Holm and Commissioner of Taxation (Taxation)
[2023] AATA 3545
•31 October 2023
Holm and Commissioner of Taxation (Taxation) [2023] AATA 3545 (31 October 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Number:2023/2931 - 2951
Re:Kenneth Holm
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Member D Mitchell
Date:31 October 2023
Place:Brisbane
The Tribunal affirms the decision under review.
.............................[SGD].......................
Member D Mitchell
CATCHWORDS
TAXATION – extension of time to lodge an objection – income years ended 30 June 1999 to 30 June 2019 – circumstances concerning and reasons for delay – merit of objection – prejudice – decision under review affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Bhatti and Commissioner of Taxation [2016] AATA 24
Bird v Commissioner of Taxation [2006] AATA 654
Brownv Commissioner of Taxation [1999] FCA 563
Case 36/94 (1994) 94 ATC 327
Case 7/93 (1993) ATC 135
Clark and Commissioner of Taxation [2021] AATA 2446
Commissioner of Taxation v Brown [1999] FCA 1198
Commissioner of Taxation v Day [2008] HCA 53
El Kordi and Commissioner of Taxation [2015] AATA 527
Evans & Commissioner of Taxation (Taxation) [2016] AATA 80
Herbert v Commissioner of Taxation [2013] AATA 42
FC of T v James Flood Pty Ltd (1953) 88 CLR 492
Hunter Valley Developments Pty Ltd & Ors v The Hon. Barry Cohen, Minister for Home Affairs and Environment (1984) 3 FCR 344; [1984] FCA 176
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24
New Zealand Flax Investments Ltd v FC of T (1938) 61 CLR 179
Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47
Mason and John Holland Pty Ltd (Compensation) [2018] AATA 415
Zizza v Commissioner of Taxation [1999] FCA 848
REASONS FOR DECISION
Member D Mitchell
31 October 2023
INTRODUCTION
On 3 May 2023, Mr Kenneth Holm (the Applicant) made an application to the Tribunal seeking review of a decision made by the Respondent on 17 March 2023.[1]
[1] Exhibit 1, T Documents, T1, pages 1-3, Application for Review.
The reviewable decision refused to extend the time for lodging an objection in relation to income tax assessments for the years ended 30 June 1999 to 30 June 2019 (the Relevant Years).[2]
[2] Exhibit 1, T Documents, T2, pages 22-25, Notice of Objection Decision and Reasons for Decision.
The issue before the Tribunal is whether the objections lodged by the Applicant dated
5 January 2023 in relation to each of the Relevant Years should be taken to have been lodged with the Respondent within the required period.BACKGROUND
By way of letter dated 20 October 2022, the Applicant sought to have his taxable income decreased by $2.00 for each of the Relevant Years as well as for the years ended
30 June 2020 and 30 June 2021. The Applicant sought to claim the deductions on the basis that he acquired his first mobile phone in January 1999 and estimated that each financial year he sent 20 work-related text messages from his mobile phone. As such 20 text messages at 10 cents each leads to a $2.00 deduction.[3][3] Exhibit 1, T Documents, T1, pages 11-12, Application for Review, Attachment B.
The Applicant outlined that the mistakes in his tax returns for the Relevant Years were made as:[4]
“…. neither the Individual Tax Return Instructions (or Tax Pack) Question D5 nor the ATO online resource “D5 Other Work-Related Expenses” has ever listed work-related text messages as an allowable deduction. This omission is misleading and I have made a mistake as a result by not claiming a deduction I was entitled to. I do my tax returns carefully but I cannot be expected to know any more than what the ATO publications provide. If an allowable deduction is not listed in the ATO publications then I am therefore unable to claim it.”
[4] Exhibit 1, T Documents, T1, page 12, Application for Review, Attachment B.
On 16 November 2022, the Respondent decided to refuse the Applicant’s request to amend his income tax returns for the Relevant Years on the basis that his request was not made within two years from the date on the relevant notices of assessments.[5]
[5] Exhibit 1, T Documents, T1, pages 13-15, Application for Review, Attachment C.
By way of letter dated 5 January 2023, the Applicant lodged an objection for the Relevant Years on the basis that he is entitled to claim a tax deduction for work-related text messages sent from his prepaid mobile telephone. The Applicant requested the late objections be treated as if they had been lodged within the prescribed timeframe.[6]
[6] Exhibit 1, T Documents, T1, pages 8-9, Application for Review, Attachment A.
In his objection, the Applicant outlined that:[7]
“On 30 July 2022 I attended a birthday gathering where I heard one of the guests state that his tax accountant claims his work-related text messages as a tax deduction. This prompted me to immediately write to the ATO on 1 August 2022 to check the veracity of what he said and also eligibility (please refer to Attachment A).
After 9 weeks of not receiving a written response from the ATO I followed the matter up with a phone call to 132861 on 7 October 2022 and spoke with [an officer]. On the ATO website [the officer] provided me with a search code QC46119 which lists work-related text messages sent from a mobile phone as an allowable tax deduction claimable at 10 cents each. I asked [the officer] how long had work-related text messages been an allowable deduction and he replied that it had been since as long as mobile phones have been around. [The officer] then advised me to submit written amendment requests for the relevant years which I promptly did on 20 October 2022 (please refer Attachment B).”
[7] Exhibit 1, T Documents, T1, page 8, Application for Review, Attachment A.
On 9 March 2023, the Respondent allowed the Applicant’s objection in relation to the years ended 30 June 2020 and 30 June 2021.[8] In seeking further information in relation to the Relevant Years, the Respondent provided that the Applicant may be able to identify his work-related calls individually on his itemised telephone account or if that was not available, he could make a reasonable estimate of his call costs based on diary records he kept over a minimum, representative four-week period, together with his relevant telephone accounts.[9]
[8] Exhibit 1, T Documents, T1, page 19, Application for Review, Attachment C.
[9] Exhibit 1, T Documents, T1, page 19, Application for Review, Attachment C.
On 13 March 2023, the Applicant responded to the Respondent outlining that his objection was not in relation to work-related telephone calls. He stated that he had already claimed those. As such his objection relates to work-related text messages, he sent from his Telstra prepaid mobile phone which have not been claimed at that point in time.[10]
[10] Exhibit 1, T Documents, T1, page 16, Application for Review, Attachment C.
The Applicant outlined that with a prepaid mobile phone he would typically attend a Telstra shop and put $100.00 worth of credit on the phone, run that balance down and top up the credit. As such the Applicant advised that he did not receive an itemised telephone account from Telstra for his prepaid mobile phone.[11]
[11] Exhibit 1, T Documents, T1, page 16, Application for Review, Attachment C.
The Applicant further outlined that he had not kept diary records of his work-related text messages because up until 7 October 2022 he was unaware that work-related text messages were an allowable tax deduction. He stated he had estimated that for each of the Relevant Years he sent 20 work-related text messages from his Telstra prepaid mobile phone.[12]
[12] Exhibit 1, T Documents, T1, page 16, Application for Review, Attachment C.
The objections lodged by the Applicant in relation to the Relevant Years were out of time by between 22 months and 20 years. For each of the Relevant Years the Applicant claimed other work-related expenses in an amount exceeding $300.00.[13]
[13] Exhibit 3, Respondent’s written outline of submissions, page 13, paragraph 48.
On 17 March 2023, the Respondent decided to refuse the Applicant’s request to treat his objections as if they were lodged in time and as such refused to amend his income tax returns for the Relevant Years.[14]
[14] Exhibit 1, T Documents, T2, pages 22-25, Notice of Objection Decision and Reason for Decision.
By way of application dated 3 May 2023, the Applicant made an application to this Tribunal for review of that decision.[15]
[15] Exhibit 1, T Documents, T1, pages 1-3, Application for Review.
A Hearing was held by MS Teams on 23 October 2023. At the Hearing the Applicant was self-represented and gave evidence under affirmation.
In the lead up to the Hearing, the Applicant filed a position paper and closing submissions dated 8 August 2023[16] of which his evidence and submissions at Hearing were consistent. On 22 September 2023, the Respondent filed a written outline of submissions of which at Hearing, he sought to rely on.[17]
[16] Exhibit 2, Applicant’s submissions dated 8 August 2023, pages 1-7.
[17] Exhibit 3, Respondent’s written outline of submissions, pages 1-22.
At the conclusion of the Hearing, the Applicant sought to file further written submissions. After reviewing the written submissions, the Respondent, did not object to them being provided to the Tribunal. The Tribunal notes that the written submissions were consistent with the evidence and submissions provided by the Applicant at the Hearing as outlined below.
The Tribunal must decide whether the objections lodged by the Applicant dated 5 January 2023 in relation to each of the Relevant Years should be taken to have been lodged with the Respondent within the required period. This effectively requires the Tribunal to decide whether the Applicant should be granted an extension of time to lodge his objections.
THE LAW
Extension of time
Section 14ZW of the Taxation Administration Act 1953 (Cth) (TAA 1953) sets out the timeframes within which objections are to be made.
In the present matter section 14ZW(1)(aa) of the TAA 1953 operates such that the time limit to lodge an objection by the Applicant is within two or four[18] years after the notices of assessment were given to him for the Relevant Years.
[18] The longer period was applicable to the income years ended 30 June 1999 to 30 June 2004.
Section 14ZW(2) of the TAA 1953 provides that if the period within which an objection is required to be lodged has passed, the person may nevertheless lodge the objection with the Respondent together with a written request asking the Respondent to deal with the objection as if it had been lodged within that period.
Such a request must state fully and in detail the circumstances concerning, and the reasons for, the person’s failure to lodge the objection with the Respondent within the required period.[19]
[19] Section 14ZW(3) of the TAA 1953.
Section 14ZX(1) of the TAA 1953 requires that after considering an application for an extension of time, the Respondent must decide whether to agree to it or refuse it. The Respondent must give the person written notice of their decision.[20] Where the Respondent decides to refuse the request, the person may apply to the Tribunal for review of the decision.[21]
[20] Section 14ZX(2) of the TAA 1953.
[21] Section 14ZX(4) of the TAA 1953.
Where the Respondent decides not to allow an extension of time to lodge an objection, he is not required to proceed to decide the substantive question as to whether to allow the objection in full or in part or to disallow it.[22]
[22] Section 14ZY of the TAA 1953 requires the Respondent to decide a taxation objection where it has been lodged with the Respondent within the required period.
Exercise of the discretion to extend the time to lodge an objection is not restricted by statutory criteria, however the matters that are required to be taken into account by an administrative decision-maker, if not expressly set out, are inferred from the subject-matter, scope and purpose of the Act.[23]
[23] Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, per Mason J at [15].
It is the circumstances concerning and the reasons for the person’s failure to lodge their objection within the required period that forms a mandatory consideration in determining whether the extension of time should be granted.[24] Other factors have been seen to be relevant in exercising such a discretion by the Federal Court and Tribunal in earlier decisions. Such factors include whether the objection arguably has merit and prejudice to the Applicant or Respondent if the request is refused or granted.[25]
[24] Section 14ZW(3) of the TAA 1953.
[25] See: Commissioner of Taxation v Brown [1999] FCA 1198; Brown v Commissioner of Taxation [1999] FCA 563; Zizza v Commissioner of Taxation [1999] FCA 848; Herbert v Commissioner of Taxation [2013] AATA 42; El Kordi and Commissioner of Taxation [2015] AATA 527; Evans v Commissioner of Taxation [2016] AATA 80; and Clark and Commissioner of Taxation [2021] AATA 2446.
It is important however to remember that any such factors are not to be taken as an exhaustive list of potentially relevant considerations.[26] This Tribunal agrees with Senior Member Olding in Clark v Commissioner of Taxation [2021] AATA 2446, who said at [14]:
…. I take the overarching principle to be that time limits imposed by the legislature should not be departed from without good reason but ultimately the Commissioner, and the Tribunal on review, must determine whether it is appropriate in all the circumstances to grant the extension.
[26] Zizza V Federal Commissioner of Taxation [1999] FCA 848.
The Tribunal acknowledges the Applicant’s reference to the Federal Court decision in Hunter Valley Developments Pty Ltd & Ors v The Hon. Barry Cohen, Minister for Home Affairs and Environment (1984) 3 FCR 344; [1984] FCA 176 and the principles it set out for consideration in determining whether an extension of time should be granted. While the factors may be relevant in certain circumstances, it must be noted that they were not developed in consideration of tax legislation and it has been accepted that they are not to be seen as being complete or mandatory.[27]
[27] See Brown v Commissioner of Taxation [1999] FCA 563 and Zizza v Commissioner of Taxation [1999] FCA 848.
General deductions
In seeking to claim a deduction for text messages the Applicant will be required to establish that such expenses were deductible. Section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) relevantly, sets out the requirements that must generally be met;
General deductions
1You can deduct from your assessable income any loss or outgoing to the extent that:
(a)it is incurred in gaining or producing your assessable income; or
……
2However, you cannot deduct a loss or outgoing under this section to the extent that:
(a)it is a loss or outgoing of capital, or a capital nature; or
(b)it is a loss or outgoing of a private or domestic nature; or
…
There is no statutory definition of ‘incurred’ however it has been accepted that a loss or outgoing will be incurred either at the time the expense has been paid or when the taxpayer is fully committed or subject to the liability.[28]
[28] FC of T v James Flood Pty Ltd (1953) 88 CLR 492 and New Zealand Flax Investments Ltd v FC of T (1938) 61 CLR 179.
It has been long settled that incurred “in” gaining or producing means incurred “in the course of” producing assessable income. The High Court in Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47 explained at 57:
… it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.
In regard to the question posed by section 8-1 of the ITAA 1997, the High Court observed in the Commissioner of Taxation v Day [2008] HCA 53 at [30] (Day):
Section 8-1(1)(a) is couched in terms intended to cover any number of factual and legal situations in which expenditure is incurred by a taxpayer. Its language and breadth of application do not make possible a formula capable of application to the circumstances of each case. Cases are helpful to show the connection found on the facts there present, but not always to explain how the search for the requisite connection is to be undertaken. Payne directs attention to the statement made in Ronpibon Tin, as to the question posed by a provision such as s 8-1(1)(a), as correct and appropriate to be applied. The question, as restated in Payne, is: "is the occasion of the outgoing found in whatever is productive of actual or expected income?" That inquiry will provide a surer guide to ascertaining whether a loss or expenditure has been "incurred in [the course of] gaining or producing … assessable income".
For the purposes of section 8-1 of the ITAA 1997, a loss or outgoing is only deductible where it is incurred in gaining or producing the taxpayer’s assessable income.
Substantiation
Taxpayers are required to substantiate their claimed deductions in a manner set out in the ITAA 1997 unless an exemption to do so applies. Division 900 of the ITAA 1997 sets out the substantiation rules in respect of “work expenses”. Work expenses are defined in section 900-30 of the ITAA 1997 to mean “a loss or outgoing you incur in producing your salary or wages”.
Section 900-15 of the ITAA 1997 provides:
900-15 Getting written evidence
1To deduct a work expense:
(a)it must qualify as a deduction under some provision of his Act outside this Division; and
(b)you need to substantiate it by getting written evidence.
Subdivision 900-E tells you about the evidence you need.
In Bhatti and Commissioner of Taxation [2016] AATA 24 at [31], Senior Member Lazanas helpfully explained the substantiation requirements as follows:
Subdivision 900-E is directed towards the written evidence required for the purposes of s 900-15. Section 900-105 explains that the legislation provides for a set of rules for getting written evidence to substantiate deductions and that the rules that can be used depend on the type of expense. Section 900-110 provides that there is no time limit for getting written evidence of an expense (unless the expense is recorded by the taxpayer in specified situations), “[b]ut until you get written evidence of it, you are not entitled to a deduction for the expense”. Section 900-110(2) further provides that if “when you lodge your *income tax return for the income year you have good reason to expect to get written evidence of the expense within a reasonable time, you can deduct the expense without actually getting the evidence. But if you don’t get the evidence within a reasonable time, your entitlement to the deduction ceases...
Section 900-115 in Subdivision 900-E (Written Evidence) of the ITAA 1997 outlines relevantly, the requirements in relation to written evidence from a supplier are as follows:
900-115 Written evidence from supplier
…..
(2) You must get a document from the supplier of the goods or services the expense is for. The document must set out:
(a)the name or business name of the supplier; and
(b)the amount of the expense, expressed in the currency in which it was incurred; and
(c)the nature of the goods or services; and
(d)the day the expense was incurred; and
(e)the day it is made out.
(3) There are 2 exceptions to these requirements:
(a)if the document does not show the day the expense was incurred, you may use a bank statement or other reasonable, independent evidence that shows when it was paid;
(b)if the document the supplier gave you does not specify the nature of the goods or services, you may write in the missing details yourself before you lodge your *income tax return for the income year.
...
Section 900-35 of the ITAA 1997 provides a substantiation exception where the total of all of the work expenses other than travel allowance expenses and meal allowance expenses that a taxpayer wants to deduct is $300 or less.
Section 900-195 in Subdivision 900-H (Relief from effects of failing to substantiate) of the ITAA 1997 provides a discretion to allow a deduction where there has been a failure to substantiate:
900-195 Commissioner’s discretion to review failure to substantiate
Not doing something necessary to follow the rules in this Division does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner:
(a)that you incurred the expense; and
(b)that you are entitled to deduct the amount you claim.
REASONS FOR DECISION
Circumstances concerning and reason for delay
At the Hearing the Applicant acknowledged that the delay in lodging the objections was significant, however he contended that it is the circumstances concerning and reasons for delay that led to such a delay that are most important.
Consistent with his written submissions, the Applicant told the Tribunal that he was unaware of the potential to claim a deduction for work-related text messages until he attended a social occasion in July 2022. He said that from that point he promptly dealt with the matter with the Respondent. The Applicant said that until he spoke with an officer of the Respondent on 7 October 2022, he was “blissfully unaware” that his income tax returns for the Relevant Years were incorrect. The Applicant contended that as such he was not in a position to seek to have his income tax returns for the Relevant Years amended to include a deduction for work-related text messages or to lodge an object prior to that date. The Applicant contended that as such he could not be seen to have rested on his rights of appeal.
The Applicant contended that:[29]
“It was the misleading omission of work-related text messages from the ATO publications (upon which the Applicant relied) which caused him to not claim a tax deduction that he was lawfully entitled to.
Neither the Individual Tax Return Instructions (or Tax Pack) Question 05 nor the ATO online resource "D5 Other Work-Related Expenses" has ever listed work-related text messages as an allowable tax deduction and therefore the Applicant has not claimed them. The Applicant does his tax returns carefully but he cannot reasonably be expected to know any more than what the ATO publications provide. It is submitted by the Applicant that these repeated omissions represents highly unusual circumstances and that it is reasonable for a taxpayer to expect correct advices from ATO publications whose purpose it is to ensure that taxpayers submit correct tax returns.
Furthermore, work-related text messages do not represent an obscure deduction which are only particular to specific occupational types. They are a commonplace deduction and would most likely be applicable to all occupational types. It is considered highly unusual circumstances for such a common deduction to not be included in the ATO publications in order for taxpayers to claim it.”
[29] Exhibit 2, Applicant’s Submissions dated 8 August 2023, Closing Submissions, page 3.
The Applicant took the Tribunal through the instructions for D5 Other work-related expenses contained in the Tax Pack for the income years ended 30 June 1999 to 30 June 2011 and the instructions for D5 Other work-related expenses contained in the Individual Tax Return Instructions for the income years ended 30 June 2012 to 30 June 2019.[30]
[30] Exhibit 4, Respondent’s List of Authorities, Volume 2.
The Applicant noted that the Tax Pack referred to:[31]
“Telephone expenses
You can claim a deduction for the cost of work related telephone calls.
You can claim a deduction for your telephone rental if you can show you are ‘on call’ or regularly required to telephone your employer or clients while you are away from your workplace. If you also use your telephone for private purposes you must apportion the cost of telephone rental between work related and private use.”
[31] For example, see: Exhibit 4, Respondent’s List of Authorities, Volume 2, page 780.
The Applicant noted that the Individual Tax Return Instructions referred to deductions for the “work-related proportion of some computer, phone and home office expenses.”[32]
[32] For example, see: Exhibit 4, Respondent’s List of Authorities, Volume 2, page 804.
The Applicant contended that the reference to telephone and phone calls and rental was misleading to him and that he disagrees with the idea that the costs of text messages being a natural extension of telephone or phone call costs.
The Applicant told the Tribunal that while self-assessment is the cornerstone of the taxation system, the Respondent acknowledges that mistakes may occur making reference to the Respondent’s commitment set out in the Individual Tax Return Instructions for the income year ended 30 June 2019 that states:[33]
“We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.
If you follow our information in this publication and it is either misleading or turns out to be incorrect and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, you must pay it but we will not charge you a penalty. Also, if you acted reasonably and in good faith we will not charge you interest.
If correcting the mistake means we owe you money, we will pay it and pay you any interest you are entitled to.”
[33] For example, see: Exhibit 4, Respondent’s List of Authorities, Volume 2, page 811.
The Applicant contended that he followed the publications which were misleading for him. He said he agrees that the delay is substantial, but the circumstances for delay is due to misleading material and being unaware of the mistakes made because of that material.
The Applicant contended that he could not be reasonably expected to know any more than what is in the Respondent’s publications. The Applicant contended that it was not ignorance of the tax law but rather it was being unaware of the deductibility of text messages due to misleading information in the Tax Packs that caused the delay.
The Respondent contended that:[34]
“Self-assessment is a cornerstone of the Australian taxation system. The self-assessment system places the onus on taxpayers to ensure that their returns comply with taxation laws.[35]
As Deputy President Deutsch observed in Evans and Commissioner of Taxation [2016] AATA 80, where the Applicant was at all times self-represented (with emphasis added):
[10] Apart from the correspondence with the Respondent, the Applicant took no steps to enquire with any third party whether he needs to proactively lodge an objection. The Applicant suggests that he has no obligation to seek professional help and I agree, he does not have such an obligation. But that simply puts greater responsibility on his shoulders, the consequence of which he cannot now avoid.
[11] …the Applicant is out of time here by over three and a half years and in my view, the longer he is out of time, the more difficult his position becomes and more onerous is the responsibility which he has to demonstrate to this Tribunal why an extension of time should be granted.”
[34] Exhibit 3, Respondent’s written outline of submissions, page 14, paragraphs 50-51.
[35] Evans & Commissioner of Taxation (Taxation) [2016] AATA 80 at [12].
The Respondent contended[36] that although the Applicant says that there are significant usual circumstances and no inadvertence, ignorance of the law does not justify exercise of the discretion to grant an extension, nor is it a significant unusual circumstance, to the contrary, it is a common circumstance. The Respondent contended that in line with the decision in Evans, having made the decision not to seek professional help, the Applicant is under a greater responsibility to ensure the correctness of his return.[37]
[36] The Respondent sought to rely on Case 36/94 (1994) 94 ATC 327; Herbert v Commissioner of Taxation [2013] AATA 42.
[37] Exhibit 3, Respondent’s written outline of submissions, pages 15-16, paragraphs 52-58.
The Respondent submitted that the Applicant’s contentions that he was misled by ATO publications on the basis that they failed to specifically refer to the fact that work-related text messages were a deductible expense should be rejected for the following reasons:[38]
[38] Exhibit 3, Respondent’s written outline of submissions, pages 16-17, paragraph 59.
(a)Whether an expense is deductible is prescribed by taxation law.
In the self-assessment regime, it is a matter for the taxpayer to self-assess their entitlement to claim a deduction according to law. The ATO issues publications, such as the Tax Pack to assist taxpayers prepare their taxation returns. Section 8-1 of the ITAA1997 is intentionally broad and it would be impossible for the Commissioner to list all types of deductions that could be claimed, particularly given the different circumstances which apply to taxpayers. For this reason, the Tax-Pack adopts inclusive language and is intended to operate for a wide audience, for example (emphasis added):
Other work-related expenses are expenses you incurred as an employee and have not already claimed anywhere else on your tax return. These include: …
- the work-related proportion of some computer, phone and home office expenses…..[39]
[The Applicant’s] contention that “[i]f an allowable deduction is not listed in the ATO publications then I am therefore unable to claim it”[40] ought readily be rejected.
(b)“Phone expenses”, “Telephone expenses”, “Phone calls”, “Telephone Calls” are referenced as an available other work-related expense deduction in the Tax-Packs across the Relevant Years. Whilst it is accepted that “work-related text messages” are not specifically listed in the Tax Packs, these terms were not meant to be so strictly interpreted or without regard to the broader social or cultural context. An orthodox interpretation of these terms would encompass both landline and mobile phone, blackberries, and all related expenses arising from these devices, including for example, line rental, text messages and data use (provided it otherwise satisfied the requirements of section 8-1 and Division 900 of ITAA 1997). The Commissioner submits that SMS text messages is a natural extension to the terms “telephone expenses” and “phone expenses” and that it was reasonable to draw such a connection by inference or implication.
(c)Furthermore, the Tax Packs from 1999 – 2008 make clear that:
You can claim a deduction here for any other expenses you incurred in earning your salary or wages that you have not already claimed.
(d)Finally, the Tax Packs also direct taxpayers to phone the ATO if they are not sure if they can claim an expense.
[39] Exhibit 4, Respondent’s List of Authorities, Volume 2, page 803.
[40] Exhibit 2, Applicant’s Submissions dated 8 August 2023, Position Paper, page 1.
The Tribunal accepts that the Applicant was unaware that a deduction may be claimed for work-related text messages at the time he lodged his income tax returns for the Relevant Years. The Tribunal further accepts that the first knowledge the Applicant had of the possibility of a deduction relating to work-related text messages was at a social event in July 2022 and that from that point he proactively took steps to investigate the issue and seek to have his income tax returns for the Relevant Years amended.
The Tribunal does not however accept that the responsibility for the Applicant’s lack of knowledge regarding a potential deduction for work-related text messages is attributable to the Respondent’s material, in particular the relevant Tax Packs and Individual Tax Return Instructions. These documents relevantly refer taxpayers to call the helpline or go to relevant webpages for more information about what can be claimed at question D5.
The Tribunal agrees with the Respondent’s contention that the language of these documents is inclusive rather than prescriptive. Instructions for D5 Other Work-related expenses provides that the question is about any other work-related expenses a taxpayer has incurred as an employee and have not already claimed and provides examples of what such expenses may be.[41] This approach is reasonable given the broad nature of section
8-1 of the ITAA 1997.
[41] For example, see: Exhibit 4, Respondent’s List of Authorities, Volume 2, pages 778 and 842.
While the Applicant, in completing his income tax returns himself, may have limited the deductions he claimed to his interpretation of the Tax Packs and Individual Tax Return Instructions for the Relevant Years, this was his choice, and a choice he was entitled to make. The Tribunal however agrees with the cases referred to above that the Applicant’s choice puts more responsibility on his shoulders to get his income tax affairs correct.
As such the Tribunal does not accept the Applicant’s contention that he cannot be expected to be aware of the potential deductibility of items not included in the relevant Tax Packs and Individual Tax Return Instructions. It is a taxpayers responsibility in a self-assessment system to manage their own tax affairs.
The Tribunal acknowledges the Applicant’s contention that the Respondent in the introduction to those documents notes that information may be misleading, however, it does not consider the failure to include a reference to text messages as being misleading in circumstances where the document is intended to be inclusive. Further the Commitment provided by the Respondent goes on to say that: “If you feel that this publication does not fully cover your circumstances, or you are unsure how it applied to you, you can seek further help from us.”[42]
[42] Exhibit 4, Respondent’s List of Authorities, Volume 2, page 811.
For the reasons outlined above, the Tribunal is not persuaded by the Applicant’s explanation of the circumstances concerning and the reasons for his failure to lodge the objections with the Respondent in the required timeframes, that it is appropriate to grant the extension of time.
The delays in lodging an objection in relation to the Relevant Years spans from between 22 months and 20 years. The length of these delays especially in relation to the earlier years, weighs against the granting of the extensions of time.
Arguable case
The Applicant contended that his case does have merit and that the Respondent has collected more tax from him than it should have.[43] The Applicant contended that:[44]
“The Individual Tax Return Instructions (Tax Pack Question D5) and also the ATO online resource "D5 Other Work-Related Expenses" can be scrutinised in forensic detail to substantiate the Applicant's assertion concerning the omission of work-related text messages as an allowable deduction from these publications. If an allowable deduction was not listed in the ATO publications then the Applicant was therefore unable to claim it. A deduction not claimed represents an overpayment of tax. Because the expense is incidental and the Applicant is claiming $50.00 or less in total records are not required and reasonable estimates are sufficient for this matter. In view of the aforementioned circumstances there is most definitely merit to the Applicant's claim.”
[43] Exhibit 2, Applicant’s Submissions dated 8 August 2023, Closing Submissions, page 5.
[44] Exhibit 2, Applicant’s Submissions dated 8 August 2023, Closing Submissions, page 5.
In response to questions asked by the Tribunal in relation to how the claimed text messages related to his work during the Relevant Years and whether he had any supporting documentations, the Applicant said:
·He worked flexible hours for banks or the government and would be sent a text by his employer regarding what time his was going into the office and his working hours.
·He would receive work-related text messages from his colleagues and would respond.
·His phone was a Telstra pre-paid phone so he topped it up when it was low and he did not receive statements.
·He reasonably estimated 20 work-related text messages a year and kept that number consistent for simplicity.
·The cost of text messages were more like 50 cents each whereas the allowable deduction is 10 cents each.
·He was unsure how much he had claimed for telephone and internet cost deductions during the Relevant Years. He was unable to remember whether they would have been above $50.
In response to questions asked by the Respondent, the Applicant:
·Agreed that he followed the instructions contained in ATO publications in completing his income tax returns.
·Said he was unsure where those publications indicated that someone could make a reasonable estimate on work-related expenses.
·Said that all he could do was make a reasonable estimate as he did not get telephone bills because he was on a prepaid arrangement.
·Agreed that he had read the instructions in relation to claiming deductions for expenses that relate to your work as an employee, including the instruction “You must be able to substantiate your claims with written evidence if the total claimed is greater than $300.”[45]
·Said he would have obtained evidence for the Relevant Years.
·When asked if he has records in relation to his claimed deductions for telephone calls for the Relevant Years, said he did not get telephone bills and did not keep the receipts from the top ups. Said he estimated how many calls he made, he did not keep diary notes.
·Said that he could only claim a deduction if he was aware of it and he could only call the ATO to ask questions about a deduction if he was aware that something might be a deductible expense.
·Said that the instructions in relation to telephone related expenses were misleading. If there had of been reference to text messages he would have claimed them and substantiated them.
·Said that it was logical and reasonable to read the change in the language from telephone to phone in the instructions from 2012 as being limited to telephone calls and rental because of the historical references. He interpreted the instruction to continue to be limited to calls and rental.
·Referred to the definition of telephone on Wikipedia.
[45] Exhibit 4, Respondent’s List of Authorities, Volume 2, page 663.
The Respondent contended that while the Applicant’s explanation of the proposed deductions taken at their highest may lead to eligibility for a deduction there are far too many gaps in his case for it to be said that he has an arguable case where:[46]
“Having regard to the position advanced by [the Applicant] at the objection stage and in his submissions in the Tribunal, the focus is squarely on the general principle that an expense associated with sending a work-related text message is an allowable deduction. The expression of this general principle is not disputed by the Commissioner.
However, [the Applicant] must do more than simply assert an entitlement to a deduction based on an estimate. [The Applicant] must also articulate the application of that principle within the meaning of section 8-1 to the circumstances of his case and meet the substantiation requirements. It is our submission, [the Applicant] is unable to do so on the material currently before the Tribunal, for the following reasons:
(a)Firstly, [the Applicant] has failed to provide any evidence that he actually incurred the expense (in the Relevant Years, or at all) in which he seeks to claim a deduction. His position goes no higher than from time to time (with no specificity as to frequency) he acquired $100 of phone credit. There is no contemporaneous, corroborating or independent evidence.
(b)Secondly, [the Applicant] has provided no explanation as to his income producing activities in the Relevant Years, what his employment was, and on what basis any text messages alleged to have been sent were incurred in gaining or producing his assessable income, nor how the expenditure was productive of those activities.
(c)Thirdly, in the absence of any context around the text messages, it is difficult to assess whether they might otherwise be precluded by the negative limb in subsection 8-1(2) of the ITAA 1997 (for example, whether the outgoing was of a private or domestic nature).
(d)Fourthly, the applicant has failed to substantiate the expense and has conceded he is unable to provide supporting documents such as a telephone account or diary.”
[46] Exhibit 3, Respondent’s written outline of submissions, pages 17-19, paragraphs 63-64 and 69.
The Respondent drew the Tribunal’s attention to the decision of Member Trowse in Case 7/93 (1993) ATC 135 that considered the operation of the former substantiation provisions. In response to the taxpayers claim that the requirements of substantiation should be administered in a “practical and common sense way”, Member Trowse provided:[47]
“[26] The Tribunal feels compelled to comment upon certain of the final submissions made on behalf of the applicant. It seems that the tax agent representing the applicant is of the view that the requirements of substantiation should be administered in a practical and common sense way. He maintained that the getting of receipts and the making of diary entries were not practical and that the 'only fair approach is to make an annual estimate'. It seems that the purpose and design of this relatively new sub-division was to outlaw that very practice and the problems that flowed from it and there is no doubt that both the Commissioner and this Tribunal must interpret and apply the law as it appears in the legislation. It may well be that the keeping of documents and maintenance of records may cause inconvenience and that otherwise productive time is spent on recording but that is not to the point. If the deduction is sought, the substantiation requirement must be met. It seems probable that the introduction of these requirements was aimed at those taxpayers then abusing the system. Unfortunately all self-employed and employee taxpayers are caught in the substantiation net and must bear the consequences if they are to succeed with their claims.”
[47] Exhibit 3, Respondent’s written outline of submissions, page 12, paragraph 46.
It is not appropriate, at this juncture, for the Tribunal to embark on a full examination of the substantive issues that would form the assessment of the objections for the Relevant Years. However, it may be that the stronger the apparent merits, the more likely that granting an extension of time would be appropriate.[48]
[48] Brown v Federal Commissioner of Taxation (1999) 99 ATC 4516.
The basis for the Applicant’s contentions that his objections have merit is that it is unreasonable that he would be expected to do anything other than estimate the number of work-related text messages he made for the Relevant Years on the basis that at the time of lodging his returns he was unaware such expenses may be deductible. This contention has no basis at law.
At objection, in accordance with section 8-1 of the ITAA 1997, the Applicant would be required to establish that he incurred an expense in relation to making work-related text messages for the purpose of gaining or producing his assessable income. Should he be able to establish that, in circumstances where the Applicant’s other work-related deductions for each of the Relevant Years was more than $300.00, he would be required to be able to substantiate his claimed deductions. The Tribunal notes that the Applicant referred to not being required to substantiate claims less than $50. That arrangement does not assist the Applicant in this matter as it relates to the claim for phone and data use together being under $50 and the Applicant was unable to recall what his claims in this regard had already amounted to further the referenced material applies to the current year only.[49]
[49] Exhibit 4, Respondent’s List of Authorities, Volume 1, Item 31, pages 617-624.
The Applicant’s evidence is that he does not have receipts relating to the top-ups of his Telstra mobile phone nor does he have diary notes in relation to the text messages or telephone calls he considers to be deductible work-related expenses.
In the present circumstances, where the Applicant is unable to provide corroborating evidence that he incurred the claimed expenses or to substantiate his claims, the Tribunal finds that the Applicant would have little prospect of succeeding with his objections for the Relevant Years if the extensions of time were allowed. This weighs heavily against granting an extension of time for the Applicant to lodge his objections for the Relevant Years.
Prejudice
The Applicant contended that the prejudice he would face, if he is not granted an extension of time so that his objections are taken to have been lodged in time, is that his income tax returns will be wrong for the Relevant Years. He told the Tribunal that although the difference in tax is small, he still considers that he has overpaid tax by not claiming a deduction for work-related text messages and as a result he feels “a little bit aggrieved”.
The Respondent referred the Tribunal to the consideration of prejudice by Hill J in Brown v Commissioner of Taxation [1999] FCA 563:[50]
“[48] … It is not as if the Commissioner has made a decision based on facts known to him at the time of decision where those facts may fade from the Commissioner’s recollection if subsequently required to be recalled in the light of a court challenge to the making of that decision. Almost always the facts surrounding a particular transaction said to give rise to assessable income or to generate allowable deductions will be peculiarly within the knowledge of the taxpayer rather than the Commissioner. True it is that other witnesses may with the effluxion of time be unavailable to give evidence or become forgetful. But where the onus of proof is on the taxpayer to show that an assessment is excessive, delay in instituting the objection and appeal procedure may well more often prejudice the taxpayer than the Commissioner. In weighing up whether the delay may operate to the prejudice of the Commissioner because evidence available to him and which may support the assessment may become unavailable (and this would be a matter upon which evidence should ordinarily be advanced by the Commissioner) it will be necessary to consider the time which has elapsed between the event which is said to give rise to the assessable income and the making of the assessment itself.
[49] In summary it is clear that in considering an extension of time the Commissioner (or Tribunal) must take into account the circumstances surrounding the failure to object in time and any explanation for delay which is given. The length of delay will likewise be relevant. But these are factors to be weighed against other matters, particularly the fact that to deny a taxpayer the right to have the assessment reconsidered by the Commissioner, or ultimately by the Tribunal or the Court, may be conducive to injustice.
[51] ... Except where the effluxion of time may affect adversely the ability of the Commissioner to defend an assessment, it is hard to see what prejudice there could be to the Commissioner in a case such as the present, or indeed in like cases, other than administrative inconvenience. The Commissioner is entitled to collect tax due under an assessment whether or not there is an objection. He is obliged to collect tax in accordance with a correct assessment, that is to say, to collect the correct amount of tax, no more and no less. If an assessment is excessive it would be improper for the Commissioner to seek to collect tax payable under it. In saying this I should not be understood as suggesting in the light of ss 175 and 177 of the Income Tax Act that a Court should go into the merits of an assessment outside the objection and appeal process.
[55] …It would be more desirable if, under this head, the Commissioner or the Tribunal took into account against the absence of prejudice to the Commissioner, the considerable prejudice to a taxpayer who is otherwise denied a right of independent review of an assessment which he or she claims to be excessive.”
[50] Exhibit 3, Respondent’s written outline of submissions, pages 19-20, paragraph 73.
In relation to prejudice to the Respondent should the extension of time to lodge the objections in relation to the Relevant Years be allowed, the Respondent contended:
“It ought readily be accepted that the effluxion of time may adversely affect the ability of the Commissioner to defend an assessment and undertake avenues of enquiry (such as with telecommunication providers and employers). However, the observations of Hill J in Brown at [48] (above) require due regard, as does the fact that the assessments for the Relevant Years were self-assessed, as opposed to audit based. As [the Applicant] submits, the Commissioner will be administratively inconvenienced if the application is allowed, however, such prejudice is not the type that is relevant in this context.[51] In these respects, it is accepted that the prejudice to the Commissioner is somewhat limited.
The absence of prejudice to the Commissioner alone is insufficient to grant the extension sought,[52] regard should also be given to the other factors as well as the considerable prejudice to a taxpayer who is otherwise denied a right of independent review of an assessment which he claims to be excessive.[53]”
[51] Brownv Commissioner of Taxation [1999] FCA 563 at [54] and Case7/98 98 ATC 139 at 152.
[52] Case 36/94 (1994) 94 ATC 327 at [32].
[53] Brownv Commissioner of Taxation [1999] FCA 563 at [55].
The Respondent contended that there is no considerable prejudice to the Applicant, who if the extension of time is refused is otherwise denied a right of independent review of assessments which he claims to be excessive. The Respondent contended that if the Applicant can demonstrate an entitlement to claim a deduction for work-related text messages, then it accepted that he would suffer some prejudice if his application to the Tribunal was unsuccessful.[54]
[54] Exhibit 3, Respondent’s written outline of submissions, pages 20-21, paragraphs 76-77.
The Respondent further contended that such prejudice ought to be considered and weighed against the degree of prejudice. The Respondent contended that while the Applicant would lose the right to advance an objection in respect of self-assessed assessments for 21 income years, the tax in issue, is at most $1.00 in each income year. Meaning that the Applicant would lose the right of independent review of assessments which he claims are excessive by less than $21.00 in total.[55]
[55] Exhibit 3, Respondent’s written outline of submissions, page 21, paragraphs 77-78.
The Respondent submitted that if the Applicant’s application was successful, the assessments will not immediately be amended, rather the Applicant’s out-of-time objections will be considered to have been lodged within time and the Respondent will consider the merits of the objection in full. It is only if the objection is allowed, or if disallowed and the Applicant is ultimately successful on review in the Tribunal that he will receive a refund in the order of $21.00. The Respondent contended that as such there is no prejudice of any real substance to the Applicant, particularly where he has failed to engage with the legal requirements to claim a deduction for work-related text messages.[56]
[56] Exhibit 3, Respondent’s written outline of submissions, page 21, paragraphs 78-79.
In considering whether any prejudice or unfairness arises in relation to granting or not granting the Applicant’s extension of time requests, the Tribunal refers to the general position that once a decision is made and a review period expired, beyond that period there is an expectation that the matter is finalised.[57]
[57] Mason and John Holland Pty Ltd (Compensation) [2018] AATA 415.
In this matter the Tribunal accepts that the granting of an extension of time would cause limited prejudice to the Respondent.
Further based on the material before it, the Tribunal on balance also considers that any prejudice to the Applicant in not granting an extension of time to lodge his objections for the Relevant Years would be limited. Particularly in circumstances where the Applicant’s potential over payment of tax would be no more than $21.00 and he would be required at objection to substantiate his claimed deductions and has said he is unable to do so.
As such, the Tribunal considers the lack of potential prejudice to either party in this matter does not weigh in favour of granting an extension of time for the Applicant to lodge objections in relation to the Relevant Years.
Other considerations
The Respondent brought the decision of Deputy President Hack SC in Bird v Commissioner of Taxation [2006] AATA 654 to the Tribunal’s attention.[58] In that matter Deputy President Hack considered that the justice of the case required him to refuse the application for an extension of time within which to lodge an objection in part because:[59]
(a)He was satisfied that the Applicant had “rested on his rights” over a very considerable period of time before finally seeking to challenge the objection decision; and
(b)The prospects of success of the proposed application were such that no further expenditure of public money was warranted.[60]
[58] Exhibit 3, Respondent’s written outline of submissions, page 21, paragraph 80.
[59] Exhibit 3, Respondent’s written outline of submissions, page 21, paragraph 80.
[60] Bird v Commissioner of Taxation [2006] AATA 654 at [6].
The Respondent contended that the observations of Deputy President Hack SC are equally applicable to the present matter on the basis that:[61]
Significant public resources have been expended by the Commissioner in defending an extension application where the tax in dispute is less than $21.00 and the non-refundable filing fee paid by [the Applicant] was $100. The Commissioner has attempted to resolve the matter, to no avail.[62] It is submitted that no further expenditure of public money in respect of the subject matter of this dispute is warranted.
[61] Exhibit 3, Respondent’s written outline of submissions, page 21, paragraphs 80-81.
[62] Exhibit 1, T Documents, T1, page 19, Application for Review, Attachment C.
The Applicant did not address this contention. The Applicant did contend that he accepted the amount of tax in dispute was small, however he considered that he had paid more tax than he was required to.
The Tribunal considers that the quantum of the tax in dispute should not be determinative of whether an extension of time is granted. In saying that, however, the Tribunal considers based on its findings above, in particular with regards to the reasons for delay and lack of strength of the Applicant’s objections, it finds in this matter that the circumstances of the case weigh against the expenditure of any further public money.
Conclusion
The Tribunal is conscious that the matter before it, although contained in one reviewable decision document, relates to 21 separate requests for an extension of time to lodge an objection. As such the request in relation to each Relevant Year, must be considered independently.
Based on the material before it, and for the reasons provided above, the Tribunal considers the circumstances concerning and reasons for delay, strength of the objections, potential prejudice to the parties and other considerations apply consistently across the Relevant Years to weigh against the granting of an extension of time.
DECISION
Accordingly, the decisions under review, by which the Respondent refused the Applicant’s application for extensions of time to lodge objections in relation to the Relevant Years is affirmed.
I certify that the preceding 88 (eighty-eight) paragraphs are a true copy of the reasons for the decision herein of Member D Mitchell
........................[SGD]..........................
Associate
Dated: 31 October 2023
Date of hearing: 23 October 2023
Applicant: By MS Teams Solicitors for the Respondent: Mr Paul Zollo
Australian Taxation Office
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