DOUGLASS and COMMISSIONER OF TAXATION
[2010] AATA 138
•25 February 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 138
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/4872
TAXATION APPEALS DIVISION ) Re PAUL DOUGLASS Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr Julian Block, Deputy President Date25 February 2010
PlaceSydney
Decision The objection decision under review is affirmed. .................[sgd]...........................
Mr Julian Block
Deputy President
CATCHWORDS
TAXATION AND REVENUE – goods and services tax – substantiation of claims – onus of proof – discretion to accept as a tax invoice a document which is not a tax invoice – penalty – objection decision affirmed
A New Tax System (Goods and Services Tax) Act 1999 s 29-70
Taxation Administration Act 1953 Schedule 1 ss 284-75, 284-90, 298-20
The Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614
Trautwein v The Federal Commissioner of Taxation (1936) 56 CLR 63
REASONS FOR DECISION
25 February 2010 Mr Julian Block, Deputy President PART A: PRELIMINARY AND BACKGROUND
1. The objection decision which is under review relates to the Respondent’s decision dated 8 July 2008 (T54:225) to disallow the Applicant’s objection dated 24 September 2007 (said to have been signed on 24 October 2007) (T41:127) against a notice of assessment of net amount for the periods 1 July 2003 to 31 March 2007 (T39:124) and the notice of assessment dated 19 September 2007 in respect of tax shortfall penalty (T40:125). The periods set out in the preceding sentence comprise 15 calendar quarters (collectively “the relevant quarters”) and all of the periods in aggregate comprise “the audit period”.
2. The Applicant was self represented; Mr B. Upex a litigator in the employ of the Respondent appeared for the Respondent.
3. The Tribunal admitted into evidence the T documents and also Supplementary T documents furnished in accordance with section 37 of the Administrative Appeals Tribunal Act 1975. The Supplementary T documents are not numbered sequentially after the T documents; accordingly the T documents are referred to in this decision by reference to “T”; while the Supplementary T documents are referred to by reference to “ST”. Each T or ST reference contains a reference both to the document number and then, and following immediately thereafter, the relevant page number in the T documents or the Supplementary T documents as appropriate. References preceded by “P” relate to the transcript of the hearing on 29 January 2010.
4. Having regard to the amount of tax involved, the T documents are very lengthy indeed and so, for that matter, are the Supplementary T documents. At a directions hearing held on 12 November 2009, and having regard to the delays which had already occurred, the Tribunal gave directions as follows:
1. The hearing listed on 19 November 2009 is vacated.
2. The Applicant must on or prior to 15 January 2010 serve and file a full statement of the evidence he intends to give at the hearing of this application together with the statements of any other witnesses on whose evidence he intends to rely, and in addition any other evidence of whatever nature on which he intends to rely.
3. The Respondent is entitled, but not obliged, on or before 22 January 2010 to serve and file any evidence on which he intends to reply, and must by such date serve and file his Statement of Facts and Contentions.
4. This application is relisted for hearing at 10 a.m. on 29 January 2010.
5. In view of the fact that the Applicant has had considerable time within which to prepare no further extensions of time will be granted to him.
6. It is recommended that the Applicant obtain legal representation
5. The Applicant did not comply with direction 2 as referred to in the preceding clause in that he did not on or prior to 15 January 2010 serve and file statements of the evidence he intended to present at the hearing. However, a faxed document (date-stamped as received in the Tribunal on 30 December 2009) was treated, because the Applicant is a self represented applicant, as if it were a statement by him of the evidence he intended to give, and admitted as Exhibit A1. Exhibit A1 is more aptly described as a document which contains a mixture of contentions and statements which might perhaps be construed as statements as to evidence. Exhibit A1 is in some respects difficult to comprehend; some of its flavour can be obtained from the four main paragraphs on page 1 and reading as follows:
SO I WILL NOW START RE. HEARING DUE ON THE 29/01/2010 I RECEIVED A STATEMENT FROM THE A.T.O. DEPARTMENT ON THE 8/12/2009 STATING I OWE THEM $40,434.30 THIS IS UP TO MONTH ENDING 30/11/2009 . THIS IS WHAT GOD ALEXIS THEODOROU WORKED OUT FROM HER ORIGINAL SO CALLED DEBT OF $20,983.00 PLUS INTEREST AND A PENALTY OF 50% RECKLESS BOOKKEEPING BRING THE AMOUNT ABOVE DUE ON THIS DATE 30/11/2009 .
I WILL SET OUT TO PROVE THIS AMOUNT TO BE DRASTICALLY WRONG AS I HAVE TRIED BEFORE AND THEN I WANT A WRITTEN APOLOGY OFF GOD ALEXIS THEODOROU AS IT SEEMS HER POSITION IN THE A.T.O.DEPARTMENT THAT SHE HOLDS GIVES HER THE RIGHT TO CALL PEOPLE LIARS, CHEATS AND FRAUDS . SHE MUST BE ANSWERABLE TO SOMEONE OR IS SHE REALLY GOD ABOVE ALL OTHERS?
STILL.BEARING IN MIND THAT MOST OF MY ORIGINAL INVOICES WHERE STOLEN OUT OF MY CAR SO I HAVE RECONSTRUCTED THE CLAIMS TO THE BEST OF MY ABILITY FROM A PERSON THAT LEFT TO GO TO WORK HALF WAY THROUGH 1ST FORM NOT GOING ON TO BE A BOOKKEEPER !
SET OUT BELOW IS THE FIRST 3 SECTIONS OF 9 SECTIONS . EACH 3 SECTIONS WILL BE SENT AND FINALIZED THEN THE NEXT 3 SECTIONS WILL FOLLOW I WOULD LIKE MY DOCUMENT TO BE COMFIRMED AT THE PENRITH A.T.O. IF POSSIBLE RATHER THEN HAVING TO GO TO THE CITY EVERY TIME AFTER EACH VIEWING I WOULD LIKE IN WRITING WHAT OTHER DOCUMANTATION IT WILL TAKE TO VALIDATE MY CLAIMS THAT IS IF FURTHER IS NEEDED.
6. It will be noted that the Applicant referred to Alexis Theodorou (who is employed by the Respondent) as “God Alexis Theodorou”, clearly in order to give the impression that his treatment at her hands was not all that might have been desired. Exhibit A1 moreover sets out content as to three only out of nine sections on the basis that following finalisation of the first three sections the hearing would somehow proceed on a piecemeal basis to other sections not dealt with in Exhibit A1. At the directions hearing referred to previously in these reasons the Tribunal recommended that the Applicant seek representation; he did not do so and said in evidence that this was because he would not in the event of a successful application be able to recover his legal costs.
7. At the hearing on 29 January 2010 the Applicant submitted a bundle of miscellaneous documents and which were admitted as Exhibit A2, notwithstanding the fact that they should have been submitted earlier in accordance with the directions, and notwithstanding the fact that some of them are either wholly or partly included in the documents already before the Tribunal.
8. It is convenient by way of starting point and in order to set the scene, to include the content of the Respondent’s Statement of Facts, Issues and Contentions (“RSFIC”) dated 22nd January 2010 under the head of “Facts” and contained in clauses 4 to 34 as follows:
4. At all relevant times, the Applicant
(1)conducted a business under the name Thomas Maintainence [sic] and Lawn Service.
(2) was registered for GST
(3) accounted for GST on a cash basis, and
(4)was required to lodge quarterly Activity Statements with the Respondent.
5. For the period from 1 July 2003 to March 2007 (“the Audit Period”),
(1)the Activity Statements lodged by the Applicant for each of the quarters during the Audit Period (“the Relevant Quarters”), reported purchases totalling $242,527 and sales totalling $71,592.
(a) For a breakdown of these figures, see Table 1 in Appendix A.
(2)each of the 15 Activity Statements lodged by the Applicant had a higher figure at label 1B (“GST on purchases”) than at label 8A (“Amounts you owe the Tax Office”). (As the figure at Label 4 was nil, the figure at Label 8A was the same as the figure at label 1A thus, in effect, was for “GST on sales or GST instalment”.)
(3)If these figures were correct, the Applicant was entitled to have the difference refunded to him, or offset against any other tax debt he had.
(a) For a breakdown of the figures, see Table 1 in Appendix A.
(b) For the relevant Activity Statements, see
(i) ST1:1 to ST13:25, ST15,38, and
(ii) T3:51 to T17:76B
Acquisitions
6.The Respondent understands that the Applicant’s position is that a large portion of the ITCs in dispute relate to acquisitions of
(1)goods and services from the business known as St Marys & St Clairs Mower Centre, and
(2) fuel.
Scott William Dudman trading as St Marys & St Clairs Mower Centre
7.The Respondent understands the Applicant’s case is that one of his main suppliers of goods and services during the Audit Period was a Scott William Dudman trading as St Marys & St Clairs Mower Centre.
8.According to the Australian Business Register, Mr Dudman has never been registered for GST. The Respondent does not take the point that:
(1) Mr Dudman is not registered for GST, and
(2)the Applicant has not established that Mr Dudman was required to be registered for GST.
9.Apart from this concession, the Respondent puts the Applicant to proof of his claims in respect of acquisitions from Mr Dudman.
10.There are three categories of invoice the Applicant claims were issued by Mr Dudman:
(1) Category 1: printed invoices (e.g. T52:202)
(2)Category 2: 5 numbered handwritten invoices on printed St Marys and St Clairs Mower Centre stationery which features images of a lawnmower and a chainsaw (e.g. ST20:52-6), and
(3)Category 3: unnumbered handwritten invoices on printed St Marys and St Clairs Mower Centre stationery which does not feature images (e.g. T52:193-201)
11. The invoices in Categories 2 and 3 are in the Applicant’s handwriting.
12.The invoices in Category 2 were provided by the Applicant during the course of the current proceedings. They are numbered as follows, and appear to be descended from a single document.
(1) 002991
(2) 002994
(3) 991
(4) 00299, and
(5) 002891.
13.The invoices in Category 3 were apparently provided to the Respondent by St Marys & St Clair Mower Centre. Unlike a sample invoice which was also provided to the Respondent by the St Marys & St Clair Mower Centre on 8 August 2007 (ST18:48), they are not numbered.
Fuel
14.The Respondent understands the Applicant will be relying partly upon material relating to the Applicant’s expenditure on fuel during the four month period (from the beginning of April 2007 to the end of July 2007) (“the Trial Period”) which immediately follows the Audit Period.
15.The Respondent has not been provided with all of the material the Respondent understands the Applicant intends providing the Tribunal with in respect of his claims regarding fuel.
16.The Respondent understands that the vehicle the Applicant drove during the Trial Period differed from the vehicle the Applicant drove during the majority of the Audit Period. In particular, the Respondent understands that the vehicle the Applicant drove until December 2006 had a fewer number of cylinders than the one the Respondent drove during the Trial Period. Furthermore, according to the Applicant, his fuel expenditure for the quarter ended 30 June 2007 was nearly double his fuel expenditure for the quarter ended 30 June 2006 (T41:157).
Audit
17.In March 2007, the Respondent commenced an audit of the Applicant’s Activity Statements for the Relevant Quarters.
18.The Applicant was able to substantiate $1,961.61 of the $25,422 ITCs he had reported on his Activity Statements for the Audit Period.
(1) For a breakdown of these figures, see Tables 2 and 3 of Appendix A.
19.The Respondent understands that it is the Applicant’s position that his inability to substantiate more ITCs was partly because, on 30 March 2007, a package containing invoices (other than fuel receipts) for the period “2000-2007” was stolen from the front passenger seat of his vehicle when he stopped at a shop on his way to the post office to post the package to the Respondent (see, e.g., T41:127).
20.The Respondent has obtained a copy of the report of Event Reference Number E 30224274 from the NSW Police (ST22:76). In summary, it records that, at about 8:30pm on 30 March 2007, the Applicant told Police that his vehicle had been broken into about 20 minutes earlier. The section headed “Property List” refers to the theft of a chainsaw and mobile phone. The report makes no mention of the theft of a package of documents.
Completion and Result of Audit
21.On 19 September 2007, the Respondent wrote to the Applicant advising him of the completion and result of his GST audit (T38:113). On the same day, the Respondent issued a “Notice of Assessments of net amount for the periods 1 July 2003 to 31 March 2007” (T39:124) and a “Notice of assessment of penalty for having a tax shortfall amount” (T40:125).
22.In summary, the Applicant, having claimed GST credits for the Relevant Quarters totalling approximately $25,000, was able to substantiate to the Respondent’s satisfaction GST credits totalling approximately $2,000 (T2:47)[1], resulting in a shortfall of approximately $23,000.
[1] The Auditor’s calculation was $1,961. Having reviewed the auditor’s figures, the Objection officer’s calculation was $2,048.
(1)For a breakdown of the ITCs substantiated to the Respondent’s satisfaction, see Table 2 of Appendix A.
23.For each of the Relevant Quarters, the Respondent revised the 1B figure to equal the greater of
(1) the amount of ITCs substantiated by the Applicant, and
(2)an amount based on industry averages (specifically, an amount equalling 57% of the 1A figure (“GST on Sales”) reported by the Applicant).[2]
[2] This formula was derived from Tax Office data indicating that for businesses providing Gardening Services, including lawn mowing, the average net profit ratio is approximately 43%.
(For a breakdown of the revisions, see Table 4 of Appendix A.)
24.The revised total ITCs for the Relevant Quarters was $4,439. The total shortfall amount for the Relevant Quarters was $20,983.
(1) For a breakdown of the shortfall, see Tables 5 and 6 of Appendix A.)
25.For each of the Relevant Quarters, the Applicant had made a statement to the Respondent (in the form of an Activity Statement) which
(1)was false or misleading in a material particular (in that it incorrectly stated the GST credits and, hence, the net GST) and,
(2)resulted in a shortfall amount (as defined by subsection 284-80(1) of Schedule 1 to the TAA)
thus the Applicant was liable to an administrative or shortfall penalty pursuant to subsection 284‑75(1) of Schedule 1 to the TAA.
26.The Respondent determined that the shortfall amounts resulted from recklessness by the Applicant as to the operation of a taxation law and assessed the base penalty amount at the rate of 50% of the shortfall amount, pursuant to subsections 284-85(1) and 284-90(1) of Schedule 1 to the TAA.
27.The Respondent neither increased the base penalties under section 284-220 of Schedule 1 to the TAA nor reduced them under section 284-225 of that schedule.
28.The administrative or shortfall penalties for the Relevant Quarters totalled $10,491.50.
(1) For a breakdown of this figure, see Table 7 of Appendix A.
29. The Respondent did not remit any of the administrative or shortfall penalties.
Objection
30.On 24 September 2007, the Applicant lodged an objection to the amended GST assessments and the penalty assessments.
31.On 8 July 2008, the Respondent wrote to the Applicant, informing him that his Objection had been disallowed.
Tribunal Proceedings
32.On 16 October 2008, the Tribunal received an Application for Review of Decision from the Applicant.
33.On 23 October 2008, the Tribunal received an Application for Extension of Time for Lodging Application for Review of Decision from the Applicant.
34.On 30 October 2008, Deputy President Walker extended the time for the making of an application for review of the decision of the Respondent to 16 October 2008.
9. The Tables (Tables 1 to 7) contained in RSFIC are particularly helpful and are accordingly included in these reasons as follows:
Table 1: Data from Applicant’s Activity Statements for Audit Period
BAS Label: 1A 1B G1 G10 G11 9 Quarter
EndingGST on Sales GST on Purchases Total Sales Capital Purchases Non‑Capital Purchases Net GST 30/09/2003 157 1,264 1,735 13,900 -1,107 31/12/2003 235 1,089 2,580 11,979 -854 31/03/2004 185 1,205 2,035 13,258 -1,020 30/06/2004 286 1,399 3,150 15,387 -1,113 30/09/2004 87 939 957 10,831 -852 31/12/2004 878 3,041 9,658 10,000 23,451 -2,163 31/03/2005 324 1,553 3,560 16,640 -1,229 30/06/2005 356 1,656 3,560 16,566 -1,300 30/09/2005 670 2,102 6,700 21,115 -1,432 31/12/2005 950 2,336 9,500 23,363 -1,386 31/03/2006 491 2,533 4,910 25,003 -2,042 30/06/2006 296 1,024 2,965 10,243 -728 30/09/2006 580 1,580 5,800 15,847 -1,000 31/12/2006 1,050 2,494 10,500 24,944 -1,444 31/03/2007 362 1,207 3,982 0 -845 TOTAL 6,907 25,422 71,592 242,527 -18,515 Table 2: ITCs Substantiated to the Satisfaction of Respondent
A C D E F G H Quarter Ending Equipment Invoices Equipment ITCs Petrol Invoices Petrol ITCs Total Invoices Total Equipment and Petrol ITCs 30/09/2003 - - - - - - 31/12/2003 - - - - - - 31/03/2004 - - 29.82 2.71 29.82 2.71 30/06/2004 - - 54.29 4.93 54.29 4.93 30/09/2004 - - 64.78 5.89 64.78 5.89 31/12/2004 - - 175.50 15.96 175.50 15.96 31/03/2005 1,666.00 151.45 467.50 40.16 2,133.50 191.61 30/06/2005 120.52 10.96 1,077.56 94.99 1,198.08 105.95 30/09/2005 648.20 60.55 1,580.35 145.25 2,228.55 205.80 31/12/2005 49.75 3.91 324.95 22.10 374.70 26.01 31/03/2006 - - 727.38 65.02 727.38 65.02 30/06/2006 251.60 22.87 1,376.19 125.11 1,627.79 147.98 30/09/2006 580.00 52.73 3,066.51 278.39 3,646.51 331.12 31/12/2006 - - 1,744.72 158.62 1,744.72 158.62 31/03/2007 5,830.00 530.00 1,865.39 170.01 7,695.39 700.01 TOTAL 9,146.07 832.47 12,554.94 1,129.14 21,701.01 1,961.61 Table 3: Difference between ITCs Claimed and ITCs Substantiated to the Satisfaction of Respondent
A B C D Quarter
Ending
ITCs Claimed at 1B on BAS Total ITCs
Substantiated to Satisfaction of RespondentDifference between
ITCs Claimed and
ITCs Substantiated
(Col. B – Col. C)30/09/2003 1,264 - 1,264.00 31/12/2003 1,089 - 1,089.00 31/03/2004 1,205 2.71 1,202.29 30/06/2004 1,399 4.93 1,394.07 30/09/2004 939 5.89 933.11 31/12/2004 3,041 15.96 3,025.04 31/03/2005 1,553 191.61 1,361.39 30/06/2005 1,656 105.95 1,550.05 30/09/2005 2,102 205.80 1,896.20 31/12/2005 2,336 26.01 2,309.99 31/03/2006 2,533 65.02 2,467.98 30/06/2006 1,024 147.98 876.02 30/09/2006 1,580 331.12 1,248.88 31/12/2006 2,494 158.62 2,335.38 31/03/2007 1,207 700.01 506.99 TOTAL 25,422 1,961.61 23,460.39
Table 4: ITCs Allowed by Respondent
A B C D Quarter Ending ITCs Substantiated to Satisfaction of Respondent
57% x GST Liability Declared at Label 1A in BAS ITCs Allowed (Higher of Col. B and Col. C, rounded) 30/09/2003 - 89.49 89 31/12/2003 - 133.95 134 31/03/2004 2.71 105.45 105 30/06/2004 4.93 163.02 163 30/09/2004 5.89 49.59 50 31/12/2004 15.96 500.46 500 31/03/2005 191.61 184.68 192 30/06/2005 105.95 202.92 203 30/09/2005 205.80 381.9 382 31/12/2005 26.01 541.5 542 31/03/2006 65.02 279.87 280 30/06/2006 147.98 168.72 169 30/09/2006 331.12 330.6 331 31/12/2006 158.62 598.5 599 31/03/2007 700.01 206 700 TOTAL 1,961.61 4430.65 4439 Table 5: Difference between ITCs Allowed by Respondent and ITCs Claimed in BAS
A B C D Quarter Ending ITCs Allowed (see Table 5) ITCs in BAS Shortfall
(Col. C – Col. B)
(rounded)30/09/2003 89 1,264 1,175 31/12/2003 134 1,089 955 31/03/2004 105 1,205 1,100 30/06/2004 163 1,399 1,236 30/09/2004 50 939 889 31/12/2004 500 3,041 2,541 31/03/2005 192 1,553 1,361 30/06/2005 203 1,656 1,453 30/09/2005 382 2,102 1,720 31/12/2005 542 2,336 1,794 31/03/2006 280 2,533 2,253 30/06/2006 169 1,024 855 30/09/2006 331 1,580 1,249 31/12/2006 599 2,494 1,895 31/03/2007 700 1,207 507 TOTAL 4,439 25,422 20,983 Table 6: Comparison of Net GST as per Activity Statements and as per Audit
A B C D Quarter
EndingNet GST as per BAS Net GST as per audit Difference
(Col C ‑ Col B)30/09/2003 -1,107 68 1,175 31/12/2003 -854 101 955 31/03/2004 -1,020 80 1,100 30/06/2004 -1,113 123 1,236 30/09/2004 -852 37 889 31/12/2004 -2,163 378 2,541 31/03/2005 -1,229 132 1,361 30/06/2005 -1,300 153 1,453 30/09/2005 -1,432 288 1,720 31/12/2005 -1,386 408 1,794 31/03/2006 -2,042 211 2,253 30/06/2006 -728 127 855 30/09/2006 -1,000 249 1,249 31/12/2006 -1,444 451 1,895 31/03/2007 -845 -338 507 TOTAL -18,515 2,468 20,983 Table 7: Administrative Penalty
A B C Quarter
EndingShortfall
(from Col. D of Table 6)Administrative Penalty
(50% x Col. B)30/09/2003 1,175 587.50 31/12/2003 955 477.50 31/03/2004 1,100 550.00 30/06/2004 1,236 618.00 30/09/2004 889 444.50 31/12/2004 2,541 1,270.50 31/03/2005 1,361 680.50 30/06/2005 1,453 726.50 30/09/2005 1,720 860.00 31/12/2005 1,794 897.00 31/03/2006 2,253 1,126.50 30/06/2006 855 427.50 30/09/2006 1,249 624.50 31/12/2006 1,895 947.50 31/03/2007 507 253.50 TOTAL 20,983 10,491.50 10. It should be noted that clause 5(1) of RSFIC should correctly refer to all of the relevant quarters rather than each of the relevant quarters. (It may also be noted that the BAS documents submitted by the Applicant all indicate that they relate to the month ending on the month indicated whereas in fact they relate to the quarter ending on the month indicated.)
PART B: OVERVIEW; THE BUSINESS CONDUCTED BY THE APPLICANT TRADED AT A LOSS
11. The Applicant furnished BAS documents which in aggregate and in respect of the audit period reflected sales of $71,592 and purchases of $242,527, and so that he was throughout the audit period trading at a considerable loss.
12. During the course of his evidence and including his cross-examination, the Applicant said that on one day each week he worked at BP, and being BP Wallacia and previously BP in McGraths Hill. He said that he purchased 10 per cent of his fuel needs at BP and the remainder wherever it was convenient for him to do so. The following extract from the transcript commences with line 17 on P24 and ends with line 6 on P25:
THE D. PRESIDENT: Mr Douglass, there’s something that has been puzzling me about your BAS statements. If you’re - on the basis of your BAS statements, you were running this lawn-mowing business at a terrible loss?‑‑‑APPLICANT: Correct.
Really a terrible loss. Your sales were only a fraction of your outgoings, right?‑‑‑Correct.
So how did you continue? And what point is there running a business which is causing you such losses?‑‑‑Well, as I said, I tried to explain to the first auditor, I was accumulating all my machinery while I was still in bankruptcy until October 2008, and that’s when I was putting all my money back into the business by getting machinery, and hopefully that was going to last me for - I didn’t have to buy anymore. And that’s exactly what I did. I listed down ‑ ‑ ‑
No, but ‑ ‑ ‑?‑‑‑‑ ‑ ‑ the machinery to the lady.
No, but, look, your sales were very small. For each quarter they were only a fraction of what you were paying out in expenses?‑‑‑That’s correct.
So where was the money coming from?‑‑‑The service stations. Service station. They ‑ ‑ ‑
What were you earning at the service station?‑‑‑It can be one shift a week, it can be five shifts a week, it can be - they asked for my group certificate.
You said that you were working one day a week?‑‑‑I only work one day a week and I have for the last year. But before that it could have been a week. It could have been three days. Someone goes on holidays, gets sick, they call me in.
All right. What did you earn from the station?‑‑‑I’d have to look - I don’t know offhand. I’d have to look it up on my group certificates, which were all supplied to the taxation department.
All right. So what you’re saying is that this business was worthwhile because you were building up a stockpile of machinery that you needed?‑‑‑That’s right.
13. The Applicant was made bankrupt in 2000 when a convenience store owned and run by him and his then wife (referred to by him as a 7-Eleven store) failed. The following extract from the transcript is taken from the evidence of the Applicant under cross-examination; it commences with line 5 on P39 and ends with line 47 on P41:
MR UPEX: Now, Mr Douglass, I wanted to ask you a bit about your bankruptcy, please?‑‑‑That’s not a problem.
Now, you said something about you had a plan to stock up on equipment while you were in bankruptcy?‑‑‑Correct.
Could you explain how that plan worked, please?‑‑‑Well, all I did was just buy all the equipment that I had while I was in bankruptcy so that when I come out of bankruptcy - well, as far as I knew the law - I don’t know the law, in that respect - that if I put my money into the bank, the actual bankruptcy people can take it.
So you were ‑ ‑ ‑?‑‑‑Rather than ‑ ‑ ‑
THE D. PRESIDENT: If you had have put money into the bank, your trustee - the bankruptcy people could take it, but not if it was machinery?‑‑‑That’s right.
I see. Sorry, let me be clear about this, because I think this might be quite important. The bankruptcy - when you talk about the bankruptcy people, who do you mean by that?‑‑‑ANZ. National Bank, whatever it was called. Sorry, National Bank. National. NAB.
All right. Please be specific, Mr Douglass?‑‑‑Sorry, sorry.
I know that you don’t find this easy, but you first referred to ANZ, then National Bank ‑ ‑ ‑?‑‑‑No, it’s National.
‑ ‑ ‑ and then NAB, and in any event ‑ ‑ ‑?‑‑‑No, it’s National.
‑ ‑ ‑ it’s not they who administer bankruptcy, but what you’re saying is the bankruptcy people could take money but not machinery?‑‑‑That’s correct. To my way of thinking, I don’t know for sure.
…
What you’re saying is this: When you went into bankruptcy ‑ ‑ ‑?‑‑‑Yes.
‑ ‑ ‑ you already had this business?‑‑‑Correct.
You then ran the business at a huge loss?‑‑‑Correct.
Because you were buying equipment which would be available to you after you came out of bankruptcy?‑‑‑That is correct.
And the shortfall was supported by your earnings from BP?‑‑‑That’s correct.
I have to say, Mr Douglass, it’s a novel view of bankruptcy law, but - Mr Upex?
MR UPEX: So, Mr Douglass, I think you said earlier that you owed the NAB several hundred thousand dollars, correct?‑‑‑More than that, yes.
THE D. PRESIDENT: How much?‑‑‑236,000.
Did you owe much to other people?‑‑‑Don’t know. I was - I’m not sure what I said before, to be honest. I know it was quite a substantial amount of money. I don’t know the exact figure, but it was hundreds of thousands.
Did you owe a lot to other creditors?‑‑‑No, no, just the one.
So did you have no other creditors to the bankruptcy?‑‑‑I might have had a Westpac bank card or something like that. I don’t know. It’s just the National Bank was the big crunch. But Alexis looked it up anyway, in your department, so she’s got the records of that.
Mr Douglass, I think it’s time you understood something?‑‑‑Sorry.
What people looked up, what other people may know is not before me?‑‑‑Sorry.
What I’m here to hear is what you are able to establish?‑‑‑Okay.
It is not sufficient for you to simply refer, as you often do, to what the tax department may or may not have done?‑‑‑Okay.
It’s up to you to establish that you spent this money for which you claim input credits?‑‑‑Okay.
Now, I’m hoping that Mr Upex will explore this further. How did you actually eat? If you were spending all this money on buying machinery, and if you were working for the garage, the BP, for a day a week ‑ ‑ ‑?‑‑‑Yes.
Sometimes more, you say?‑‑‑Yes.
You were losing hand over fist in the lawn-mowing business for a day’s work at the ‑ ‑ ‑?‑‑‑The BP.
‑ ‑ ‑ at BP?‑‑‑Yes.
Surely you needed something left over in order to buy food, pay rent?‑‑‑I was lucky in that respect. I got board where I just got to mow the lawn and I got fed and clothed. Fed, sorry, fed and washed the clothes.
Sorry. So let’s try to be a bit specific about this. What you say is, “I ran this business at a loss, supported by BP.” How much were you earning for a day’s work at BP?‑‑‑About $160.
Right. And presumably, they took off some ‑ ‑ ‑?‑‑‑Yes, tax was taken out of that depending on how much ‑ ‑ ‑
So what would you be getting net?‑‑‑It wasn’t much tax, it might be only $20 something, so $140.
Okay. And so you were living rent free in exchange for lawn-mowing services where?‑‑‑Yes, yes, sorry?
Where?‑‑‑Sorry, where I’m at now. Still now, still am.
And where are you now?‑‑‑[address given]
Who is the owner of that house?‑‑‑It’s either - it’s a Mrs Loader.
Mrs ‑ ‑ ‑?‑‑‑Loader.
Mrs Loader?‑‑‑Loader.
And is she a friend of yours?‑‑‑She is now but she wasn’t then.
And she allows you to live there rent free and feeds you in exchange for lawn-mowing services?‑‑‑Lawn-mowing and clean the gutters and whatever else I have to do to maintain it.
Okay. Is Mrs Loader somebody whom is now your partner, a de facto relationship?‑‑‑Not a de facto relationship, no. I still live in her house, under her roof.
But it’s not a de facto relationship?‑‑‑No.
Okay. Mr Upex?
MR UPEX: What is this lady’s connection with your business, please, Mr Douglass?‑‑‑None at all.
None at all?‑‑‑None at all.
What is her connection with the St Marys & St Clair mower centre business?‑‑‑None at all, that I know of. I can’t speak for her.
You live with her?‑‑‑Correct.
14. At a different stage the Applicant talked of work during a prior period for Woolworths in its fuel supply business. It would seem, according to the Applicant’s evidence that there was a period, which occurred some years ago, when he was involved with the convenience store, his lawn-mowing business and also a fuel supply business and where he processed fuel sales, the latter a function which he now performs for BP.
15. According to his evidence, the lawn-mowing business traded at a loss (and a substantial loss at that) because the Applicant was acquiring equipment designed to be of use to him at a later time and when he had been discharged from bankruptcy and in circumstances where that equipment would not be liable to attachment and sale at the instance of his creditors and in particular National Australia Bank (“NAB”) on whose petition he was made bankrupt in the first place. The Applicant explained that cash resources would have been available to his creditors but that equipment so acquired would, so he hoped, not fall into the same category.
16. The Applicant said that he was discharged from bankruptcy in October 2008, but it would appear that his discharge from bankruptcy took place at an earlier time. A document headed “Individual Credit Report” dated 14 June 2005 (T41:134) supplied by the Applicant to the Respondent showed he was discharged from bankruptcy on 25 August 2003, that is, during the first quarter of the 15 quarters of the audit period. If the Applicant’s reference to “bankruptcy” is understood to include not only the bankruptcy period proper but also the period for which the Applicant was on the database referred to at T41:134, he has been out of “bankruptcy” since August 2007.
17. The scale of the Applicant’s business losses during the audit period were such that his BP earnings were on his own evidence insufficient to fund those losses, even apart from the fact that he would surely have had some living expenses (and even though he claimed that he lived with Mrs Loader free of cost). The Applicant had represented to the Respondent that his living expenses were modest (his entertainment expenses amounting to a little more than $10 per week for an outing to play darts) (T46:173). When asked about bank statements which indicated that on a number of occasions there had been a series of withdrawals in a short space of time from ATMs located at a hotel, and which left his account with a small credit balance only, he was evasive, but denied that the money so withdrawn was used for gambling (P49).
18. On the Applicant’s own evidence his business had been incurring losses since July 2000 (T41:127A) and continues to run at a loss (P51:lines10-36).
PART C: AN OVERVIEW IN RESPECT OF THE MOTOR VEHICLE
19. In his activity statement for the quarter ending 31 December 2004 the Applicant claimed an input credit in respect of a capital purchase amounting to $10,000. This amount related to the acquisition of a Land Rover motor vehicle which he used in his lawn-mowing business. The Applicant said in evidence that he could not as a bankrupt borrow the amount required. He said (P14) that accordingly his son borrowed $17,100 from ANZ Bank and either (and this was never clear) bought the motor vehicle and handed it to the Applicant or simply passed the money over to the Applicant to enable him to do so. The Tribunal refers to the transcript from line 10 on P42 to line 39 on the same page as follows:
You talked about a son. He’s presumably grown up now?‑‑‑Yes, he’s 32.
…
THE D. PRESIDENT: So what does he do?‑‑‑He’s a removalist. A removalist.
And he was able to borrow how much from ANZ?‑‑‑17,100 all up. That was with interest and insurance and that against the loan.
But you only paid 10,000 for the car?‑‑‑For the car, that’s right.
So what was he borrowing 17,000 for?‑‑‑2000 for insurance, 600 for change of rego.
Right, 10,000 for car, 2000 insurance. What else?‑‑‑And changeover, the transfer thing when you buy a car.
Okay. So the transfer cost. That’s not very much?‑‑‑About 660, I think it was.
All right. 660 transfer cost. How do we get to 17,100?‑‑‑Interest on the loan. I’ve got to pay back the interest.
Mr Douglass, it doesn’t figure. If you work it out, you’ve accounted for 12,600?‑‑‑Okay, and the other 5000 ‑ ‑ ‑
But you say the amount borrowed was 17,100?‑‑‑That’s correct. The rest of it’s in interest over the period you pay it back. And since I’m paying it back I have to pay the whole loan of 17,100.
Why was ANZ prepared to lend your son 17,100? On what security, if any?‑‑‑I didn’t ask him. I just asked him and he gave me the loan.
20. If the Applicant’s son purchased the motor vehicle the Applicant’s claim for an input credit was plainly incorrect. As will be seen later in these reasons, the Applicant also claimed input credits for loan repayments made by him in respect of the loan by ANZ bank to his son. It is not possible on the evidence before the Tribunal to reconcile the amount of the loan ($17,100) with the amount spent to purchase the motor vehicle. The Applicant’s son was not called to give evidence and the Tribunal has no knowledge of the basis on which a young man was able to borrow from a bank in order to purchase a vehicle for an undischarged bankrupt or to on-lend the amount borrowed to an undischarged bankrupt.
PART D: OVERVIEW; THE APPLICANT'S CLAIMED INPUT CREDITS EXCLUDING IN RESPECT OF FUEL
21. The input credits in question related almost entirely (and no other suppliers were mentioned) to acquisitions from Mr Scott Dudman trading as St Marys & St Clair Mower Centre. The Respondent in RSFIC distinguished between invoices described as Category 1 invoices, Category 2 invoices and Category 3 invoices. Although Mr Dudman was not registered for GST and although the Applicant did not establish that Mr Dudman, was required to be registered for GST, the Respondent elected to concede that he (Mr Dudman) was required to be registered.
22. As will be noted later in these reasons, the invoices which fall into Category 2 and Category 3 were in part written by the Applicant and moreover there is clear evidence that some of them were “doctored”.
23. As will be seen later in these reasons the Applicant claimed that further invoices which he intended to send to the ATO to substantiate his claims, were stolen from his car during a break-in. The fact that the invoices were, so it was alleged stolen from a car during a break-in, did not figure in the Police Report, and the manner in which the incident was reported to the police gives rise to doubt as to whether there were any such invoices in the motor vehicle at the relevant time.
PART E: OVERVIEW; THE APPLICANT’S EVIDENCE AS TO INPUT CREDITS IN RESPECT OF FUEL
24. The Applicant’s evidence was that the fuel invoices were not included in the batch of invoices alleged to have been stolen from his motor vehicle.
25. The Applicant said that he filled his fuel tank daily or nearly daily spending between $20 and $30 each time. He did not explain why this was so especially when one takes into account that on one day in each week (but sometimes for longer periods), the Applicant worked at BP.
26. Here, too, the evidence before the Tribunal will be dealt with in more detail later in these reasons. At this stage the Tribunal refers to the transcript commencing with line 35 on P52 and ending with line 28 on P53 as follows:
THE D. PRESIDENT: ... Mr Douglass, do you remember there was a brief discussion a little while ago about your fuel expenses? Now, you put down for the month that we were discussing at the time, about $700 for a month?‑‑‑Correct.
How often would you fill up your Land Rover?‑‑‑My Land Rover? I used to fill it up nearly every day.
And how much – when you fill it up, how much does it take?‑‑‑It could take – to fill it from woe to go it’s $155.
Sorry, to fill up the Land Rover?‑‑‑Yes.
Takes 155?‑‑‑One hundred and fifty-five.
That sounds about right. Why would you fill up every day?‑‑‑I just top it up at $20 here, $30 whatever, so I don’t have to have the big expense. Sometimes more, sometimes less and sometimes going to Cairns for the equipment.
I top up every day $20 ‑ ‑ ‑
THE WITNESS: Up to $70.
What sort of mileage would you be doing?‑‑‑About 100 – on a good day, 150, 156.
That’s kilometres?‑‑‑Yes.
That’s how much travelling time you have to spend to do your?‑‑‑I used to, yes.
A day?‑‑‑Used to.
And what sort of petrol consumption would you achieve?‑‑‑With the Land Rover it was about three – three to four kilometres to the litre.
And your case is this. That you were spending $700 a month, roughly speaking, on fuel?‑‑‑That month was a good month because it didn’t take much and I think the one in question, I had a different car. It was a six cylinder which it was just as ‑ ‑ ‑
When was the Land Rover bought?‑‑‑In the capital – capital month that you’ve got the 10,000 capital. That was the Land Rover bought then.
I see. You don’t remember off hand when that was?‑‑‑November. No, I don’t remember.
27. There is, however, in respect of one quarter a glaring discrepancy; it relates to the quarter ending 30 June 2004. The Tribunal here refers to the transcript from line 41 on P67 to line 7 on P69 as follows:
MR UPEX: Mr Douglass, could you please turn to the second page of the bundle?‑‑‑Second page of the bundle. Yes.
Is your copy headed, BAS Month Ending June 2004?‑‑‑Correct.
However, as with similar documents, it’s actually for the quarter ending at the end of that month; is that the case?‑‑‑Correct.
Because we can see, for example, item one, fuel for April?‑‑‑Yes.
Purchases $3,396?‑‑‑Yes.
And you’ve calculated GST on that to be $308?‑‑‑That’s what I’ve got down there. I don’t know whether it’s correct. You’re going to tell me.
Okay. It looks roughly correct. I haven’t done the calculations myself but I’m assuming that documents you’re producing to the Tribunal, you do so on the basis that you believe they’re correct?‑‑‑That’s correct.
So this document is accurate and reliable?‑‑‑Yes.
And we’ve not seen it before today because?‑‑‑It was never asked for.
When you say we never asked for, we never specifically identified this particular document?‑‑‑When you asked for me at the last committee meetings, you – went on a period from ‘06 to ‘07.
Certainly our focus in our previous discussions were in that period but did it not occur to you along the way that this document might have been of relevance to the auditor or to the objection officer or to the Tribunal?‑‑‑No, because it was never asked for.
I see. In the purchaser’s column – the amounts are all for fuel for each of the three months, they’re all in the vicinity of $3,500; would you agree?‑‑‑Yes, they were all there.
And the total of that would be just over $10,500; would you agree?‑‑‑I would agree.
And the GST figures you’ve got there, they’d come in roughly $1,000?‑‑‑Roughly $1,000.
And these figures are accurate?‑‑‑To the best of my knowledge back in 2004, yes.
And even if we were to add in say item four, the oil, include that under the heading of fuel, that’s not going to make a huge amount of difference, is it? We’re still going to come in about $1,000 for the GST?‑‑‑Correct.
And about, well, maybe $11,000 in total. Can you turn now to the first volume of T documents please?‑‑‑First volume of T documents, yes.
And turn to page 157 [a document headed “Work sheet for Audit G.S.T. Dept” which shows a total figure for “fuel/oil” of $2,525 for the quarter ending June 2004] please?‑‑‑One hundred and fifty-seven. Correct.
Do you recognise this document?‑‑‑Yes, it looks like something I have sent down to your department.
And you sent it down in order to support your claims regarding fuel and oil; correct?‑‑‑I sent it down, yes to support that.
And it’s correct, isn’t it?‑‑‑By looking at those figures that I’ve got in 2004, they differ.
Yes, they do, don’t they?‑‑‑That they do.
28. The earnings of the lawn-mowing business (coupled with the evidence of the Applicant as to the rate of earning per job performed) during the audit period were such that it cannot be accepted that the Applicant was spending such large amounts on fuel; apart from any other considerations, and as set out previously his BP income was, at least on his own evidence, insufficient to fund the losses which were being incurred. During the audit period the lawn-mowing business incurred a loss in an amount of approximately $170,000; the Applicant said that when he worked for BP and usually for a day in each week, he derived about $120 net of tax. On this basis it was simply not possible for the Applicant to purchase equipment and fuel in accordance with his returns, and leaving aside for the moment any question of money for entertainment or living expenses. (If his BP or any other earnings were in excess of the amounts referred to in his oral evidence it was open to him to establish the amounts involved through tax returns and/or evidence from his accountant but he did not do so.) It follows of course that the discrepancy in respect of the June 2004 quarter and in which an amount of about $3,400 per month was claimed in respect of fuel in contrast with another return which disclosed a lower fuel expenditure cannot be true. His explanation at the hearing was that he had “either doubled a row up or done something – I don’t know. I’m not real good on computers” (P70:14-16). This was clearly not a valid response to a question of how he could be spending such a large sum (in excess of $10,000) on fuel in a single quarter.
29. Exhibit A1 indicates that the Applicant sought to rely on a statement by the Respondent to the effect that the taxpayer is not obliged to hold a tax invoice where the GST inclusive cost of an item is $55 or less. However, the fact that the taxpayer is not obliged to hold a tax invoice in such circumstances does not absolve him from the onus of establishing that the claimed expenditure did in fact occur. As set out previously in these reasons the Applicant worked at BP on one day in each week and on occasions on more days than one. (His evidence in this context was particularly uncertain; assuming that he worked in his lawn-mowing business for four days in each working week and assuming that he spent $30 per day on each working day in respect of fuel his fuel cost in a month would have been less than $500; even then it would have represented a large part of his business earnings and thus not leaving sufficient for the purchase of equipment in order to accumulate a stock of equipment which would not be available to his creditors and as set out in his evidence.)
PART F: THE EVIDENCE
30. The only person who gave evidence at the hearing was the Applicant himself. He did not call Mrs Loader in whose home he lives and he did not call his son who was instrumental in procuring the motor vehicle. He did not call Mr Dudman; he said that Mr Dudman has disappeared without trace. Most importantly in this context, he did not call his accountant who prepares his annual income tax returns because, so he said, his accountant is concerned only with his income tax returns and not with his GST obligations. The evidence of his accountant would, of course, have been relevant in relation to the question of how he was able to fund the losses in his lawn-mowing business and which were plainly at the very heart of this application.
31. At the end of the hearing day on 29 January 2010 it was decided that the volume of evidence before the Tribunal, and consisting of the evidence given at the hearing coupled with the voluminous T documents and Supplementary T documents, could best be dealt with through written rather than oral submissions and to be furnished within two weeks. It is important to note that the Tribunal allowed that period in respect of submissions as to the evidence which had been put before the Tribunal (both orally and in writing) at the hearing.
32. The Applicant in fact furnished the Tribunal with a document entitled “summary of my defence as asked for”; it is not necessary to include all of the content of that document; I include its content in respect of what he described as facts (3), (4) and (5) as follows:
Fact (3) As pointed out by Mr.Uppex at the tribunal on the 29-01-2010 my landlady does have a unique style of hand writing making it a big issue that the numbers in the top right hand corner was very similar to those on some st.marys&st.clair invoices which was written there by a A.T.O. office as a cross reference to this person being her tax file number refer page 183 refer to the writing of the phone number in this letter as pointed out by Mr.Uppex her handwriting looks unique so compare those numbers to the sloppy ones made by your officers the numbers they do not match so are you trying to tell me your officers tampered with the invoices in question ??????
Fact (4) Mr. Uppex made a big deal out of my worksheets for 2004 pointing out the big discrepancy April to June of that year referring to page 144 he used this as a cross reference and not the graph on page 157 where it clearly states it was a guide worked out off the trial period that was disallowed so where did page 144 come from was it made up by the A.TO.?? Or do they not understand what guide means or is the only term used on average as stated by Mr. mark fiddock of the A.T.O. he was not going through that pile of shit so do a guide, trial or average .
Fact (5) Stolen invoices it is impossible to return to an outlet where you have paid cash for a purchase and ask for a copy of that purchase outlets that I visited and asked that exact question was the post office,bunnings.tip,and fuel outlets when approached these outlet the following happened on walking in and asking the assistant on hand for a copy of a sales docket back in July between the 15-20th informing them it was for the tax office I was quickly informed that it was impossible to do so and being for the A.T.O. there has to be no doubt as to it validity as they would check. So Iam relying on a bit of understanding which I will point out later in this section .there is no mention of invoices in the police report as was pointed out by Mr. uppex but as Mr. Uppex was inform the officers that made out that report was not the officer I report the stolen goods to as I had no opportunity to view this report until now I never knew this fact making it impossible to rectify but as pointed to Mr.Uppex in a high profile place like the police dept. and the A.T.O. sometimes things can be mixed up refer to the example given at the tribunal I tell your department I have three loans totaling $21000.00 and two bankcards totaling $7000.00 and your department sends back a statement refer pages 10,11,210.211 and page 29,3.i.j. explaining there made up version of this documented proof was sent to the amount of $28000.00.references above will show there made up version. In brief St. George bankcard was not increased and not only $3500.00 was borrowed as inferred.
33. The Respondent’s written submissions (“RS”) dealt with the evidence before the Tribunal in considerable detail. Those submissions have been checked against the evidence and the Tribunal has drawn on them in part in respect of this Part F. The Respondent sought to deal with the somewhat incoherent content of the “defence” (more aptly perhaps described as an attack) referred to in the previous clause; however I do not think it necessary for me to include the content of RS referable to it. The Respondent, of course, denies that any of his officers tampered with or altered any of the documents and there is no evidence whatever before the Tribunal in support of these allegations.
34. The Respondent correctly identifies the fact that at the heart of this matter is the Applicant’s inability to substantiate more than a fraction of his claims for input tax credits for the audit period and the fact that such little evidence as has been provided is so unreliable. The Applicant’s oral evidence was equally unhelpful, and as noted by the Respondent demonstrated the Applicant’s readiness to conduct his financial affairs in an irregular manner.
Invoices from St Marys & St Clair Mower Centre
35. The Respondent detailed the following concerns about the invoices said to have been issued by St Marys & St Clair Mower Centre:
(a) The invoices identified as Category 2 and 3 invoices were to a considerable extent written by the Applicant.
(b) The invoice numbers on most of the Category 2 invoices appeared to have been altered;
(c) Liquid paper had been used on the Category 2 invoices (apparently for the purpose of altering the content of the invoices);
(d) The Category 2 invoices were not included in the 11 pages faxed by the proprietor of St Marys & St Clair Mower Centre;
(e) The Applicant failed to bring the originals of the invoices to the hearing as requested by the Respondent;
(f) The Category 2 invoices all purport to be issued on the 30th day of the relevant month, even where the month had 31 days;
(g) The four Category 2 invoices whose totals exceed $1,000 lack:
i.The words “tax invoice”
ii.The name of the recipient, and
iii.The address or ABN of the recipient
and thus do not satisfy the requirements of sub-regulation (2) of regulation 29-70.01 of A New Tax System (Goods and Services Tax) Regulations 1999 (“the GST Regulations”).
(h) Most of the Category 3 invoices also have totals which exceed $1,000 and do not satisfy the requirements of sub-regulation (2) of regulation 29-70.01 of the GST Regulations because they lack the name and the address or ABN of the recipient; and
(i) In relation to the three invoices in respect of the quarter ended 31 March 2007:
i.two of the invoices (ST24:112 and ST21:71) have the same total of $581.70 although in fact the latter is in error and should reflect a total of $641.70 and being an amount identical to the total of the third invoice (T52:193), and
ii.The total of these invoices is $1,865.10 whereas the document “B.A.S. ending March 2007” (ST21:71) reflects a total for this category of expense of $641.70.
36. In oral evidence the Applicant acknowledged that much of the handwriting on the Category 2 and 3 St Marys & St Clair Mower Centre invoices was his own. His explanation was as follows at line 15 to line 29 of P25:
... Because what happens is I walk into the shop, he passes down the folder and I write into it what I wish to buy, what I wish repaired, go away, do my job, come back. And the invoices - - -
The D. President: Sorry, I haven’t understood. You walk - I walk into the shop - - -?---Into the shop.
And do what?---And I - well, if I got a - say I got a lawnmower with me, I just pass it down, I just write down I want the carburettor fixed, blades put on it, and whatever. And if my whipper snipper’s - - -
...
And those became invoices?---They were on his invoices that he was using.
In your handwriting?---Yes, that’s what I’m saying...
37. The Respondent pointed out (correctly) that the Applicant failed to explain why the totals for each quarter also appear to be in the Applicant’s handwriting.
38. The Category 2 invoices bear the numbers 002991 (ST20:55; ST21:59), 002994 (ST20:54; ST21:62), 991 (ST20:56; ST21:64), 00299 (ST20:53; ST21:69) and 002891 (ST20:52; ST21:71). The Respondent noted that:
(a) In relation to the invoice numbered 002994 it is apparent that the invoice was originally numbered “002991” and that the “1” has been changed into a “4”.
(b) In relation to the invoice numbered 991 it appears that the invoice was originally numbered “002991” and that the first three digits have been obscured.
(c) In relation to the invoice numbered 00299 it appears that the invoice was originally numbered “002991” and the final digit has been obscured.
(d) In relation to the invoice numbered 002891 it appears that the invoice was originally numbered “002991” and the first “9” has been converted into an “8”.
39. On the basis of these observations the Respondent contended (and the Tribunal accepts) that all five invoices are descended from a single document.
40. The Applicant admitted to using liquid paper on the invoice at T1:9 but claimed he did so in order to provide a sample of a blank invoice (P72 to P73).
41. The Applicant was reluctant to acknowledge that someone had used liquid-paper in the generation of the Category 2 invoices. Ultimately, he implicitly conceded someone had done so but coupled this with an allegation that it was a Tax Officer (P75: 41-45):
… I send them to taxation department and you send them back in the T documents. You’re the other people with them.
Are you suggesting that a tax officer has got busy with a liquid paper and photocopier?---It wouldn’t be the first time they’ve falsified something.
42. The Applicant indicated he would give proof to substantiate this allegation but instead embarked upon a lengthy digression. The Applicant was not in the event able to furnish a satisfactory explanation. (This is one instance, but there are others, of the Applicant when in difficulty for an explanation tending to follow a line that attack is the best form of defence: see, for example, the document from which an extract is quoted in clause 32 above.)
43. The Respondent contended (and the Tribunal agrees) that the absence of the Category 2 invoices from a bundle of invoices faxed by the proprietor of the St Marys & St Clair Mower Centre (T52:192-202) gives rise to an inference that those invoices were not in his (Mr Dudman’s) possession.
44. The Respondent contends and the Tribunal agrees, given these irregularities, and the fact that the Respondent allowed the Applicant considerably more input tax credits than he was able to substantiate, that this is not an appropriate case for the exercise of the discretion under subsection 29-70(1) of A New Tax System (Goods and Services Tax) Act 1999 (“the GST Act”) to “treat as a tax invoice a particular document which is not a tax invoice”.
The applicant’s secondary documents
45. The Respondent submitted furthermore that this was not a case where the discretion available under subsection 29-70(1) of the GST Act should be exercised in respect of the Applicant’s secondary documents (including the working papers headed “B.A.S. month ending …”). This is so in the main because the secondary documents are insufficiently detailed; in particular,
(a) they do not give the dates of acquisitions, and
(b) they do not include separate entries for different acquisitions (for example, they give aggregate expenses for a given month or quarter)
(c) even if a taxpayer does not require a tax invoice in order to claim input tax credits for a particular creditable acquisition, a taxpayer must still establish that he or she made the acquisition—that is, did spend a particular amount on a particular day.
46. In addition the Respondent also identified mathematical errors in the secondary documents such as the calculation of the GST on a purchase by dividing by 10 rather by 11. An example cited by the Respondent was the Applicant’s Business Activity Statement and Working Papers for the quarter ended 30 June 2005 (ST7:13 and ST14:29, respectively).
47. There are also numerous instances of legal errors. The table below prepared by the Respondent shows that for some quarters, when calculating his total GST input tax credits, the Applicant has included input tax credits in respect of acquisitions which do not give rise to input tax credits.
Quarter
EndedItem Amount ITC
claimedTotal 30/09/2005 Loan payment 210 21 231 31/12/2005 Loan payment 840 84 924 31/03/2006 ANZ Loan 660 66 726 St George Loan 540 54 594 30/06/2006 Loan for car 630 63 693 Loan for mower 540 54 594 30/09/2006 Loan Payment 210 21 231 Loan repayment - ride on 180 18 198 31/12/2006 Loan payment 630 63 693 Equipment stolen 3,200 320 3,520 St George Loan 804 80 884 Buy new business 2,500 250 2,750 31/03/2007 St George Loan 754 68 822 ANZ Loan 660 60 720 12,358 1,222 13,580
48. The Respondent also made specific reference to the glaring discrepancy referred to in clause 27.
49. The Respondent noted that in his written submissions the Applicant claimed that the Respondent had misinterpreted the Applicant’s documents, or had fabricated evidence: “so where did page 144 come from was it made up by the A.T.O??” The Applicant has provided no evidence to substantiate his claim that “page 144” (that is, T41:144) was fabricated by the Respondent.
50. The Tribunal agrees in general terms with the Respondent’s submission that in the circumstances this is not a case in which the discretion available under subsection 29-70(1) of the GST Act should be exercised in the Applicant’s favour.
The Applicant’s Explanation for the Deficiency of Documentation
51. The Applicant claimed that most of his non-fuel invoices were stolen from his vehicle when he was en route to the Post Office to post them to the auditor (T41:127A).
52. The Police Report obtained by the Respondent (ST22:76) stated:
About 8.00pm the victim Paul DOUGLAS parked his vehicle … whilst he went into a shop. About 8.10pm he returned to his vehicle…
53. In cross examination it was put to the Applicant that the Police Report indicated that the break-in took place well after the Post Office would have closed. The Applicant’s explanation was that the Police Report was incorrect and that he had parked at 4:30 pm, gone into the St Marys & St Clair Mower Centre to have repairs done to machinery he needed for the following day, and emerged two to three hours later (at 6:30 to 7:30 pm).
54. The Applicant claimed that he had reported the break-in to a Constable Barry Walker and pointed out that the report bears the name of two other officers. However, the Applicant also stated that shortly after he made the initial report at the local police station some officers attended his home. The Respondent contended (and the Tribunal agrees) that the most probable explanation is that the officer the Applicant initially reported the break-in to was Constable Walker, and it was the officers who attended his home who made the report.
55. The Police Report makes no reference to the theft of invoices although the Applicant conceded at the hearing that if the thief had stolen a box containing the evidence which the Applicant needed for the audit, it was the most valuable stolen item. The Applicant could not explain why the report made no reference to the invoices allegedly stolen.
56. The Respondent noted that no invoice purporting to be an invoice from the business known as the St Marys & St Clair Mower Centre for the quarter January to March 2007 contains a date which corresponds with the date of the theft.
57. Where there are discrepancies between the Police Report and the Applicant’s version of events, the Police Report is to be preferred because it is a contemporaneous record by a third party with no interest in the outcome of the present proceedings.
58. The Tribunal agrees with the Respondent’s submission that it should infer that, assuming there was an actual break-in (that is, that the Applicant neither made it up nor staged it), there was no theft of evidence relevant to the current dispute from the Applicant’s vehicle. It follows that the Applicant’s inability to provide substantiation for the bulk (in dollar terms) of his claims for input tax credits was not caused by the acts of a third party. Even if it were, the Tribunal accepts the Respondent’s submission that this would not affect the Applicant’s obligation to discharge the onus of proof.
59. The Applicant claimed that he had sent the Respondent fuel receipts which an officer of the Respondent declined to inspect. It would appear from the contents of table at page 15 of the “Reasons for Decision” (T2:20) that at some point an officer of the Respondent did consider fuel receipts provided by the Applicant. As to whether the Applicant seeks to allege that despite the Tables contained in RSFIC there were fuel invoices for which he did not receive credit is unclear but it is clear that the relevant onus has not been discharged. As set out previously in these reasons the Applicant’s evidence as regards fuel expenditure was particularly unacceptable.
60. A cursory comparison of the figures in the table at page 15 of the “Reasons for Decision” (T2:20) with the figures in respect of fuel and oil in the Applicant’s documents headed “B.A.S. Month ending …” (and see, for example, the documents following ST14:27) indicates that, for most quarters, there was a sizeable discrepancy between what was claimed for fuel and oil expenses and what was substantiated.
Part G: Conclusion
61. When the hearing commenced and with the consent of the Applicant, Mr Upex at the invitation of the Tribunal, furnished the Applicant with a brief address as to the nature of the onus which he had to discharge if he were to succeed. But in brief terms he must establish not only that the assessment in question are wrong but must also establish what the correct assessments should be. The Tribunal refers in this context to The Commissioner of Taxation for the Commonwealth of Australiav Dalco (1990) 168 CLR 614 at 623 per Brennan J (with whose reasons Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreed), following on from remarks of Latham CJ in Trautwein v The Federal Commissioner of Taxation (1936) 56 CLR 63.
62. The Applicant’s evidence at the hearing was not worthy of credibility. It was at times contradicted or amended, but more crucially there were not explanations where explanations were obviously required.
63. The Tribunal does not for reasons set out previously accept that the Applicant’s non-fuel tax invoices were stolen.
64. The Applicant’s allegation that the St Marys & St Clair Mower Centre invoices were written by him because the sales assistant employed by Mr Dudman was illiterate, is simply not credible. Even assuming that one such assistant was illiterate, which is hardly likely, there were apparently others.
65. The Tribunal considers that it is likely on the balance of probabilities that the “doctoring” of invoices which took place was perpetrated by the Applicant himself and indeed the Applicant did not in cross-examination suggest who else might have been responsible.
66. There is, in particular, no explanation of how the Applicant managed to fund such large losses over so extended a period; his BP earnings were on his evidence not sufficient for this purpose even if the Tribunal accepts his evidence that he lived with Mrs Loader free of any financial obligation. He said that Mrs Loader is not his de facto; if this is so why would she support him in financial terms to so marked an extent? The Applicant must have needed money for other purposes; the Tribunal refers in this context to the entertainment expenditure referred to earlier in these reasons.
67. It may be noted that the Applicant’s evidence was that he is still to this day and in his lawn-mowing business trading at a loss but that the Respondent utilises the GST refund to which he is entitled in reduction of his liability. His “defence” document a part of which is quoted in clause 32 is particularly vocal in his complaints as to this aspect.
68. The Applicant’s fuel claims were on the balance of probabilities fictitious. There was no reason why he would need to purchase fuel daily (at a cost of less than $55 each time) especially if he was working at BP on at least one day a week and on occasions for longer periods. The fact that this must be so is demonstrated by the enormous discrepancy in respect of the June 2004 quarter referred to previously in these reasons and in respect of which there was no explanation whatever. In that quarter and as set out previously approximately $3,400 per month was claimed in respect of fuel alone and where earnings were so much less.
69. The Applicant’s contention that he was building up a store of equipment so as to defeat his creditors, may be correct as a statement of his avowed intentions; what is altogether unclear is how on the figures presented by him this could be achieved.
70. The Applicant’s contention that a document was altered by an officer in the employ of the Respondent is particularly unfortunate and as set out previously there is no evidence before the Tribunal that this occurred.
71. The Applicant presented no evidence other than his own and his own was most unreliable. His record-keeping standard was as has been demonstrated considerably less than was desirable.
72. The Applicant may or may not have a gambling problem. He denied that he is a gambler but evidence was presented to him in cross-examination which would suggest otherwise.
73. The Applicant has been treated generously in a number of respects: he claimed roughly $25,000 in input tax credits; he was able to substantiate about $2,000 but the Respondent allowed a further and larger amount. Moreover, the Respondent was prepared to concede that Mr Dudman should have been registered for GST purposes.
74. It is abundantly clear that the Applicant has not discharged the onus and it follows that the objection decision under review must be affirmed. Insofar as the Tribunal is vested with discretion to treat a document as constituting a tax invoice when it is not, this is clearly not a case where the exercise of the discretion in favour of the Applicant would be proper. The penalty assessed against the Applicant resulted from his recklessness and having regard to the evidence before the Tribunal and on a balance of probabilities could have been treated in a more serious light. Penalty was imposed under sections 284-75 and 284-90 of Schedule 1 to the Taxation Administration Act 1953 and the Tribunal does not consider that there is any basis for a reduction of the penalty under subsection 298-20(1) of that statute.
75. However one regards the figures presented by the Applicant it is not possible to reconcile them in any meaningful way. If as the Applicant said he derived $120 per day net when he worked for BP and if he worked in general terms for BP for one day in each week and even if one allows for the fact that on occasions he worked for longer periods the Applicant’s BP earnings would not have been sufficient (and by a considerable margin) to fund the losses alleged to have been incurred during the audit period. This does not as set out previously make any allowance for living expenses (and his evidence was that Mrs Loader in effect provides those expenses) and entertainment expenses (and there was no allegation of assistance in this context from Mrs Loader).
I certify that the 75 preceding paragraphs are a true copy of the reasons for the decision herein of Mr Julian Block, Deputy President
Signed: ...............[sgd].................................................................
AssociateDate of Hearing 29 January 2010
Date of Decision 25 February 2010
Appearance for the Applicant Self-represented
Appearance for the Respondent Mr B Upex, ATO
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