Donald Yates and Commissioner of Taxation
[2014] AATA 279
[2014] AATA 279
Division TAXATION APPEALS DIVISION File Number(s)
2013/2651
Re
Donald Yates
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Prof R Deutsch, Deputy President
Date 30 April 2014 Place Perth The decision under review is varied by allowing the input tax credits conceded by the Respondent at the hearing and the Respondent is directed to recalculate the penalties based on 50% penalty for recklessness in respect of the remaining shortfall amounts.
...(Sgd) Prof R Deutsch...................
Prof R Deutsch, Deputy President
CATCHWORDS
TAXATION – Goods and Services Tax – Applicant claimed Input Tax Credits on Business Activity Statements – Whether claims for Input Tax Credits can be Substantiated – Whether Penalties should be Imposed for Recklessness
LEGISLATION
Defence Trade Control Act 2012 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Bayconnection Property Developments Pty Ltd and Ors v Commissioner of Taxation [2013] AATA 40
BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347
SECONDARY MATERIALS
A New Tax System (Goods and Services Tax) Act 1999 Waiver of Tax Invoice Requirement Determination (No 1) 2004
REASONS FOR DECISION
Prof R Deutsch, Deputy President
30 April 2014
BACKGROUND
This is an application for review by the Tribunal of the Respondent’s decision dated 5 April 2013 in relation to an objection lodged by the Applicant dated 8 January 2013.
There are two matters in relation to which a review is sought:
(a)First, the denial of certain GST input tax credits relating to monthly tax periods ending 31 January 2008 to 30 September 2011 inclusive, and
(b)Secondly, the imposition of penalties in relation to each of the shortfalls resulting from the denial of the GST input tax credits referred to above.
The Applicant lodged all his relevant Business Activity Statements on a timely basis and when doing so claimed a broad array of input tax credits to which he believed he was entitled.
He was subsequently the subject of an audit and in order to demonstrate that the input tax credits claimed were properly allowable, he was asked to provide certain details.
THE INPUT TAX CREDIT ISSUES
The Applicant was at first reluctant to provide the details required but has since provided a number of invoices and credit card statements which detail in many cases the individual creditable acquisition items that the Applicant asserts on the relevant Business Activity Statements.
However a number of items remained outstanding some of which were conceded by the Respondent at the hearing as a result of additional information provided by the Applicant.
The items that remain in dispute have been narrowed but what remains is still a significant number of items which the Respondent is still asserting cannot be claimed due to a lack of evidence from the Applicant in support of the items in question being appropriately treated as input tax credits.
Credit Card Items
First, there are an array of items which are simply described by reference to the credit card that was used to pay for the items in question.
The full list of these disputed items runs to over 100 separate entries categorised simply on the basis that some of these items related to Citibank, some to Mastercard, some to Visa and some to Westpac Mastercard.
Some of these items have been referred to in the Applicant’s SFIC as “credit finance facility” but with no clear explanation of the nature of the expenditure in question.
Mine Automation Development
The taxpayer claimed the amounts in the Table below were creditable acquisitions and thus is asserting that 1/11th of the total is an input tax credit.
Table – Mine Automation Development
Tax Period Ended Amount
29 Feb 08 $12,100
31 Mar 08 $5.640
30 Apr 08 $4,900
31 May 08 $3,870
30 Jun 08 $3,670
31 Jul 08 $2,543
31 Aug 08 $1,583
30 Sep 08 $467
31 Oct 08 $467
Each item was given the descriptor “Mine Automation Development”
The title itself gives very little away as to the content of each item. No invoices were provided and no documentation appears to have been provided to the Respondent in support of these claimed input tax credits.
It appears that there is a company known as Mine Automation Systems Technology Pty Ltd which is a company controlled by the Applicant and it appears to bear the same address as the Applicant’s personal address. However, no information was provided as to what, if anything, this company has to do with the claimed GST input tax credits.
Other Disallowed Items
There were 11 other disallowed items which the Respondent was contesting at the beginning of the hearing but after some review of material presented the night before the hearing, the Respondent, after detailed consideration, conceded 9 of them. The 2 points which he presses relate to the acquisition of a security door which was installed at the Applicant’s domestic residence which he also asserts he uses as a place of business and the installation of a gas system at that residence.
THE PENALTY ISSUE
The Respondent asserts that the appropriate level of penalty is determined by reference to item 2 in s 284-90(1) which provides that the base penalty is to be 50% of the shortfall amount. The Applicant asserts that the penalty should be fully remitted.
DECISION ON THE INPUT TAX CREDITS
The real difficulty with this case is that there is an absolute dearth of evidence to support the claimed GST input tax credits.
In those instances where there is a lack of tax invoices in relation to the disputed items that is a problem but not one that in and of itself is insurmountable. It has been confirmed by a delegate of the Commissioner of Taxation that the lack of a Tax Invoice is not necessarily fatal (see A New Tax System (Goods and Services Tax) Act 1999 Waiver of Tax Invoice Requirement Determination (No 1) 2004, Statement by Mr Bruce Quigley as a delegate of the Commissioner 24 February 2004) and there is broad acceptance of this view in Bayconnection Property Developments Pty Ltd and Ors v Commissioner of Taxation [2013] AATA 40. In my view the structure of the relevant legislation makes it clear that the lack of a tax invoice is not fatal and other evidence can make up for the deficiency constituted by the missing invoices.
The absence of tax invoices is one thing but a total lack of any evidence of what the specific amounts refer to is another. The Applicant must at the very least provide detail as to who the payment was made to and some indication of what it was paid for. If that information had been provided the Tribunal would be in a good position to allow those payments even in the absence of tax invoices.
As things stand it is impossible to do so due to a lack of evidence.
The Applicant put an argument to the Tribunal that providing such evidence may amount to a breach of certain defence related legislation because of the nature of the work involved. More specifically the Applicant asserted that
For reasons of security, requests from non-security cleared representatives of the respondent to produce “the 6 biggest invoices in any particular month” would be liable to compromise the secret nature of certain defence R & D because such invoices could detail what was supplied by whom etc., so then when assembled side by side for collective comparison, the ‘how‘ of the particular defence R & D project would be clearly seen and any security lost. Secrecy once lost cannot be re-instated respectively.
The section the Tribunal was referred to was the Defence Trade Control Act 2012 in particular s 14A. That section is to the effect that a person commits an offence if the person publishes or otherwise disseminates DSGL technology to the public or a section of the public by electronic or other means and that person does not hold an approval to do so. An exception applies if that technology is already lawfully available to the public or the section of the public.
Precisely what this means in this context is not at all clear and apart from referring to it, the Applicant made no attempt to explain exactly how providing the requested information to the Respondent would offend that section. In other words the broad ranging and vague claims made by the Applicant were not substantiated in any material way. Even if such claims were substantiated, the Tribunal would need at that point to assess whether it could properly have regard to such matters and, if so, how they might apply in the specific circumstances of the Applicant.
The burden of proof imposed by s 14ZZK of the Taxation Administration Act requires the Applicant to establish that his or her assessment is excessive. In relation to these credit card payments that burden has not been satisfied.
Furthermore pursuant to ss 382-5(1) and 382-5(2)(a) of Schedule 1 to the TAA the Applicant is required to keep records that record and explain all transactions and other acts that he engaged in and that are relevant to the claimed input tax credits and he is required to keep them for at least 5 years after the completion of transactions or acts to which they relate.
Pursuant to s 382-5(3)(a) the 5 year retention period begins on the day the relevant BASs were lodged. The records are required to be such as to enable the Applicant’s claimed input tax credits to be readily ascertained. It seems clear that no such records have been kept.
In relation to the so-called “Mine Automation Development” expenses it is not possible to determine from the available information the extent to which these amounts can be said to be related to creditable acquisitions and give rise to input tax credits.
Clearly, in relation to these amounts the applicant has not satisfied the burden of proof to which he is subject.
In the circumstances, the input tax credits that have been denied by the Respondent, other than those specifically conceded at the hearing, are not allowed and the Commissioner’s decision is affirmed.
In relation to the other disallowed items there are only 2 that remain in dispute – the installation of a security door and a gas system at the Applicant’s domestic residence.
The Respondent is of the view that these 2 items are both of a private or domestic nature and there appears to be very little evidence from the Applicant to support any other view. No real attempt has been made to explain exactly how these 2 items relate to the enterprise the Applicant carries on.
In the circumstances the Applicant clearly has not satisfied the requisite burden of proof and these 2 claims must also fail.
DECISION ON THE PENALTY
On the question of penalty there can be no argument to support the view that no penalty should arise in these circumstances. At the very least the taxpayer has failed to take reasonable care with the result that at the very least a 25% penalty should apply under s 284-90 item 1 of Schedule 1 to the TAA. Such lack of reasonable care is demonstrated by the Applicant making input tax credit claims for amounts which in many cases are not supported by invoices or any other supporting evidence.
The Applicant’s explanation that providing supporting evidence may have given rise to breaches of unrelated defence contracts should if genuinely believed have been put to the Respondent before the filing of any BASs to seek guidance as to how such a unique and largely untested situation should be dealt with but no such attempt was made prior to lodgement of the relevant BASs.
The next question is whether the behaviour was reckless such as to give rise to a 50% penalty under item 2 in s 284-90(1) of Schedule 1 to the TAA.
The concept of recklessness in the context of a taxpayer behaviour calls for an assessment as to:
·the degree to which a taxpayer has demonstrated a disregard of the risk that is foreseeable by a reasonable person; or
·the degree to which a taxpayer has demonstrated an indifference to a risk that is foreseeable by a reasonable person.
These two possibilities appear to be at the heart of the comments of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 where at paragraph 77 the learned judge comments:
Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the prescribed conduct is more than mere negligence and must amount to gross carelessness.
In this case the major cause of all shortfalls that remain in contention was the Applicant’s deliberate action in claiming the various items discussed in detail above as input tax credits in circumstances where the Applicant was unable to substantiate those amounts either by way of the production of an invoice or in some other manner. A reasonable person in the circumstances would have asked himself if put to the task what evidence can I produce to substantiate the existence and relevance of the expenditure in question? As there was no such evidence to substantiate the expenditure in question it must follow that the taxpayer has disregarded the risk that would have been foreseeable by a reasonable person or at the very least would have shown an indifference to that risk. In that sense recklessness is clearly demonstrated in this case
The final question is whether the penalties should be remitted. Section 298–20 of schedule 1 to the TAA gives the Respondent the discretion to remit all or part of an administrative penalty. However, in circumstances where a taxpayer has acted recklessly remitting the penalty is not an option.
DECISION
The decision under review is varied by allowing the input tax credits conceded by the Respondent at the hearing and the Respondent is directed to recalculate the penalties based on 50% penalty for recklessness in respect of the remaining shortfall amounts.
41.
42. I certify that the preceding 40 (forty) paragraphs are a true copy of the reasons for the decision herein of Prof. R Deutsch, Deputy President
…(Sgd) T Freeman..........
Associate
Dated 30 April 2014
Date of hearing 28 March 2014 Representative for the Applicant Self-represented Representative for the Respondent Mr R McGrade ATO Legal Services Branch
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Tax Penalties
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Defence Trade Control
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Admissibility of Evidence
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Limitation Periods
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