioner for further consideration”[24]. Similarly, there is no requirement on the Respondent to provide evidence to back up its assessment for either of the Relevant Quarterly Tax Periods. As noted by the High Court, there is no “… 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… unless the appellant shows by evidence that the assessment is incorrect, it [the amended assessments] will prevail”[25].
[24] Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88.
[25] Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89 per Mason J.
As will be noted later in this Decision, the Applicant has produced certain paper records in support of his contentions. The mere production of that material does not remove or modify the abovementioned onus of proof upon the Applicant. That material must be utilised by the Applicant to discharge the onus of demonstrating, on the balance of probabilities, that the amended assessments were excessive and thus wrong. Critically, for present purposes, the Applicant discharges the onus by applying its documentary (and any other) evidence to demonstrate, on the balance of probabilities, that he (1) has not overstated his claims for ITCs in the Relevant Quarterly Tax Periods and (2) has not made false and misleading statements in its original BAS Statements relating to those Relevant Quarterly Tax Periods that have given rise to shortfalls in GST[26].
[26] Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623.
The Applicant does not meet the requirements of the burden by simply pointing to some kind of error or mistake in how the Respondent has arrived at the amended assessments for the Relevant Quarterly Tax Periods. If there was such a demonstrable error in how the Respondent reached its conclusions in those amended assessments, then it would be open to this Tribunal to set aside either or both of those amended assessments and remit either or both of them back to the Respondent for further consideration, as stipulated by Latham CJ in Trautwein’s case[27]. The Applicant must utilise its evidence and convince a decision maker that its evidence, on the balance of probabilities, displaces the Respondent’s methodology behind the amended assessments for the Relevant Quarterly Tax Periods such that there is no overstatement of ITCs and there are no false or misleading statements appearing in either or both of the original BAS for the Relevant Quarterly Tax Periods.
[27] See Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88.
There is no question that the above mentioned authorities relating to the onus of proof, as they do in the main to income tax-related cases, have equivalent application to a case such as this, involving an asserted shortfall of GST. This Tribunal would be “…absolutely correct in concluding that s14ZZK [of the TAA] imposed on [for present purposes, the Applicant] the burden of proving that the amended assessment under review was excessive”[28].
[28] See Hua-Aus Pty Ltd v Federal Commissioner of Taxation [2010] FCA 341 at page 435, paragraph [13], per Edmonds J.
HOW DOES THE APPLICANT DISCHARGE ITS BURDEN OF PROOF?
It is important in applications such as this to clearly identify not just the burden of proof incumbent upon an applicant, but how the applicant must convince the Tribunal that he has discharged it. A potentially complicating factor is the reality that this Tribunal is not bound by the rules of evidence and that it may inform itself on any matter in such manner as it thinks appropriate[29]. Thankfully, the evidentiary compass to be followed by the Tribunal is to be found in Dixon J’s (as his Honour then was) formative judgement regarding the civil or balance of probabilities standard of proof[30]. For the Applicant to convince this Tribunal of the facts it propounds to demonstrate that the amended assessments were excessive and thus wrong:
“… the tribunal must feel an actual persuasion of its occurrence or existence … It cannot be found as a result of a mere mechanised comparison of probabilities independently of any belief in its reality… it is enough that the affirmative of an allegation has been made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony or indirect references”.
[29] See s33(1)(c) of the AAT Act.
[30] Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 and 362.
Applied to the present matter, the Applicant will not discharge its burden of proof by merely inviting the Tribunal to engage in some type of “like-for-like” comparison of probable outcomes when comparing the evidence that the Applicant adduced to the methodology adopted by the Respondent in arriving at revised assessments for the Relevant Quarterly Tax Periods. Rather, the Applicant must, to the reasonable satisfaction of the Tribunal, demonstrate that: (1) there is no overstatement of ITCs for the Relevant Quarterly Tax Periods; and (2) there are no false or misleading statements appearing in either or both of the original BAS for the Relevant Quarterly Tax Periods.
The discharge of evidentiary burden in applications such as this should be analysed in a unique way because all of the evidence propounded by a taxpayer is squarely within that taxpayer’s possession or control[31]. Indeed, the Respondent has based its revised assessments on information squarely in the purview of the Applicant. It is not as if, for example, the Respondent has obtained an independent third party expert’s report about the ambit and veracity of ITCs claimed by the Applicant in the Relevant Quarterly Tax Periods.
[31] Latham CJ in Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 to 88.
The law affords the Applicant in these types of applications some opportunity to arrive at “reasonable explanation” for how, for example, the nature of the transactions giving rise to the claimed ITCs have attracted the attention of the Respondent resulting in revised assessment(s). This largesse applies even when, as is presently the case, the Applicant takes issue with the claimed ITCs specifically disallowed by the Respondent. The process of demonstrating a “reasonable explanation” was defined by Hill J, thus[32]:
“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 more closely and received with the greatest of caution’… Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed.”
[32] Imperial Bottleshops Pty Ltd and William John King Egerton & Commissioner of Taxation (1991) 22 ATR 148 at [31] per Hill J.
THE LEGISLATIVE FRAMEWORK
The Respondent helpfully provided a summary of the relevant legislative provisions and made reference to certain additional materials offering guidance (such as Miscellaneous Taxation Rulings and Law Administration Practice Statements)[33].
[33] Exhibit 4, Applicant’s Bundle of Documents dated 24 April 2018.
GST
Division 11 of the GST Act provides that a taxpayer is entitled to claim ITCs on any credible acquisitions made by that taxpayer. The concept of a ‘creditable acquisition’ is defined in s11-5 of the GST Act which provides the requirements for the making of a credible acquisition[34]:
11-5 What is a creditable acquisition?
You make a creditable acquisition if:
(1)you acquire anything solely or partly for a *creditable purpose; and
(2)the supply of the thing to you is a *taxable supply; and
(3)you provide, or are liable to provide, *consideration for the supply; and
(4)you are *registered, or *required to be registered.
[34] Denotes a term defined under s195-1 of the GST Act.
Section 11-15 of the GST Act provides the definition of a creditable purpose:
11-15 Meaning of creditable purpose
(1)You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.
(2)However, you do not acquire the thing for a creditable purpose to the extent that:
a) the acquisition relates to making supplies that would be *input taxed; or
b) the acquisition is of a private or domestic nature.
Section 9-20 of the GST Act provides the definition of an enterprise[35]:
9-20 Enterprises
(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;
[35] Miscellaneous Taxation Ruling MT 2006/1 contains the Commissioner’s view in respect to what constitutes the carrying on of an enterprise for the purposes of registering for an ABN. GSTD 2006/6 confirms that MT2006/1 applies equally to GST matters.
When the Commissioner must cancel your registration
Subsection 25-55(2) of the GST Act provides that the Commissioner must cancel your registration (even if you have not applied for cancellation of your registration) if the Commissioner is satisfied that you are not carrying on an enterprise and he believes on reasonable grounds that you are not likely to carry on an enterprise for at least 12 months.
Subsection 25-55(3) of the GST Act further provides that the Commissioner must notify you of any decision he makes under this section and that notice must specify the date of effect of the cancellation.
Subsection 25-60(1) of the GST Act states that in determining the date of effect of the cancellation of your GST registration under s25-55(2) the Commissioner may determine the date of effect to be any day occurring before, on, or after the day on which the Commissioner makes the decision[36].
Attributing the input tax credits for your creditable acquisitions
[36] Paragraphs 81-86 of Law Administration Practice Statement PSLA 2011/8 contain the Commissioner’s view in respect to determining the date of effect of the cancellation of an entity’s GST registration.
The methodology of attribution of ITCs is governed by Division 29 of the GST Act and, in particular, sub-s 29-10(1) of that Act.
Subsection 29-10(2) of the GST Act provides that, when GST is accounted for on a cash basis, you are only entitled to claim an input tax credit to the extent of the consideration you have provided in that tax period. However, in addition to having provided part or all of the consideration for the acquisition, you must also hold a tax invoice to attribute the input tax credit to a particular tax period.
Subsection 29-20 (3) of the GST Act provides that you cannot claim an input tax credit unless you hold a tax invoice:
If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
(a) the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
(b) the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.
However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.
The concept of a ‘tax invoice’ and the essential constituent requirements to establish that something is a tax invoice is governed by sub-s 29-70(1) of the GST Act, and requirements that a document must satisfy to be a tax invoice are set out below:
29-70 Tax invoices
(1) A tax invoice is a document that complies with the following requirements:
(a) it is issued by the supplier of the supply or supplies to which the document relates, unless it is a *recipient created tax invoice (in which case it is issued by the *recipient);
(b) it is in the *approved form;
(c) it contains enough information to enable the following to be clearly ascertained:
(i) the supplier’s identity and the supplier’s *ABN;
(ii) if the total *price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient—the recipient’s identity or the recipient’s ABN;
(iii) what is supplied, including the quantity (if applicable) and the price of what is supplied;
(iv) the extent to which each supply to which the document relates is a *taxable supply;
(v) the date the document is issued;
(vi) the amount of GST (if any) payable in relation to each supply to which the document relates;
(vii) if the document was issued by the recipient and GST is payable in relation to any supply—that the GST is payable by the supplier;
(viii) such other matters as the regulations specify;
(d) it can be clearly ascertained from the document that the document was intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax invoice.
Subsection 29-80 of the GST Act, provides an exception to the requirements to hold a tax invoice for low value transactions of under $50.
Penalty
Section 284-75 of Schedule 1 to the TAA provides when an entity is liable to a penalty[37]:
[37] Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard (MT 2008/1) further explains the Commissioner’s view in respect to the concepts of behaviour and penalty.
284-75 Liability to penalty
(1) You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
The table at s284-90 of Schedule 1 to the TAA provides how the base penalty amount is calculated:
284-90 Base penalty amount
(1) The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:
Base penalty amount Item In this situation: The base penalty amount is: 1 You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a *taxation law (other than the *Excise Acts) by you or your agent 75% of your
*shortfall amount or part2 You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the 'Excise Acts) 50% of your
*shortfall amount or part3 You have a "shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts) 25% of your
*shortfall amount or part
Section 298-20 of Schedule 1 to the TAA provides that the Commissioner may remit all or part of a penalty amount[38].
[38] The Commissioner’s view on remission is contained in Law Administration Statement PSLA 2012/5 Administration of penalties for false or misleading statements that result in shortfall amounts.
CONSIDERATION OF ISSUES FOR DETERMINATION
Is the Applicant entitled to be registered for GST on the basis that they are carrying on an enterprise?
The Tribunal was presented with evidence by way of a file note from 20 July 2011 recording a conversation between the Applicant and the Acting Audit Leader from the ATO, regarding the Applicant’s circumstances as they were at the time[39]. Relevantly, the record of conversation notes that the Applicant had advised the ATO:
a) “he is no longer trading – from mid April 2011”
b) “he is currently on sickness benefits and will be cancelling his GST registration when the audit is sorted out”
c) “he confirmed any BAS lodged by him now will be ‘nil’ as he is not trading”
d) “I [Acting Audit Leader] then asked [the Applicant] to allow us time to now review the information he has provided so we can determine if we need more information and to allow us to progress the audit in a timely manner. He asked how long this would take, I said it depends on the issues identified and we need to complete all of our checks so it can take a few weeks. He said the sooner we can complete it the better so he can cancel the GST and he will not be GST registered again unless any activity he does is over $75 k turnover”.
[39] Exhibit 1, T7, page 172 and 173
In addition from the abovementioned conversation note, the Applicant confirmed that for his 2011 Income Tax Return he had been doing work as a mobile hairdresser with income of “$7200”.
The Tribunal heard oral evidence from the Applicant that he was a “disability pensioner”, and when cross-examined by the Respondent, the Applicant confirmed that he was on Newstart allowance throughout the period between December 2010 and June 2011.
Having regard to the totality of the written and oral evidence presented, the Tribunal finds that the Applicant has failed to discharge their onus of proof in terms of demonstrating, on the balance of probabilities, that the Applicant was carrying on an enterprise from 30 June 2011 and that they were entitled to be registered for GST.
The consequential finding is that the Respondent’s objection request in relation to their entitlement to be registered for GST from 30 June 2011 should be affirmed.
Can the Applicant claim ITCs for the Relevant Quarterly Tax Periods?
As outlined in paragraph 4 of this Decision, upon cross-examination on the first day of the hearing it became evident in proceedings that it was appropriate to grant the Applicant (who was self-represented) an opportunity to provide the Tribunal with further documents to substantiate his claim for ITCs for the relevant tax quarters. This was done so on the basis that it was in the best interests of the Applicant to file additional material in order to safeguard the procedural sanctity of the hearing.
Paragraphs 10 to 13 of this Decision detail the history regarding the Applicant’s prior failure to provide requisite information and documentation at the request of the ATO in the audit of the Applicant’s BASs for the relevant tax quarters.
The Tribunal has given consideration to the Applicant’s claim that it is difficult for him to now source receipts from suppliers given the extended period of time between the date of the supply (in December 2006 to September 2007, and December 2010 to June 2011) and the hearing (occurring at the end of 2018 and mid-2019). The Applicant was provided with an objection decision on 19 October 2012, after which he had 60 days to lodge this application. The Applicant lodged the Application on 14 March 2018 with the AAT[40].
[40] Exhibit 1, T1, page 5.
The Tribunal made an order that extended the time for the making of an application for review of the decision of the Respondent, so that this application could be heard, on the basis of having consent from both parties, being the Applicant and the Respondent[41]. It was on this consent that the application has come forward, and thus it is on this basis that the application must be substantiated on the basis of relevant legislation.
[41] Pursuant to s29(7) of the AAT Act.
Evidence submitted to the Tribunal from the Applicant regarding “creditable transactions” in relation to the relevant tax quarters included:
a) Quotes for equipment and supplies but no tax invoices for the following dates and amounts:
i.28 October 2010, All Salon Supplies, “Order”, “Total $1,825.70”, “GST $165.97”, “Payment Status: Waiting”[42].
[42] Exhibit 1, T6, page 158 and A173.
ii.11 September 2010, Fresh Nails & Beauty Supplies, “Quote”, “TOTAL include GST $8,375.00”, “Tax $761.36”[43].
[43] Exhibit 1, T6, page 160.
iii.21 September 2010, Kimdec, “Invoice #: Quote/KD”, “Total $3,720”, “GST $338.18”, “BALANCE DUE $3,720”[44].
[44] Exhibit 1, T6, page 159.
iv.12 November 2010, Zealsea Pty Ltd, “Quote”, “TOTAL $3,723.50”, GST “$338.50”[45].
[45] Exhibit 1, T6, page 161.
v.A quote for signage, Signarama, dated 27 June 2011 with “PAYMENT RECEIVED: $0.00”, and, “BALANCE DUE: $1,667.60”[46].
vi.An unpaid tax invoice to the Gold Coast Bulletin for $2,409.76 issued on 31 May 2011[47].
vii.A record of customer purchases from Norris Hair Beauty Bundall under the name “Hair Love on Scarborough – Dobie, Keith (NOR85520)” that range in date from 23 March 2011 through to 20 December 2013[48]. The Tribunal notes that the record of customer purchases does not detail payments made or whether there is a net amount owed on the individual’s account. The Tribunal heard evidence from the Applicant that this record of purchases belonged to the Applicant and supplied Chocolate Blonde Enterprises.
viii.An email of 8 January 2019 from “glamaCo”, to the Applicant, “We are unable to locate any purchases as per your request. Additionally we are unable to provide a written reference of transaction without an original transaction record”[49].
[Tribunal underlining]
[46] Exhibit 1, page A041.
[47] Exhibit 1, T6 page 150.
[48] Exhibit 1, pages A025 to A040.
[49] Exhibit 1, page A170.
The Applicant’s reliance on purported tax invoices as outlined in paragraph 53 of this Decision does not substantiate any such transaction having actually taken place, as the documents produced were either not tax invoices but mere quotes or records of orders made (with no indication on payment having actually been made). The Tribunal notes that the existence of a tax invoice is not, on the balance of probabilities conclusive proof that any taxable supply has in fact occurred, as observed by Deputy President McCabe of this Tribunal in 2017:
“The mere existence of a ‘tax invoice’ is not, by itself, sufficient to establish that a ‘taxable supply’ (under s9-5 of the GST Act) and corresponding ‘creditable acquisition’ (under s11-5 of the GST Act), has, in fact, occurred.”[50]
[50] GH1 Pty Ltd, in Liquidation v Commissioner of Taxation [2017] AATA 1100 at paragraph [53].
The Tribunal considered bank statements submitted as evidence as part of this application from both the Commonwealth Bank and Bendigo Bank which covered a date range of 11 January 2005 through to 6 October 2011. Much of these records fell outside the relevant tax quarters or were incomplete with months, and or, pages missing. Of the materials provided the:
a) Commonwealth Bank Statements covered a date range of 1 November 2010 through to 21 March 2011, although they were incomplete for the 31 December 2010 and 31 March 2011 tax quarters as statements were missing[51]. The Tribunal notes that transactions contained within the statements were either personal in nature or were cash withdrawals, with the Applicant unable to identify purchases relating to the ITCs claimed for these quarters.
b) Bendigo Bank Statements covered a date range of 11 January 2005 through to 6 October 2011[52]. Of the statements provided they were incomplete for the tax quarters ending 30 June 2007 and 30 June 2011, whilst they did cover the full date range for the tax quarters ending 30 September 2007, 31 December 2010 and 31 March 2011. The Tribunal notes that transactions contained within the statements were either personal in nature or were cash withdrawals, with the Applicant unable to identify purchases relating to the ITCs claimed for these quarters.
[51] Exhibit 1, T6, page 152, and pages 167 to 171.
[52] Exhibit 1, T6, pages 131 to 147, and Exhibit 1, pages A066 to A165.
The Tribunal heard evidence in relation to a deposit in the Applicant’s Commonwealth Bank account on 29 November 2010 for $38,727.00[53], which the Applicant claimed was a loan to him which he used for purchases for the enterprise, relating to the ITCs claimed for the 31 December 2010, 31 March 2011 and 30 June 2011 tax quarters. No evidence was provided to substantiate these purchases, with the Applicant relying on:
a) An outline of unsubstantiated set up costs produced by the Applicant with a date range of 18 September 2010 through to June 2011, with total capital costs of $33,580.94 and non-capital costs of $3,661.48[54]; and
b) Profit and Loss Statements produced by the Applicant for Chocolate Blonde Enterprises for December 2010 to January 2011, February 2011 to March 2011 and April 2011[55].
[53] Exhibit 1, T6, page 171.
[54] Exhibit 1, T6 pages 163 and 164.
[55] Exhibit 1, T6 pages 120 to 122.
Accordingly, the Tribunal is unable to give weight to the unsubstantiated evidence outlined in paragraph 56 of this Decision.
The Tribunal heard evidence from the Applicant that loans were undertaken to fund the expenses relating to his enterprise, the Tribunal notes that GST is not payable on loans. Evidence of loans as presented by the Applicant included:
a) An email from MKM Capital noting consideration of the provision of a loan for $50,000 with a $2,000 application fee from Russel Dove Hinterland Money Solutions of 3 November 2010[56].
b) A hand written record of a personal loan from the Applicant’s father dated 30 March 2011 for $1,500[57].
[56] Exhibit1, page A018.
[57] Exhibit 1, T6, page 126.
Further, the Tribunal was presented with submitted evidence in relation to purported lease expenses by the Applicant, which the Tribunal is unable to rely on as they were either inquiries for lease, or do not substantiate that payments were made during the relevant tax quarters. Evidence submitted included:
a) A lease inquiry for Shop 3 St Tropez North, 53 Orchard Avenue Surfers Paradise dated 24 August 2010[58].
b) A Notice to Tenant dated 16 March 2011 to deliver up premises at Shop 3 St Tropez North, 53 Orchard Avenue Surfers Paradise on 30 April 2011[59].
c) A signed lease offer dated 31 March 2011 for a Shop 13 Parkwood Piazza, 300 Olsen Avenue, Parkwood and signed by the Applicant on 1 April 2011[60].
d) Account reconciliation for a leased premise for Chocolate Blonde Enterprises at 13/300 Olsen Avenue, Parkwood through Savills with a date range of 1 June 2011 through to 1 June 2012[61]. The Tribunal notes that a charge of $630.24 was incurred on 1 June 2011 but there is no record of payment and the remainder of the transactions do not relate to the relevant tax quarters. The Tribunal notes that a receipt for “$2,259.75” with a date of “17/3/2011” and details of “Receipt 541753” appears after “1/7/2011” in the account reconciliation but no corresponding charges are outlined as to what this is in receipt of[62].
[58] Exhibit 1, T6 page 150 and A166.
[59] Exhibit 1, T6, page 123.
[60] Exhibit 1, T6, pages 128 to 130 and A167 to A169.
[61] Exhibit 1, pages A022 to A024.
[62] Exhibit 1, page A022.
The Tribunal notes oral evidence from the Applicant that for the tax quarters ending 31 December 2006; 31 March 2007; 30 June 2007; and 30 September 2007; the GST claimed for purchases in these quarters were to offset their personal income tax debt. The Applicant gave evidence that he followed instructions from a GST specialist at the ATO to fill out the activity statements to claim payments for which the Applicant did not hold tax invoices, in order to offset their personal income tax debt. The Tribunal is unable to give weighting to these unverified claims by the Applicant as part of this application.
Having regard to the totality of written and oral evidence, the Tribunal finds that the Applicant has failed to discharge its onus of proof in terms of demonstrating, on the balance of probabilities, that, at any material time, “creditable acquisitions” were made during the relevant tax quarters. Accordingly, the Applicant has also failed to prove, on the balance of probabilities that the amended assessment in relation to ITCs as they relate to the “creditable acquisitions” is excessive.
Further, the Tribunal finds the Applicant has failed to prove how the Respondent’s amended assessments in relation to the “creditable acquisitions” can be corrected in order to make them right, “or more nearly right”.
The Tribunal is not convinced on the balance of probabilities of the Applicant’s entitlement to claim ITCs of the sum of $29,347 for capital acquisitions during the relevant quarterly tax periods (in accordance with the Respondent’s revised assessments for the tax quarters ending 31 December 2010, 31 March 2011 and 30 June 2011) as outlined below:
a) 31 December 2006: $1,004;
b) 31 March 2007: $3,214;
c) 30 June 2007: $2,006;
d) 30 September 2007: $11,168;
e) 31 December 2010: $4,390;
f) 31 March 2011: $4,220; and
g) 30 June 2011: $3,345.
The consequential finding is that the Respondent’s objection decision in relation to the Applicant’s claim for ITCs for the Relevant Quarterly Tax Periods should be affirmed as outlined in paragraph 63 of this Decision.
PENALTIES
The regime for the application of administrative penalties arising from the making of false or misleading statements resulting in shortfall accounts is governed by s284-75 of Schedule 1 of the TAA. Consistent with its burden of proof in relation to the Applicant’s claim ITCs for the relevant tax quarters, the Applicant bears the burden of proving that any administrative penalty assessment is, on the balance of probabilities, excessive[63].
[63] Commissioner of Taxation v White (No. 2) (2010) FCA 942 at [18] to [19]
The shortfall amounts in the instant case have arisen as a result of the Applicant’s reporting, and in particular, claiming of certain ITCs on its BASs for the Relevant Quarterly Tax Periods.
Section 284-75(5) of Schedule 1 of the TAA exempts a taxpayer from liability for penalties in circumstances where the taxpayer can demonstrate reasonable care was taken in making the statement ultimately giving rise to the shortfall.
Section 289-20 of Schedule 1 of the TAA facilitates remission by the Respondent of all or part of any previously imposed administrative penalty. The pivotal question in the exercise of discretion to remit involves a consideration of whether it is appropriate to remit, having regarding to a taxpayer’s particular circumstances[64].
[64] Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483 at [249].
In the instant case, the Respondent has applied administrative penalties at the rate of 50% of the shortfall amount on the basis that the Applicant “did not take reasonable care but behaved recklessly when [the Applicant] made the statement(s)”; and that the Applicant was reckless “because the facts show that the Applicant should have reasonably foreseen that their actions may have led to a shortfall amount”[65].
[65] Exhibit 1, T9, page 183.
Further, the Respondent reduced the base penalty amount by 20% under s284-225 of Schedule 1 of the TAA, on the basis that for the tax quarters ending 31 December 2006, to 30 September 2007; the Applicant advised the ATO of the tax shortfall after the Applicant was notified that an audit was to be conducted, saving the Commissioner a significant amount of time or resources. This was done so on the basis that the Applicant in respect of the activity statements lodged in 2010 “were lodged in order to claim money that [the Applicant] believed the ATO owed [the Applicant] and were not related to business activity during this period”[66].
[66] Exhibit 1, T9, page 184.
The Tribunal has included the following summary table to encapsulate the Respondent’s revisions to the Applicant’s BASs for the quarters ending 31 December 2010, 31 March 2011 and 30 June 2011, and penalties applied[67]:
[67] Exhibit 1, T9, pages 185 and 188.
| Tax period | Original | Assessed net amount | Revised | Behaviour | Base | Base | Decrease 20% | Penalty Amount Payable |
| Dec-06 | $1,004.00 | $0 | $1,004.00 | Reckless | 50% | $502.00 | -$100.40 | $401.60 |
| Mar-07 | $3,214.00 | $0 | $3,214.00 | Reckless | 50% | $1,607.00 | -$321.40 | $1,285.60 |
| Jun-07 | $2,006.00 | $0 | $2,006.00 | Reckless | 50% | $1,003.00 | -$200.60 | $802.40 |
| Sep-07 | $11,168.00 | $0 | $11,168.00 | Reckless | 50% | $5,584.00 | -$1,116.80 | $4,467.20 |
| Dec-10 | $4,390.00 | $0 | $4,100.00 | Reckless | 50% | $2,050.00 | $0 | $2,050.00 |
| Mar-11 | $4,220.00 | $0 | $4,020.00 | Reckless | 50% | $2,010.00 | $0 | $2,010.00 |
| Jun-11 | $3,345.00 | $0 | $3,055.00 | Reckless | 50% | $1,527.50 | $0 | $1,527.50 |
| Totals | $29,347.00 | $0 | $28,567.00 | $14,283.50 | -$1,739.20 | $12,544.30 |
The Tribunal makes an identical finding with regard to the ITCs claimed for the relevant tax quarters, that the Applicant failed to exercise reasonable care in claiming ITCs for the purported and, ultimately unproven transactions.
The Tribunal does not consider that any circumstances warrant further remission of administrative penalties other than that already imposed by the respondent (being the 20% reduction under s284-225 of Schedule 1 of the TAA in relation to the base penalty amount for tax quarters ending 31 December 2006, to 30 September 2007). The Tribunal cannot recall any evidence going to the issue of why or how the Applicant’s particular circumstances militate in favour of any further remission. The Tribunal does not consider there to be any reasonable requirement to remit the penalties any further. The Tribunal is of the view that the penalty of 50% of the shortfall amount arising from the Applicant’s conduct cannot displace a finding that the Applicant failed to exercise reasonable care, and that the Applicant behaved recklessly.
CONCLUSION
The Tribunal repeats its finding in relation to the Applicant’s entitlement to:
a) be registered for GST from 30 June 2011[68];
b) to ITCs claimed for the Relevant Quarterly Tax Periods[69]; and
c) administrative penalties applied (and any remission thereof)[70].
[68] Paragraphs 44 to 48 of this Decision.
[69] Paragraphs 61 to 64 of this Decision.
[70] Paragraphs 72 and 73 of this Decision.
As previously outlined in this Decision, the Respondent made adjustments to their assessment of the Applicant which resulted in an additional $0 owing as a consequence of the shortfall in remitted taxation arising from the ITCs for the tax quarters ending 31 December 2010, 31 March 2011 and 30 June 2012. Subject to the adjustments relating to the respective administrative penalties for tax quarters ending 31 December 2010, 31 March 2011 and 30 June 2011; the Respondent’s objection decision of 19 October 2012 is otherwise affirmed. The Tribunal has outlined this in the table below:
Tax period
endedOriginal
ShortfallAssessed net amount
Revised
shortfallBehaviour
Base
PenaltyBase Penalty Amount
Payable
Dec-10 $4,100.00 $0 $4,100.00 Reckless 50% $2,050.00 $2,050.00 Mar-11 $4,020.00 $0 $4,020.00 Reckless 50% $2,010.00 $2,010.00 Jun-11 $3,055.00 $0 $3,055.00 Reckless 50% $1,527.50 $1,527.50 Totals $29,347.00 $0 $28,567.00 $14,283.50 $12,544.30 DECISION
Accordingly, the Tribunal decides that:
1.The reviewable decision made by the Respondent on 19 October 2012 with respect to input tax credits and administrative penalties for the quarterly periods ending 31 December 2010, 31 March 2011, and 30 June 2011 are varied in accordance with paragraph 75 of this Decision.
2.Save as aforesaid, the reviewable decision is otherwise affirmed.
I certify that the preceding 76 (seventy six) paragraphs are a true copy of the reasons for the decision herein of Senior Member Theodore Tavoularis
…………[sgd]………………
Associate
31 January 2020
Date of hearings: 10 December 2018, 5 April 2019 and 20 May 2019
Applicant: In person (self-represented)
Counsel for Respondent: Mr Vincent G Brennan
0
15
0