Francis and Commissioner of Taxation
[2007] AATA 1927
•6 November 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1927
ADMINISTRATIVE APPEALS TRIBUNAL )
)No 2007/247-252
TAXATION APPEALS DIVISION ) Re MIGUEL FRANCIS Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Ms Robin Hunt, Senior Member Date6 November 2007
PlaceSydney
Decision The objection decision under review is affirmed. .................[Sgd]......................
Ms Robin Hunt
Senior Member
CATCHWORDS
TAXATION – Practice and procedure - Income tax – Application for extension of time to lodge objection to assessments – Review of objection decision - Decision affirmed
LEGISLATION
Taxation Administration Act 1953
Income Tax Assessment Act 1997
Income Tax Assessment Act 1936
POLICY
ATO Practice Statement Law Administration (PS LA) 2003/7
CASES
Brown v Federal Commissioner of Taxation 99 ATC 4516
Federal Commissioner of Taxation v Brown 99 ATC 4852
Drake v Minister for Immigration & Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Hunter Valley Developments Pty Limited v Minister for Home Affairs and Environment (1984) 58 ALR 305
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
McCormack v Federal Commissioner of Taxation (1979) 23 ALR 583
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
REASONS FOR DECISION
6 November 2007 Ms Robin Hunt, Senior Member background
1. This is a review of an objection decision. Mr Miguel Francis requested the Commissioner, on or about 31 October 2006, to allow him an extension of time to object to income tax assessments for the financial years ending 1989 to 1997. The main thrust of the objection was that the returns furnished for these years overstated Mr Francis’s income and should be amended. The Commissioner, on or about 11 December 2006, made a decision allowing Mr Francis’s request for an extension of time to object to the assessments for the years 1991/92 to 1996/97 but refusing his request concerning the years 1998/1989, 1989/1990 and 1990/91.
issues
2. The first issue before me was whether the applicant should be granted an extension of time to object to income tax assessments for the financial years 1998/1989, 1989/90 and 1990/1991.
3. As to the remaining years, the Commissioner allowed the applicant an extension of time and considered the grounds of objection to the assessments for 1991 to 1997 put by the applicant but concluded that he had not demonstrated that these assessments were excessive. I have therefore considered whether Mr Francis has discharged the onus of proof on respect to these years that the assessments were excessive.
consideration of extension of time request
4. In his application for review to the Tribunal, Mr Francis simply stated that the decision was wrong. At the Tribunal hearing, Mr Francis was unrepresented and gave oral evidence about his business activities during the years in dispute.
1998/1989, 1989/90 and 1990/1991
5. The years of assessment from 1988 to 1991 involve consideration of the law as it was before the current income tax legislation. At the time of the financial years for which Mr Francis seeks an opportunity to review the refusal decision for an extension of time to object to assessments for 1998/1989, 1989/90 and 1990/1991, the Commissioner was able to consider applications for extension of time under the Income Tax Assessment Act 1936.
6. Section 185(1) of that Act provided that a taxpayer dissatisfied with an assessment may lodge an objection within 60 days. The Commissioner was required under section 186 to consider the objection and to serve the taxpayer with written notice of his decision. Section 187 provided that a person who was dissatisfied by a decision under section 186, might request the Commissioner, within 60 days of notice of the decision, to refer the decision on an objection to the Tribunal or the Federal Court. Section 188 of the 1936 Act provided that a taxpayer may nevertheless lodge an application for an extension of time where the period for lodgement under section 187 had ended. Mr Francis lodged his objection for each of the income years in question in 2006 well outside the 60 days provided under former section 185 of the 1936 Act.
7. By 2006, the year in which the applicant lodged his application for an extension of time for lodgement of objections to various assessments for the several years over 1989 to 1997, new provisions governed such applications. The provisions applying in October 2006 are set out in the Taxation Administration Act 1953 as amended. The Taxation Administration Act 1953 also contains time restrictions on lodgement of objections and applications for extension of time.
8. Under section 14ZW, a taxation objection generally must be made 4 years after notice of the assessment concerned is given to the person. In some instances a taxation objection must be made 2 years after notice of the assessment is given to the person.
9. The material before me supplied by the Commissioner shows that the assessment of tax for the 1989/1990 income year issued on 7 November 1991, for the 1990/1991 year, the assessment issued on 14 April 1992, for the 1991/1992 year, the assessment issued on 6 February 1995 and the assessment for the following year, 1992/1993 also issued on 6 February 1995. Those for 1993/1994 and 1994/1995 both issued on 11 March 1996, that for 1995/1996 issued on 14 March 1997 and that for 1996/1997 issued on 11 September 1998. Therefore, the objection for every year of income was well outside the time provided. Mr Francis’s objection lodged in 2006, for the most recent year, 1996/1997, he made approximately 8 years after the issue of the assessment and all the others he made after an even longer interval. The Commissioner was unable to give the issue date for the 1988/1989 year as records held do not go back so far. Mr Francis has not claimed that he objected within time for that year of income.
10. Section 14ZX of Taxation Administration Act 1953 gives the Commissioner the discretion to treat the objection as valid even if lodged after the four year period. The Commissioner considered the application, which concerned objections outside the 60 day limit for the earlier years and outside the 4 year period for the later years, and decided to refuse an extension of time for each of the years 1989 to 1991.
11. The Commissioner gave as the reason for the refusal to allow an extension for the years to 1991, was that Mr Francis had failed to meet the request to provide documentation to support his claims for the years 1988 to 1991. Because the Commissioner no longer had any records for the 1988/1989/1990/1991 income years, the reasons for decision explained that the Commissioner was unable to consider the request.
12. Before the Tribunal, Mr Francis gave evidence that he had no records for the years of income involved in the refusal to grant an extension of time. The respondent also confirmed that it no longer has records for these years. The objection decision acknowledged that there were good reasons why Mr Francis had not attended to lodging an objection sooner. The decision noted he had been experiencing family difficulties. Nevertheless, the delay in taking action has made it extremely difficult to now re-open the assessments for 1998/1989, 1989/90 and 1990/91.
13. In addition, ATO Practice Statement Law Administration (PS LA) 2003/7 sets out policy in regard to late objections. One of the first requirements or obligations expected of the taxpayer is that his or her application to lodge a late objection should have some merit. Paragraph 2 of PS LA 2003/7 explains that each request must be decided on its merits. The Tribunal is obliged to adhere to policy unless there is a strong reason not to do so. See Full Court of the Federal Court in Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60.
14. In the present case, the decision maker has acknowledged that Mr Francis had particular difficulties in lodging objections to the assessments within the usual time. However, Mr Francis, without records to support his contentions, has not been able to establish any evidence supporting his claims that his income should be reduced. In other words, the evidence of the merit of his claims for the 1998/1989, 1989/90 and 1990/91 years was negligible. I have reached the same conclusion as no further or better information is before me. I note that the Full Federal Court pointed out in Federal Commissioner of Taxation v Brown [1999] FCA 1198; 99 ATC 4852 that "… the AAT is not precluded from taking into account the apparent strength or weakness of taxpayer's case, when determining whether an extension of time should be granted, …"
15. As well, in deciding wether extensions of time should be allowed in another setting, Wilcox J in Hunter Valley Developments Pty Limited v Minister for Home Affairs and Environment (1984) 58 ALR 305, set out some principles often relied on by the Tribunal. Hill J in the case of Brown v Federal Commissioner of Taxation [1999] FCA 563; 99 ATC 4516 set out at [6] an explanation that was endorsed by the Full court when he held that:
“(i)prima facie, proceedings commenced outside the prescribed period will not be entertained. An extension of time will be granted, however, if it is proper to do so;
(ii)it is relevant whether the applicant rested on his rights or took action to make the decision-maker aware that the decision was being contested;
(iii)any prejudice to the respondent that would be caused by granting the extension of time is relevant;
(iv)any wider prejudice to the general public in terms of disruption to established practices is relevant;
(v)the merits of the substantial application are relevant; and
(vi)fairness of granting the extension of time as between the applicant and other persons in a like position is relevant…”
16. The Commissioner has pointed out that he would be prejudiced by the re-opening of assessments after such a delay and in the absence of any records. I have already noted the merits of the objection are slim, there being no records in existence concerning the years of income disputed. To prolong this matter any further would prejudice the Commissioner and the general public and produces no unfairness to the applicant as he has given evidence he has no records. In my view, it would not be proper to grant an extension of time in these circumstances.
17. It follows that I find that the objections to the refusal to permit an extension of time for objections to be lodged for these years should not be supported. The objection decision to refuse an extension of time to lodge objections to the assessments for 1998/1989, 1989/90 and 1990/91 is the preferable decision in these circumstances and should be affirmed.
1991/1992 to 1996/1997 – disputed income
18. Despite the delay in making objection, the decision maker allowed Mr Francis’s extension of time application for the years of income from 1991/1992 to 1996/1997. The decision maker then went on to consider the grounds of objection to the assessments for those years and found them wanting.
19. Mr Francis did not provide records to the Commissioner to substantiate his claims that he did not earn income declared in his returns for the disputed periods. He sought to remove all income declared apart from that received from an employer. Mr Francis explained his delay in attending to the correction of his income tax returns as due to a series of personal and family problems. Unfortunate as this situation is, the tribunal has no more discretion than the original decision maker to take these into account when trying to establish the actual position with Mr Francis’s tax responsibilities. Without records, Mr Francis has been unable to make his case that he has over-declared his income for the relevant years. Mr Francis still had no further records to produce at the time of the Tribunal hearing.
20. It is not sufficient for the taxpayer to cast doubt on the correctness of income tax assessments. Section 14ZZK of the Taxation Administration Act 1953 was inserted in 1991 and amended in 1997. It places the burden of proof on the taxpayer to demonstrate the correctness of his or her objections to a reviewable objection decision. The section provides, in part:
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment)--the assessment is excessive; or
(ii) …; or
(iii)in any other case--the taxation decision concerned should not have been made or should have been made differently.
21. The argument that Mr Francis advanced as to why the assessments of tax for 1998/1989 to 1996/1997 were wrong, was that the information in his income tax returns was wrong. He told the Tribunal that his returns, which showed certain income, were prepared by an agent who wrongly reported his income. Mr Francis claimed he had not received:
·income in the form of allowances, earnings, tips, director’s fees etc for the years ended 1994, 1995, 1996 and 1997; and
·income in the form of rent for the years ended 1992, 1993, 1994, 1995, 1996 and 1997.
22. Mr Francis gave evidence during the Tribunal hearing that he worked full time for an employer for about 17½ years, from 1975 to 1992. He agreed with the Commissioner’s assessments of his income from this source. In later years, while still employed, Mr Francis said he set up a cleaning business and used to work at night for the business. He and his wife formed a company, M A Francis Pty Ltd, which owned the cleaning business. This company also owned a fruit shop which it bought in 1996 for $170,000. Mr Francis gave further evidence that he obtained the money for the shop through a bank loan secured over the house in which he and his wife lived. Ultimately, both the family businesses failed. Mr Francis gave evidence that he sold the shop for $65,000, losing $106,000 of the price he had paid.
23. As the purchase price for the shop was raised by way of loan over the house, Mr Francis said that the money attributed in his income tax returns to director’s fees, should have been treated as repayments of a loan. Instead, the income tax returns lodged on his behalf showed these amounts as director’s fees and Mr Francis admitted that he had signed the returns for the years of income under dispute and had not queried the content of the returns at the time. He gave further evidence that he had taken no action against the accountant who prepared the returns.
24. Under questioning, Mr Francis told the Tribunal that he kept a ledger for the fruit shop and also kept some financial records for the cleaning business but he had no records now. He claimed to have given all the records to the accountant who had prepared the returns. Mr Francis said the accountant had informed him he no longer had the records in his possession. Mr Francis also gave evidence that he once had bank account statements for the company business but no longer has them either. As well, he had no loan account statements for the loan over the house used to buy the shop.
25. The Commissioner lodged with the Tribunal copies of its records held in respect to Mr Francis. The Commissioner furnished copies of the more recent income tax returns but explained the Australian Taxation Office did not have copies of the returns for the years ended 1989, 1990, 1991 and 1992. Documents before me confirm that Mr and Mrs Francis did take out a secured mortgage with Westpac in 1992 and that the amount of the loan was increased in 1992 and again in 1994. Stamp duty was paid on the loan in 1999, with a portion exempted. The Commissioner also furnished copies of returns for the Francis No 1 Trust, being income tax returns for the years ending 30 June 1993 to 1997. Mr Francis’s company operated as corporate trustee for the Francis No 1 Trust.
26. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and former subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936) both provide that a taxpayer’s assessable income includes income according to ordinary concepts, which is called ordinary income. Remuneration received as an employee, such as salary and wages is considered ordinary income. Director’s fees and rental income are also included in this category. The reasons for decision of the Commissioner’s delegate set out the amounts of income received by Mr Francis according to his returns for the relevant years. Mr Francis agreed before the Tribunal that the discussion of Mr Francis’s income according to the returns furnished was a correct summation of the information taken from those returns and that the similar summary set out in the respondent’s facts and contentions was a correct summation of the returns.
27. As the applicant accepts that the information and submissions contained in Commissioner’s facts and contentions as correct, apart from his claim that his returns overstated his income, I have not gone into more detail. The Commissioner’s facts and contentions gave an account of the material on which the decision maker relied in making the assessments of income tax for the applicant. Mr Francis said he did not disagree with any of the material set out in the facts and contentions apart from the treatment of the amounts for director’s fees and rental income. He also gave evidence that he did not disagree with any of the material set out in the respondent’s outline of submissions apart from the income now disputed. He had just hoped the Commissioner would accept his submission that he did not receive any director’s fees or rental income.
28. Unfortunately, the requirements of section 14ZZK do not permit a decision maker, including the Tribunal in place of the original decision maker, to take such an approach. There is nothing before me to offset or overcome the declarations of income which Mr Francis made in his income tax returns for the years ended 30 June 1992 to 1997 inclusive. I accept his evidence that these returns were lodged on his behalf and may have contained incorrect information but also note his own oral evidence that he signed the returns before lodgement. The copies of the returns before me show that he completed the appropriate declarations that all the information in that tax return, including any attachments, was true and correct. Mr Francis does not deny he signed his returns where indicated.
29. There is no argument that the returns lodged on Mr Francis’s behalf and signed by him showed the now disputed amounts of income as director’s fees and rental. Mr Francis has produced no records to demonstrate that he did not receive the amounts he declared. He concedes that he operated bank accounts for the businesses which supposedly paid him director’s fees and rental to use his home address as the business premises. He claims he never actually received any money from the company except some repayment of loans but has not produced any supporting evidence by way of bank statements, independent written statements supporting his claims or any other records whatsoever.
30. Without any supporting records, it is not possible for me to reach a determination that favours Mr Francis. Not only do I have this difficulty, but I am bound to observe the onus that section 14ZZK of the Taxation Administration Act 1953 puts on the taxpayer. This requires Mr Francis to show that the taxation decision concerned should not have been made or should have been made differently. Mr Francis has not demonstrated either of these propositions.
31. For an effective review of an assessment, an applicant must establish that the amount of taxable income on which he or she has been assessed exceeds the actual taxable income derived during the year of income: FCT v Dalco (1990) 168 CLR 614 per Brennan J at 620-621, 624-625 and per Toohey J at 631-632 (the other justices of the High Court in Dalco agreed with the reasons for judgment of Brennan and Toohey JJ); McCormack v FCT (1979) 23 ALR 583 at 597 and 607. Further, an applicant must show what the correct assessment should be or what corrections should be made to reach a more accurate assessment. Another way of showing an assessment is excessive may rest on an argument that an approximation of income has been made upon no intelligible basis. See Trautwein v FCT (1936) 56 CLR 63 at 87–88; FCT v Dalco (1990) 168 CLR 614 at 623-624, 632, 633.9-634.
32. Mr Francis has not shown or claimed that the assessments of earnings of director’s fees were an approximation that had no intelligible basis. This aspect of the assessments were based on the trust returns of the M A Francis No 1 Trust as payments to associated persons and the individual returns of Mr Francis. The rental amounts were also declared in Mr Francis’s personal income tax returns.
33. On the material before me, I am unable to find that the assessments of income concerned are excessive. Nor am I satisfied on the material before me that the taxation decision concerned should not have been made or should have been made differently.
34. After the hearing in this matter, the Tribunal received correspondence from a person who wished to represent Mr Francis and sought a further hearing. At the Tribunal hearing, Mr Francis made no application to the Tribunal for an adjournment, freely admitted he had no records that he could produce to the Tribunal and proceeded with the hearing in the usual way. At the conclusion of the hearing, he made no request for further time for the giving of additional evidence. In view of the representations made on Mr Francis’s behalf after the hearing, I extended to him additional time for the making of written submissions. However, the Tribunal received no further information to assist the making of a decision in this matter and I proceeded to make my decision based on the material before me.
conclusion
35. I find that Mr Francis should not be granted an extension of time for lodgement an objection to assessments for the years ended 30 June 1989, 1990 and 1991.
36. Mr Francis also has failed to discharge the onus of proof of showing that the disputed assessments for the years 1991/1992 to 1996/1997 are excessive. This means he has not established grounds that warrant the removal from assessable income of the allowances, earnings, tips, director’s fees, rental income and the like declared but later the subject of his objection to assessments for the 1992, 1993, 1994, 1995, 1996 and 1997 income years.
37. I therefore find the objection decision of 11 December 2006 should be affirmed. This means Mr Francis’s review has been unsuccessful.
DECISION
21. The objection decision under review is affirmed.
I certify that the 21 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Robin Hunt
Signed: [T. Collis]
AssociateDate/s of Hearing 13 August 2007
Date of Decision 6 November 2007Representative for the Applicant Self Represented Applicant at Hearing,
Subsequent to hearing: Mr Anthony Jones – Deutsche Corporate
Solicitor for the Respondent Ms L. Banco – Australian Taxation Office
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