Jespersen and Commissioner of Taxation
[2000] AATA 1139
•21 December 2000
DECISION AND REASONS FOR DECISION [2000] AATA 1139
ADMINISTRATIVE APPEALS TRIBUNAL )
) No QT1999/217
TAXATION APPEALS DIVISION )
Re JAN HAUGE JESPERSEN
Applicant
And COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr D W Muller, Senior Member
Date21 December 2000
PlaceBrisbane
Decision The Tribunal sets aside the decision under review and in substitution decides that the applicant's objections to assessments for the 1989 to 1994 years of income be allowed in full.
................(Signed).............................
D W Muller
Senior Member
CATCHWORDS
TAXATION - failure to declare income - untaxed over-time payments
Income Tax Assessment Act 1936 ss 161, 170
REASONS FOR DECISION
Mr D W Muller, Senior Member
This is an application for review of a decision of the Commissioner of Taxation ("the respondent") on 20 September 1999, to disallow an objection by Jan Jespersen ("the applicant") against assessments he received for the years ended 30 June 1989 to 1994 inclusive. At hearing, the applicant appeared in person, and Mr Walpole, a taxation officer, represented the respondent.
During the period in question, the applicant was employed in the machine shop of a furniture manufacturing company, D.I.M. Furniture. Following investigation by the Australian Federal Police of D.I.M. Furniture, it was discovered that some employees had been paid cash for overtime that was not taxed at source. The respondent interviewed a number of employees to establish how widespread the scheme of untaxed overtime was, and to identify employees who were involved. From these interviews the respondent received information that led them to believe the applicant had knowingly received untaxed cash overtime payments.
During the Australian Federal Police investigation, company employees shredded D.I.M. Furniture's company records for the 1989 to 1994 financial years. Due to this the respondent was required to use D.I.M. Furniture's payroll records for the 1995 year of income in an attempt to extrapolate the previous years' records. Many of the statements provided to both the respondent and the Australian Federal Police indicated that on average most employees worked approximately 6 to 8 hours overtime per week. This overtime was considered to be almost mandatory by the staff. The working week was from 7.00am to 3.30pm Monday to Friday, with overtime being worked from 3.30pm to 5.30pm Monday to Friday and 7.00am to 12 noon on Saturday.
A sample of the payroll records for the applicant were inspected by the respondent for a period of 20 weeks during the 1995 year of income. These records showed that over that period the applicant worked an average of 7.875 hours per week overtime. The respondent rounded this figure up to 8 hours per week to estimate the amount of overtime worked by the applicant during the period under review. Information from statements received by the Australian Federal Police indicated that up to and including the 1990 year of income, the rate paid in cash for overtime by D.I.M. Furniture increased from $5 to $7 per hour. After 1990 the rate increased to $10 per hour.
The auditor for the respondent averaged the overtime amounts to be used for calculating an estimate of what the applicant received in overtime payments as follows:
1989 and 1990 $6 per hour
1991 and 1992 $8 per hour
1993 and 1994 $10 per hourThe auditor for the respondent calculated estimates of the applicant's undeclared income received from overtime for the relevant period as follows:
1989 year of income:
The applicant was employed by D.I.M. Furniture for 10 weeks. The auditor calculated 10 weeks x 8 hours per week x $6 per hour, to estimate the total amount of income received by the applicant for overtime and not declared to be $480.
1990 year of income:
The applicant was employed by D.I.M. Furniture for 52 weeks. The auditor calculated 48 weeks x 8 hours per week x $6 per hour, to estimate the total amount of income received by the applicant for overtime and not declared to be $2304.
1991 year of income:
The applicant was employed by D.I.M. Furniture for 49 weeks. The auditor calculated 44 weeks (allowing for holiday leave) x 8 hours per week x $8 per hour, to estimate the total amount of income received by the applicant for overtime and not declared to be $2816.
1992 year of income:
The applicant was employed by D.I.M. Furniture for 51.5 weeks. The auditor calculated 44 weeks (reduced to take account of leave) x 8 hours per week x $8 per hour, to estimate the total amount of income received by the applicant for overtime and not declared to be $3072.
1993 year of income:
The applicant was employed by D.I.M. Furniture for 36 weeks (the applicant claims it was 33 weeks). The auditor calculated 36 weeks x 8 hours per week x $10 per hour, to estimate the total amount of income received by the applicant for overtime and not declared to be $2880.
1994 year of income:
The applicant was employed by D.I.M. Furniture for 8 weeks prior to the management correctly deducting tax for overtime payments. The auditor calculated 8 weeks x 8 hours per week x $10 per hour, to estimate the total amount of income received by the applicant for overtime and not declared to be $640.In effect, the respondent's case against the applicant is based on the following material:
the respondent has evidence that the applicant's former employer had in place a system whereby employees were paid untaxed cash amounts for overtime;
the applicant was employed by the employers at a time when this system operated;
a witness, Ms. A. who worked for the employer, dealing with pay between May 1992 and November 1993, claimed the system was widespread and involved all employees.
The applicant does not deny that he worked overtime, or that he was paid in cash for this. In his first few years he was paid in cash for all of his work. In later years his pay was put through his bank account. The thrust of the applicant's objection was that he claims he was not involved in the untaxed overtime scheme, and that all income he received for overtime had been taxed, and this was recorded on his group certificates. In this regard, from the limited records available, the applicant was able to point to evidence (exhibit 2A) which suggested that during the period in question there were tax years when his group certificate recorded that he was paid well above his estimate of what his standard wage was for the weeks he worked. The applicant submitted that this extra amount recorded on his group certificate could only have been for overtime payments.
The applicant also pointed to payslips dated 26 September 1989 and 14 November 1991 (exhibit 2A) which recorded payments to the applicant for overtime, and showed deductions for tax.
No evidence was adduced during the hearing as to what the applicant's rate of pay actually was for the work he performed within normal work hours, during the period under review. In the absence of any other evidence in relation to this, I can only be guided by the estimate of wages provided by the applicant in his calculations included in exhibit 2A, and the award rates listed in a letter from Wageline, also included in exhibit 2A. The applicant acknowledges that he always received more than the award rate for his position. A summary based on the applicant's estimates follows. The figures in brackets being the highest weekly award rate for the particular year:
1989 year of income:
Worked 11 weeks at $389.00 per week ($349.30) = $4,286
Income on group certificate $5950
Difference $1664
1990 year of income:
Worked 52 weeks at $408.09 per week ($385.60) = $21,220
Income on group certificate $29,890
Difference $8,670
1991 year of income:
Worked 49 weeks at $439.65 per week ($385.60) = $21,542
Income on group certificate $26,003
Difference $4,461
1992 year of income:
Worked 51.5 weeks at $469.88 per week ($395.60) = $24,198
Income on group certificate $31,526
Difference $7,3281993 year of income:
Worked 33 weeks at $469.88 per week ($395.60) = $15,506
Income on group certificate $17,384
Difference $1,878
1994 year of income:
Worked 38 weeks at $480.00 per week ($403.60) = $18,240
Income on group certificate $25,580
Difference $7,340
Ms. A. made up the employee's pay packets from May 1992. Her evidence was that the untaxed, cash "top ups" for overtime had ceased by November 1993, when the "system was cleaned up".
However, under cross examination by the applicant, Ms. A. was unable to say whether the applicant was actually paid untaxed overtime as part of the scheme. The most that she could say was that "just about everybody" did overtime shifts. She could not recall the applicant actually doing overtime, but stated that he would have like everyone else, and if he did he would have got the "cash top up". Ms. A. could not recall actually putting "extra cash" into the applicant's pay packet.
There is no dispute that the applicant regularly worked overtime. The only issue in dispute is whether or not the pay he received for this overtime was taxed. Ms. A. could not go as far as to say that the applicant was made untaxed payments. She could only say that the practice was widespread at the factory. On the other hand, the applicant was able to point to evidence which at least explained in part the make up of his pay during the period in question.
It is obvious from the minimal pay records and group certificates that are available for the relevant period that the applicant was taxed for some overtime. I find the calculations performed by the respondent's auditor in an attempt to estimate the amount of untaxed overtime received by the applicant to be unsatisfactory. They appear to assume the applicant was not taxed for any overtime during the relevant period. To the contrary, there is evidence which shows the applicant was indeed taxed for a large amount of overtime. It would appear from the group certificates available that the applicant received taxed income well in excess of what he would have received without payments for overtime being included.
For the above reasons the Tribunal finds that the applicant did not receive untaxed overtime payments for the 1989 to 1994 years of income. The decision under review is set aside, and in substitution it is decided that the applicant's objections to assessments for those years of income be allowed in full.
I certify that the 15 preceding paragraphs are a true copy of the reasons for the decision herein of Mr D W Muller, Senior Member
Signed: .....................................................................................
R. Hayes, AssociateDates of Hearing 3 February and 5 June 2000
Date of Decision 21 December 2000
For the Applicant Mr J Jespersen, in person
For the Respondent Mr S Walpole, Departmental Advocate
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