Ferozkohei and Commissioner of Taxation (Taxation)
[2017] AATA 2405
•29 November 2017
Ferozkohei and Commissioner of Taxation (Taxation) [2017] AATA 2405 (29 November 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2016/0286
Re:Malalai Ferozkohei
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Dr T Nicoletti, Senior Member
Date:29 November 2017
Place:Sydney
The Objection Decision under review is affirmed.
................................[sgd].................................
Dr T Nicoletti, Senior Member
CATCHWORDS
TAXATION AND REVENUE – income tax – deductions – entitlement to rental property interest expenses – entitlement to deductions for rental property capital works expenses – entitlement to deductions for other rental deductions – administrative penalty – whether administrative penalty for recklessness was correctly imposed – discretion to remit all or part of administrative penalty – objection decision is affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth), Div. 43, ss 8-1, 43-25(1). 43-30
Taxation Administration Act 1953 (Cth) ss 14ZZK, 284-75, 284-90, 298-20 of Sch. 1
CASES
Commissioner of Taxation v Munro (1926) 38 CLR 153
Commissioner of Taxation v Roberts (1992) 37 FCR 246
Kidston Goldmines Ltd v Commissioner of Taxation (1991) 30 FCR 77
Scott and Commissioner of Taxation [2003] AATA 206; (2003) 52 ATR 1058
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
SECONDARY MATERIALS
Taxation Ruling TR 95/25 Income Tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith
REASONS FOR DECISION
Dr T Nicoletti, Senior Member
29 November 2017
BACKGROUND
On 18 January 2016, the Applicant applied for a review of the Respondent's Objection Decision dated 16 November 2015 (‘Objection Decision’) pertaining to the 30 June 2013 financial year (‘FY2013’).
The Objection Decision is based on the information which was before the Respondent at the time the Objection decision was made and arises from documents and information furnished to him by the Applicant and/or her taxation agent.
The Respondent states that he relies upon s 14ZZK of the Taxation Administration Act 1953 (Cth) (‘TAA’), which imposes a burden on the Applicant to prove that the assessment, the subject of this proceeding, is excessive, and what the assessment should have been.
FACTS
The Applicant was a Director and employee of lnhouse Depot Pty Ltd during FY2013.
On 8 October 2013, the Applicant, through her taxation agent, lodged an income tax return for FY2013, which stated that she had received gross income payments of $175,000 during that year.
The Applicant claimed the following deductions and net rental property loss which are the subject of this proceeding:
Deduction Type
Amount
Work related car expenses
$11,210 (Logbook Method)
Work related travel expenses
$3,278
Interest Deductions
$119,628
Capital Works Deductions
$10,000
Other Rental Deductions
$35,585
Net rental property loss
$94,844
On 16 September 2014, the Respondent notified the Applicant that her income tax return for FY2013 would be audited in respect of the work-related expenses and the net rental property loss that she had claimed.
On 14 October 2014, the Applicant responded to the notice of audit through her taxation agent. The response relevantly stated the following:
(a)Work-related Car Expenses
The Applicant claimed that her "work in [her] capacity as the CEO and for business promotion required her to travel for her company”. She claimed that 75% of her car usage was work-related.
Her work related car expenses comprised the following:
Expense
Amount
Car finance – interest payments
$2,349
Registration, CTP, Comp Insurance, Maintenance/Servicing, Fuel 75%
$3,801
Depreciation
$5,073
(b)Work related Travel Expenses
The Applicant's salary included a travel allowance, which allegedly related to food and incidental costs incurred during overseas and interstate travel, calculated at the Commissioner's Reasonable Rates (TD 2012/17):
Expense
Amount
Food and Incidentals (Interstate)
Canberra – 6 Days
$698
Food and Incidentals (Interstate)
China – 10 Days
$2,580
Certain supporting material was provided by the Applicant, including in relation to her claimed net rental property loss. In relation to the claimed interest deduction, the Applicant indicated that all her rental properties were "cross securitized for the various home loans", which were all refinanced in 2009 with the NAB, and that "interest on all loans has been arbitrarily allocated to different properties".
On 23 October 2014, the Applicant provided, through her taxation agent, further documentation in relation to allowances paid as part of her salary, her work-related car expense claims, and her net rental property loss claim.
On 27 November 2014, the Respondent issued the Applicant with an Outcome of 2013 income tax return audit letter, which made the following adjustments to the claimed deductions:
Deduction Type
Amount Claimed
Audit Outcome
Work-related car expenses
$11,210 (Logbook Method)
$0
Work-related travel expenses
$3,278
$0
Rental Interest Deductions
$119,628
$0
Capital Works Deductions
$10,000
$8,221
Other Rental Deductions
$35,585
$11,866
The Respondent also imposed an administrative penalty of 50% of the Applicant's shortfall amount.
On 8 December 2014, the Respondent issued a Notice of Amendment Assessment for FY2013 and a Notice of assessment of shortfall penalty (in the amount of $35,461.35).
On 19 December 2014, the Applicant lodged an objection through her taxation agent.
On 30 April 2015, the Respondent requested further information from the Applicant, particularly in relation to her rental property expense claim.
On 10 May 2015, the Applicant provided the following further explanation of her expenses through her taxation agent:
(a)Work-related Car Expenses
The Applicant provided an "updated log book" for her vehicle, "indicating work related travel”.
(b)Work-related Travel Expenses
The Applicant confirmed that she had not travelled to China during the Relevant Year, and that this expense was claimed in error. The Applicant confirmed that she had not travelled to Canberra during the Relevant Year, and instead had visited trade shows in Melbourne. All travel expenses were claimed at the Commissioner's Reasonable rates.
(c)Interest Deductions
The Applicant stated that she had purchased rental properties since 2001, but the loans for those properties were refinanced and "merged' with the NAB. She stated that "it is not possible to allocate the exact amount [of interest] to each property".
(d)Capital Works Deductions
The Applicant provided the depreciation and building write-off claim for her property at 810/16-20 Meredith Street, Bankstown, which "was estimated on the basis of the Depreciation Schedule for Northam Avenue", on the basis that that property was similar.
In addition to the above explanation, a range of supporting documents was provided to the Respondent. Further responses and documents were provided to the Respondent between May and September 2015.
On 16 November 2015, the Respondent issued the Notice of Objection Decision and allowed the Applicant's objection in part, as follows:
Deduction Type
Amount Claimed
Audit Outcome
Objection Outcome
Work-related car expenses
$11,210 (Logbook Method)
$0
$6,861
Work-related travel expenses
$3,278
$0
$0
Rental Interest
$119,628
$0
$0
Capital Works Deductions
$10,000
$8,221
$8,221
Other Rental Deductions
$35,585
$11,866
$13,695
Net Rental Income
-$94,844
$50,282
$48,453
The Applicant's objection to the administrative penalty was disallowed.
On 18 January 2016, the Applicant submitted an application for review of the Objection Decision.
However, on 1 December 2016, the Applicant conceded in her Supplementary Statement of Facts, Issues and Contentions (‘SFIC’) that she was not entitled to the work-related car expenses, work-related travel expenses and many of the rental expense deductions which were the subject of her application for review.
Accordingly, for completeness, the expenses initially claimed in the Applicant’s application for review (as set out in the SFIC) and those claimed subsequently (as set out in her Supplementary SFIC) are tabulated below:
Deduction
Initial Amount Claimed
Subsequent amount claimed
Work-related car expenses
$11,210 (Logbook Method)
$0
Work-related travel expenses
$3,278
$0
Rental Interest
$119,628
$84,986
Capital Works Deductions
$10,000
$1,874.50
Other Rental Deductions
$35,585
$13,540
The Respondent submits that the above deductions are nevertheless relevant for the purpose of the Tribunal’s consideration as to whether an administrative penalty ought to have been imposed.
ISSUES
The following issues apply in relation to this application for review:
(a)Whether the Applicant is entitled to rental property interest expenses in the amount of $84,986 for FY2013:
(b)Whether the Applicant is entitled to a deduction for rental property capital work expenses in the amount of $1,874.50 for FY2013;
(c)Whether the Applicant is entitled to other rental property deductions in the amount of $13,540 for FY2013;
(d)Whether the administrative penalty for recklessness was correctly imposed under ss 284-75 and 284-90 of Schedule 1 of the TAA; and
(e)Whether the Tribunal should exercise its discretion, under s 298-20 of Schedule 1 of the TAA, to remit all or part of the administrative penalty.
LEGISLATION
The legislation relevant to general deductions is set out under s 8.1 of the Income Tax Assessment Act 1997 (‘ITAA’), which provides for deductions for expenses incurred in the course of gaining or producing assessable income. Paragraph 8.1(1)(a) specifically provides that a person can deduct from their assessable income any loss or outgoing to the extent that it was incurred in gaining or producing their assessable income.
Interest
Taxation Ruling 95/25[1] (‘TR 95/25’) sets out the Commissioner’s ruling with respect to the deductibility of interest expenses. TR 95/25 provides that to determine whether interest expenses are deductible, the purpose of the borrowing and the use to which the borrowed funds are put must be examined.
[1] TR 95/25 Income Tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith
If funds are borrowed for investment purposes from which income is to be derived, the interest incurred on the loan will be deductible.
Capital Works
Division 43 of the ITAA provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements where a residential property is used for income producing purposes.
Subsection 43.25(1) of the ITAA provides that the rate of deduction for capital works which began after 26 February 1992 for a residential property is 2.5%. However, a deduction cannot be made prior to the completion of the capital works (s 43.30 of the ITAA).
CONSIDERATION
The Applicant bears the onus of proving that the deductions claimed in FY2013 were allowed. The issues in this proceeding relate to the expenses claimed by the Applicant and the evidence of, and information about, those expenses.
If the Applicant has failed to produce evidence to properly substantiate her claims, then she will not have discharged the onus of proof imposed on her: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 per Latham CJ.
Prima facie, pursuant to paragraph 8.1(1)(a) of the ITAA, the Applicant must establish that the deductions she has claimed were incurred in the course of her gaining or producing her assessable income. Accordingly, any expenses she has incurred relating to properties she owns can only be deducted if she can demonstrate that the expenses were incurred in the course of generating income from those properties.
Rental Property Interest Deductions
The Applicant initially claimed a deduction of $119,628 for interest expenses which she claims were incurred in respect of six rental properties she jointly owned with her husband.
In her reply to the Respondent’s Supplementary SFIC, the Applicant amended her claim to $84,986 for rental property interest deductions. She provided a table demonstrating how the interest was calculated, but did not provide any explanation as to why the amount claimed was reduced by $34,642 from the original amount. The Respondent noted, in this regard, that the Applicant’s original claimed amount included the interest charged on two National Australia Bank accounts, but these accounts were omitted from the subsequent amount claimed (and no explanation was provided for this omission).
Interest may be deductible on any borrowings that are used to acquire income-producing assets or are otherwise applied for income-producing purposes: see, for example, Federal Commissioner of Taxation v Munro (1926) 38 CLR 153. To be deductible, the interest must be an expense incurred in gaining or producing the taxpayer's assessable income: section 8.1 ITAA: Commissioner of Taxation v Roberts (1992) 37 FCR 246, 2254-257 per Hill J. The use or application of the loaned funds (on which the interest accrues) is relevant to determining that matter (Kidston Goldmines Ltd v Commissioner of Taxation (1991) 30 FCR 77), and if only part of the borrowed sum is applied for an income producing purpose, then the interest expense must be apportioned accordingly: s 8.1 ITAA.
The Respondent’s contention is that, notwithstanding the further documentation provided by the Applicant in her reply to the Respondent’s Supplementary SFIC, there is insufficient evidence before the Tribunal for it to allow the claimed deductions. He says that whilst the Applicant provided bank account statements in support of the claimed deductions, there is no evidence establishing how the borrowings, and particularly the interest on those borrowings, relate to the rental properties. More specifically, the Applicant has not provided information establishing whether the borrowings, and the interest on those borrowings, relate only to the rental properties in question or, if not, the extent to which they were used for non-income-producing purposes, and the extent to which the properties were rented or available for rental during FY2013.
It is evident from the Applicant’s submissions and loan statements summonsed by the Respondent (and before the Tribunal) that a number of the loans were refinanced by the Applicant and had unexplained drawdowns (on which interest was charged) which may or may not have been related to the rental property to which the loan was attributed.
In the absence of any tangible evidence which conclusively establishes how the loaned funds were used, I cannot determine that the interest incurred is deductible: cf. Scott and Commissioner of Taxation [2003] AATA 206; (2003) 52 ATR 1058 at [9] per Member McCabe.
I also cannot be satisfied, on the evidence I have before me that three of the properties were rented or were even made available for rent. In this regard, I cannot establish that the interest which was attributed to those properties can be said to have been incurred in gaining or producing the Applicant’s assessable income.
Finally, the fact that the rental properties may have been used as securities for the loans does not mean that the interest charged on those loans is deductible: see, for example, Federal Commission of Taxation v Munro (1926) 38 CLR 153.
The following information is relevant in relation to each of the rental properties identified by the Applicant:
(a)607/11 Jacobs Avenue, Bankstown
This property was purchased on 1 March 2001. The Applicant attributed a particular NAB loan to that property, but the loan account pertaining to that loan was opened in December 2003, more than two years after the property was acquired.
The Applicant says that at the time of purchase, the property was under a CBA loan, the documents for which could not be located. She says that the property was subsequently refinanced, but provided no evidence establishing how, if at all, the funds advanced under the NAB loan were applied to the property.
The bank statements for the account show that the outstanding loan balance was reduced to $0 on numerous occasions and a number of withdrawals with no explained connection with the Jacobs Avenue property were made.
(b)810/16-20 Meredith Street, Bankstown
This property was purchased on 17 November 2004. The Applicant attributed another NAB loan to that property, but the loan account pertaining to that loan was opened on 13 July 2009, almost five years after the property was purchased.
The Applicant says that a CBA loan account was initially opened in respect of the Meredith Street property, but was subsequently closed and then an NAB loan account was opened in 2009. She concedes that the NAB loan was not opened in respect of the purchase of the property, and has provided no evidence establishing how, if at all, funds advanced under the loan were applied to the property. There is no evidence establishing that the interest charged on the account is attributable, either wholly or in part, to the Meredith Street property.
(c)43 Northam Avenue, Bankstown
This property was purchased on 1 December 2001. The Applicant attributed a Commonwealth Bank loan to the property, but later asserted that two NAB loans applied to the property, one which was opened on 13 November 2002 after the CBA loan was refinanced, and another which was opened on 26 October 2004 after the first NAB loan was refinanced. However, there is no evidence showing how, if at all, the funds advanced under this NAB loan were applied to the property.
Further, there is no evidence which establishes that this property was rented during FY2013, such that any interest which might have been attributed to this property was not incurred in the course of gaining or producing the Applicant’s assessable income: paragraph 8.1(1)(a) of the ITAA. A "rental agreement" was provided for the property, which was purportedly signed by a tenant of the property, but the agreement undated and not witnessed.
The Applicant contends that “the tenant date section was not filled in due to ignorance, from our understanding where the tenant Is (sic) paying rent based on the same rent deed and being accounted for as rental income by ATO shouldn’t be a reason for not allowing interest and other rental deductions”.
However, as the Applicant has not provided any evidence of any rent payments made by this alleged tenant, I am unable to establish that the property was actually rented – the absence of evidence and the inadequacy of the rental agreement would suggest otherwise.
(d)47/107-21 Quay Street, Haymarket
This property was purchased on 20 September 2004, apparently under finance by a mortgage from the vendor, Meriton. This mortgage was repayable in September 2007. The Applicant now asserts that an NAB loan is attributable to the property, but that loan was opened in May 2009 and the first drawdown occurred in August 2009. There is no evidence establishing how, if at all, the funds advanced under this NAB loan were applied to the property, or how the interest charged on the account is attributable, wholly or in part, to the Quay Street property. Based on the two year gap between the repayment date for the Meriton loan and the NAB loan, I am unable to establish that the NAB loan can properly be attributed to the Quay Street property.
(e)8 Pintaclo Way, Canning Vale
This property was purchased on 4 May 2009. The Applicant initially attributed a particular NAB loan account to the property, but no evidence was provided establishing that the funds from this account were used to acquire the property. She now asserts another NAB loan account as attributable to the property, which was opened on 26 June 2012 and from which a drawdown of $290,000 occurred on 27 June 2012. From the documents provided by the Applicant, it appears that approximately $200,000 of this amount was used to pay off the original NAB loan that was attributed to the property. However, there is otherwise no explanation as to how the subsequent NAB loan account is attributable to this property. For completeness, it is noted that $90,000 was paid, in September and October 2012, from this subsequent NAB loan account into another NAB loan account but, again, no explanation was provided for this transaction, particularly in relation to whether it related to the gaining or producing of the Applicant's assessable income.
Finally, I am also not satisfied that this property was rented during FY2013. The "rental agreement" for the property is signed, but the tenant’s signature is not witnessed and the agreement is undated. In addition, the Applicant provided inconsistent evidence as to the rent paid, viz the "rental agreement" stated $473/week as the rent whereas the Applicant initially indicated to the Respondent that the rent was $500/week, but then asserted a whole year’s rent at $473/week ($24,596) in her reply to the Respondent’s Supplementary SFIC.
This assertion is not accepted, as the Applicant has not been able to furnish any evidence that this rent was actually paid.
(f)11 Doris Hirst Place, West Pennant Hills
This property was purchased on 28 February 2006. The Applicant appears to claim that the property was initially financed by an ING loan, which commenced in March 2006. The Applicant now asserts that there are two loans attributable to this property, being two NAB loans. One of those loans commenced on 5 April 2011, but no evidence has been provided as to how the funds advanced were attributable to the Doris Hirst Place property. Additionally, the bank statements for this account show numerous withdrawals and payments into other loan accounts, amounting to approximately $840,000.
The Applicant explained in her reply to the Respondent’s Supplementary SFIC that the withdrawals related to construction on the property. If I were to accept this explanation, I would find it difficult to accept the Applicant’s assertion that the loans attributed to this property were incurred in gaining or producing the Applicant's assessable income.
In this regard, although the Applicant alleges that the property was rented during FY2013, there is also no evidence establishing that this was the case. The Applicant claims that the property was leased for 12 months at $2,000/month, which was paid in cash. However, the "rental agreements" for the property provided by the Applicant cover only three ten-week periods and state that the rent was $800/week (approximately $3,200/month). The "rental agreements" were not properly signed or witnessed. The purported tenant was a corporate entity (lnhouse Depot Pty Ltd) of which the Applicant was a director. There is no evidence establishing that the company paid the Applicant any rent whatsoever.
It is not possible on the evidence before me to establish what would be any allowable deductions in respect of the Applicant’s borrowings. I cannot determine how the Applicant’s borrowings were applied, such that I find that she has not discharged the burden of substantiating her entitlement to any of the deductions for interest in the amounts claimed.
It is also not possible for me to establish that any of the Northam Avenue, Pintaclo Way and Doris Hirst Place properties were rented during FY2013. The evidence is inconsistent at best and supported by incomplete documents which do not appear to be genuine. On this basis, the Applicant has not demonstrated to me that any interest claimed in respect of those properties (assuming that the interest is properly claimable, which it is not) was for an income-producing purpose.
Capital Work Expenses
The Applicant claimed a deduction of $10,000 for capital works deductions, of which $8,221 was allowed in the Objections Decision. The disallowed amount of $1,779 was initially claimed in relation to 810/16-20 Meredith Street, Bankstown, but the Applicant now claims an amount of $1,874.50.
The Applicant contended that the Meredith Street property is "similar" to a property at 43 Northam Avenue, Bankstown and "the Respondent should therefore allow this deduction". In this regard, the Respondent noted that the Applicant conceded that the quantum of the deduction claimed was only an "estimate", which was based a different property.
It is not sufficient to substantiate a deduction on the basis of a deduction relating to a “similar” property. The obligation on the Applicant was to provide objective, stand-alone evidence of the capital works deductions claimed in relation to the property in question. She did not do that.
In the absence of such evidence, I find that the Applicant is not entitled to claim the disallowed amount of $1,874.50.
Other Rental Deductions
In relation to the other rental deductions claimed, the Applicant must establish, pursuant to paragraph 8.1(1)(a) of the ITAA, that these were incurred in the course of gaining or producing the Applicant’s assessable income.
The Applicant claimed a deduction of $35,585 for other rental expenses incurred in relation to her rental properties. A deduction of $13,695 was allowed in the Objection Decision. Per her reply to the Respondent’s Supplementary SFIC, the Applicant claims a deduction of $13,540 which, as explained in the submissions she provided on 1 December 2016, she claims in addition to the amount allowed in the Objection Decision.
The following information is relevant to the deductions claimed:
(a)Body Corporate Fees
The Applicant claims a deduction for body corporate fees of $2,677 for 11 Jacobs Avenue, Bankstown. The documents provided by the Applicant do not establish that this expense was actually incurred. In fact, the Westside Strata Management Summary dated 7 December 2012 and provided to the Tribunal on 1 December 2016 shows that the body corporate fees for the Jacobs Street property were unpaid. A deduction of $1,401 is also claimed for 43 Northam Avenue, Bankstown, but there is no information as to how this amount was calculated, nor evidence showing that that amount was actually paid.
There is also no evidence that the Northam Avenue property was rented during FY2013, such that any payments made in respect of the property are not deductible. The only explanation offered by the Applicant is that set out at subparagraph 41(c) above, which I do not accept. The Applicant is therefore not entitled to a deduction for the body corporate fees for this property.
(b)Council Rates
The Applicant claims deductions of $466, $493 and $422 for Council fees in relation to the Jacobs Avenue, Meredith Street and Northam Avenue rental properties, respectively. Invoices for those fees were been provided, but no evidence was provided that the Applicant incurred expenditure in those amounts. Again, in relation to the Northam Avenue property, there is no evidence that that property was rented during FY2013, and therefore the expense would not be deductible in any event. I note that Applicant stated in her reply to the Respondent’s Supplementary SFIC that “most of the expense for the rental properties were paid by the group companies and booked in director loan accounts (paid on behalf of [the Applicant]”. It is clear, in this regard, that the expenses were not paid by the Applicant.
(c)Depreciation
The Applicant has claimed a deduction of $2,379 for depreciation in relation to the Quay Street property. She provided a tax depreciation schedule from Washington Brown Depreciation Pty Ltd stating that the amount claimable was $4,406. Conspicuously, this depreciation schedule is dated 11 October 2004, and I am left scratching my head trying to understand how it can possibly relate to a deduction in FY2013. I can find no evidence substantiating a deduction of either $2,379 or $4,406 for FY2013 and, quite frankly, presenting this kind of evidence in purported substantiation of her claim is just one of many examples of the flagrant disregard the Applicant has for her taxation obligations.
(d)Insurance
The Applicant claims a deduction of $511 for landlord insurance for the Pintaclo Way property, but the Applicant has not provided any evidence that this property was rented during FY2013, such that the expense is not deductible.
(e)Land Tax
The Applicant claims a deduction for land tax on the Quay Street, Jacobs Avenue, Meredith Street, Northam Avenue and Doris Hirst properties. An invoice was provided encompassing all of these properties. However, the Applicant did not provided any evidence establishing that the expense was actually incurred by her. Indeed, the Applicant explained in her reply to the Respondent’s Supplementary SFIC that “the land tax was paid by Inhouse Depot Pty Ltd on behalf of applicant”.
Further, in respect of the land tax attributable to the Northam Avenue and Doris Hirst Place properties, the Applicant has not provided any evidence establishing that those properties were rented during FY2013, such that the expenses in respect of those properties would not be deductible in any event.
(f)Water Charges
The Applicant claims a deduction for water charges for the Jacobs Avenue, Meredith Street, Northam Avenue and Pintaclo Way properties. In relation to the Jacobs Avenue property, four invoices and one receipt (amounting to $337.60) are provided. On two of those invoices, there is a handwritten note stating "paid" and "lnhouse". As noted, lnhouse Depot Pty Ltd is a company of which the Applicant is a director. The handwritten notes indicate that lnhouse Depot, rather than the Applicant, incurred expenditure for the water charges.
In relation to the Meredith Street property, there is no evidence establishing that the expenses identified were actually incurred by the Applicant and, again, one invoice refers to payment by lnhouse Depot.
In relation to the Pintaclo Way property, there is also no evidence establishing that the claimed expenses were incurred and, as previously stated above, no evidence was provided which establishes that the Pintaclo Way property was rented during FY2013.
No evidence at all was provided to substantiate the water expenses relating the Northam Avenue property but, in any event, no evidence has been provided which establishes that this property was rented during FY2013, so the expenses are not deducted.
The Applicant conceded in her reply to the Respondent’s Supplementary SFIC that most of the expenses for the rental properties “were paid by the group companies and booked in director loan account (paid on behalf of [the Applicant]). Inhouse Pty Ltd director loan account is attached to provide that the payment was made by company on behalf of [the Applicant] hence deductible”. It is clear, in this regard, that the expenses were not paid by the Applicant.
The Applicant has not provided any evidence to substantiating the expenses claimed in relation to “other rental expenses”, and has particularly not been able to show that any of the expenses were actually incurred by her.
In the absence of such evidence, I find that the Applicant is not entitled to claim any deductions for “other rental expenses”.
Administrative Penalties
The Applicant contends that "there has been absolutely no reckless[ness] or lack of reasonable care" and, on that basis, the administrative penalties imposed should be withdrawn or remitted in full.
The Respondent contends that the Applicant and her taxation agent were reckless in the preparation and lodgement of her income tax return in FY2013. I agree with that contention.
Despite having retained the services of a taxation agent, the Applicant did not retain proper records to substantiate many of the deductions claimed and did not demonstrate that she took reasonable care in establishing that the claimed deductions were allowable and in the subsequent preparation and lodgement of her income tax returns.
On that basis, I find that the administrative penalties are well justified and I do not accept that there is any basis for me to consider that they should be withdrawn or remitted in full.
DECISION
On the basis of my consideration at paragraphs 30 and 56 above, the Objection Decision under review is affirmed.
I certify that the preceding 57 (fifty -seven) paragraphs are a true copy of the reasons for the decision herein of Dr T Nicoletti, Senior Member
...............................[sgd].....................................
Associate
Dated: 29 November 2017
Date of hearing: 31 July 2017 Advocate for the Applicant: Mr M Kumar and Mr D Giraldo, Confederal Tax Law Agents Counsel for the Respondent: Mr N Swan Solicitors for the Respondent: Ms N McGregor, Commissioner of Taxation
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