K.A. Hicks & Associates Pty Ltd Keith Hicks Helen Rule and Commissioner of Taxation
[2014] AATA 668
[2014] AATA 668
Division TAXATION APPEALS DIVISION File Numbers
2012/5517 – 5520
2012/5496 – 5499
2012/5504 - 5507
Re
K.A. Hicks & Associates Pty Ltd
Keith Hicks
Helen Rule
APPLICANTS
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms G Ettinger, Senior Member
Date 11 September 2014 Place Perth The Tribunal affirms each of the decisions under review.
...(Sgd) G Ettinger................
Ms G Ettinger, Senior Member
CATCHWORDS
Taxation – whether funds received from the Company were repayment of loans to it by the directors, the Applicants, or assessable income in their hands – little documentation – whether funds remitted from overseas to Mr Hicks were funds for the syndicate, or assessable income in his hands - difficulties with substantiation – status of syndicate –whether PAYG amounts were required to be withheld by the Company - whether PAYG amounts were required to be withheld by the Company - decisions under review affirmed.
LEGISLATION
Income Tax Assessment Act 1997 s 6-5
Taxation Administration Act 1953 (Cth) s 14ZZ; 14ZZK(b); Schedule 1 ss 284-75, 284-90, 284-225, 298-20
CASES
Briginshaw v Briginshaw & Anor (1938) 60 CLR 336
Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gauci v Commissioner of Taxation (1975) 135 CLR 81
Palmer and Commissioner of Taxation (1998) 98 ATC 2353Trautwein v Commissioner of Taxation (1936) 56 CLR 63
REASONS FOR DECISION
Ms G Ettinger, Senior Member
11 September 2014
The Applicants requesting review of the objection decisions of the Commissioner of Taxation (the Commissioner), in this matter, are K.A. Hicks & Associates Pty Ltd (the Company), Mr Keith Hicks, and his wife Ms Helen Rule, who is a high school teacher by profession. Mr Hicks and Ms Rule are the sole directors and shareholders of the Company.
Mr M McCoy of Murfett Legal represented the Applicants, and Mr M R Collins of counsel instructed by Jackson McDonald, appeared for the Commissioner.
The years and entities under review were:
·K.A. Hicks Pty Ltd (the Company), 1 January 2008 – 30 June 2011 in respect of GST payable, and 1 July 2007 - 30 June 2011 in regard to PAYG withholding obligations;
·Mr Hicks, years ended 30 June 2004 and years ended 30 June 2006 - 2011 in respect of income tax liabilities and administrative penalty assessments;
·Ms Rule, years ended 30 June 2008 – 2011 in respect of income tax liabilities and administrative penalty assessments.
Mr Hicks has been in the business of buying and selling antiques, antiquities and other related items since 2000. In addition to conducting his own business, and maintaining a private collection, he claims to have been part of an informal syndicate set up in 2002, with funds contributed from various friends and colleagues for the purpose of sourcing antiques and fossils from China. Mr Hicks owned a shop, the Gallereum, in Perth, where he displayed and sold various antiquities, which he operated for some years until 2008. He said that he also stored valuable fossils and other items belonging to the syndicate separately in the back area of his warehouse from which he operated after 2008. Mr Hicks said that he owned some of the items personally, and that he was able to identify which they were. In other words, Mr Hicks explained that there were the business items, his personal collection, and the syndicate’s collection.
Ms Rule said that in addition to her teaching duties she had responsibilities of accounting for the Company, preparation of BASs, and accounting for Mr Hicks and herself, but not for the syndicate.
The Applicants were audited by the Commissioner in 2011/2012. Due to the way the business was conducted, and the lack of accurate and comprehensive, contemporaneous records, the Applicants have not been able to substantiate many of their claims. Their credit is challenged by information they gave in relation to lending and repayment of loans, obtaining a Lo Doc loan, by their lack of knowledge regarding the loan from Mr Ognensis, the PAYG and superannuation payments issues discussed below, and the fact neither the Company or Mr Hicks lodged income tax returns for many years.
I note for the sake of completeness that I had conducted a conciliation in this matter in Perth during 2013, but that the parties had been unable to come to an agreement. It is not usual for the same Tribunal Member to then conduct a hearing. However this was put to the parties, who were in agreement that I should conduct the hearing.
There are facts before me which apply to all three of the Applicants, and which I have dealt with below.
The onus of proof referable to tax matters applies to the Company, Mr Hicks and Ms Rule. I deal with those matters in the paragraphs below.
My Reasons for Decision follow.
RELEVANT LEGISLATION
The relevant legislation in this matter is the Income Tax Assessment Act 1997 (Cth), (the ITAA), in particular section 6-5 and the Taxation Administration Act 1953 (Cth) (the TAA), in particular section 14ZZK(b). Sections 284-225, 298-20 of Schedule 1 to the TAA are also relevant.
Each Applicant, being the Company, Mr Hicks and Ms Rule, has, under section 14ZZK(b) of the TAA, the burden of proving that the amount of the assessment and penalty assessment is excessive for the income tax years in dispute. The burden of quantifying the amount by which the assessment and penalty assessment are considered to be excessive, also lies with the Applicants (Palmer and Commissioner of Taxation (1998) 98 ATC 2353; Commissioner of Taxation v Dalco (1990) 168 CLR 614. The Act does not place any onus on the Commissioner to show that the assessments were correctly made (Gauci v Commissioner of Taxation (1975) 135 CLR 81).
These principles are well established, and there is an abundance of case law to which the Respondent referred me. It is uncontroversial, and I am content to rely on it without referring to it in detail.
I noted however that pursuant to Dixon J in Briginshaw v Briginshaw & Anor (1938) 60 CLR 336 at 362, the answer to the question whether an issue has been proved to the reasonable satisfaction of the AAT, on the balance of probabilities, is affected by such considerations as the seriousness of the allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding. In such matters, reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences.
Further, some corroboration of the Applicants’ evidence would normally be required. Where the facts are, or were, peculiarly within the knowledge of one party is a relevant matter in considering the sufficiency of evidence to discharge a burden of proof. (Latham CJ in Trautwein v Commissioner of Taxation (1936) 56 CLR 63 at 87).
BACKGROUND
I have already noted above that Mr Hicks and Ms Rule are a married couple, and sole directors and shareholders of the Company. Mr Hicks has been in the business of collecting and selling antiquities and artefacts since 2000. Ms Rule, in addition to her teaching job, has handled the accounting, preparation of the BAS, and other records. The Applicants also engage an accountant Lawrence Business Management Pty Ltd. However, in relation to certain issues such as the calculation of superannuation in the income tax returns for the years ended 30 June 2008 – 2011, neither Mr Hicks nor Ms Rule were able to say who had instructed the accountant.
When giving his evidence, Mr Hicks acknowledged that his record keeping, and the record keeping for the Company, was incomplete, and in part, inaccurate. Mr McCoy, who represented the Applicants, agreed that their record keeping was not perfect, but submitted that in this case there were obligations as far as the business was concerned, but that beyond that, there was private personal activity such as in relation to Mr Hicks’ private collection of antiquities.
He submitted that the syndicate, said to have been formed in 2002, was a private arrangement, and whilst it would have been beneficial to have kept records, no adverse view should be taken of the fact there were few. Mr McCoy also referred to the borrowing and lending activities, submitting that in the case of family and friends, there was trust rather than records, and if some recollections were faulty, no adverse view should be taken of the Applicants. Mr McCoy submitted that the oral evidence before the Tribunal should be accepted as the Applicants were witnesses of truth. However he noted that both Mr Hicks and Ms Rule acknowledged they had made statements to formal lenders which were not accurate.
Although Mr Hicks acknowledged that he knew about obligations to declare income, he did not lodge income tax returns for the years 2001 to 2011 on the basis that he did not earn assessable income in those years. Both Mr Hicks and Ms Rule gave evidence that the Company did not pay wages or directors’ fees, or make any other payments for service to either of them.
Mr Hicks gave evidence that he, along with Victor Pracas, Kenneth Knight, Michael Van Rens, Tony Glass and Gavan Kelly provided funds for an informal syndicate, set up in 2002, and amounting to $526,500, without documentation, in order to source and bring to Australia, valuable fossils and antiquities from China for sale or exhibition here. Mr Hicks and Mr Kenneth Knight were the only syndicate members available to give evidence at the hearing, although I had some evidence in the form of correspondence and emails from Mr Pracas in the documents before me which contradicted some of their evidence.
In 2004, the Australian Federal Police executed search warrants at Mr Hicks’ and Mr Pracas’ premises, and confiscated many items, which were repatriated to China. No insurance claims were made.
The Commissioner audited the Company, Mr Hicks and Ms Rule in 2011 and 2012. Unfortunately one of the problems in this case is the lack of documentation, and thus difficulty for the parties to discharge their onus.
ISSUES BEFORE THE TRIBUNAL
The issues before the Tribunal in respect of Mr Hicks’ applications can be summarised as follows:
a)Whether the amount of $867,462 deposited to Mr Hicks’ account in the years ended 30 June 2004, 2006, 2007 and 2008 formed part of his assessable income;
b)Whether the payments of $180,535 made by the Company in reduction of Mr Hicks’ credit card debts during the years ended 30 June 2008, 2009, 2010 and 2011 formed part of his assessable income;
c)Whether the consequent amended assessments issued by the Respondent in respect of the years ended 30 June 2004, 2006, 2007, 2008, 2009 and 2010 were excessive;
d)Whether the penalty of $197,596 imposed in respect of the years ended 30 June 2004, 2006, 2007, 2008, 2009 and 2010 was correctly imposed; and
e)Whether the penalty assessments should be remitted in full or part pursuant to section 298-20 to Schedule 1 of the TAA.
In respect of the Company’s applications for review, the issues before the Tribunal are:
(a)Whether the GST assessments (as made or as amended) made in the periods from 1 January 2008 to 30 June 2011 were excessive;
(b)Whether the penalties imposed in respect of the GST shortfall amounts for the periods from 1 January 2008 to 30 June 2011 were excessive;
(c)Whether the penalty assessments issued for the Company’s failure to withhold PAYG amounts for the periods 1 July 2007 to 30 June 2011 were excessive.
In respect of Ms Rule’s applications for review the relevant issues before the Tribunal are:
(a)Whether Ms Rule received payments from the Company totalling $69,522 during the years ended 30 June 2008, 2009, 2010 and 2011, and if so whether such payments should form part of her assessable income;
(b)Whether the amended assessments for the years ended 30 June 2008, 2009, 2010 and 2011 were excessive.
(c)Whether the administrative penalty of $13,669 was correctly imposed, and whether it should be remitted;
MR HICKS
Whether the amount of $867,462 deposited to Mr Hicks’ account in the years ended 30 June 2004 – 2008 formed part of his assessable income
The Syndicate
Mr Hicks’ evidence regarding the formation of a syndicate was that it was set up on an informal basis in 2002 without the benefit of a written agreement. He said that it was unconnected with his business, and was formed to acquire fossils, antiquities and other artefacts. He says that the initial contributions to the syndicate totaled $526,500, and that what was purchased comprised a collection of Chinese Neolithic pottery, Chinese artefacts, small statues and terracotta horses.
I have already mentioned that Mr Hicks gave evidence that he, along with Victor Pracas, Kenneth Knight, Michael Van Rens, Tony Glass, Gavan Kelly provided funds for an informal syndicate, set up without documentation, to purchase valuable fossils from China, and antiquities.
The table below for which there is no substantiation, indicates what Mr Hicks said was the initial contribution by the various members of the syndicate to it in 2002. Mr Hicks stated that most of the syndicate members provided their contribution directly to Mr Pracas. There was a contradiction in the statements of Mr Knight and Mr Hicks regarding whether Mr Knight’s contribution was provided directly to Mr Pracas or given to Mr Hicks. I am mindful that although I do not know of further discrepancies regarding Mr Knight, his evidence which is discussed below, was that he contributed $55,000 at first, followed by a further $5,000, and not $58,250.
Pracas $17,000 3.23%
Hicks $100,000 18.99%
Knight $58,250 11.06%
Kelly $110,000 20.89%
Van Rens $153,875 29.23%
Glass $87,375 16.60%
TOTAL $526,500 100%
Mr Hicks also gave evidence that Mr Van Rens provided a further $800,000 to the syndicate between 2002 and 2008, which according to Mr Hicks, the bulk of these funds passed through [his] hands.
In Exhibit A3, Mr Hicks provided a handwritten summary of the syndicate’s funds which he indicated was current from October 2008 to August 2013.
Victor Pracas $17,000
Keith Hicks $100,000
Tony Glass $87,375
Michael Van Rens $1,326,500
Mr Hicks stated that Gavan Kelly and Ken Knight were bought out by Mr Van Rens on 1 November 2006. There was no documentary evidence before me regarding the buyout, and it is probably not of great significance to the issues I have to decide.
Mr Hicks said that on occasion he purchased fossils directly on behalf of Mr Van Rens. As there is no documentation in regard to the syndicate, its purchases and sales, that is not verifiable, and cannot be accepted in the context of this application.
Ms Rule gave evidence that she was not involved in the syndicate, and that she did not keep records for it. She also said that the syndicate, in contrast to the business, and Mr Hicks’ personal collection, was not set up to sell its antiquities and artefacts; they were for a collection. When asked whether she could identify the items, Ms Rule said that there was some overlap with the business items, and Mr Hicks’ personal collection because some of the items were similar. In his closing, Mr McCoy submitted that what Ms Rule intended was that there may have been an overlap in categories of items. That was not of assistance.
When questioned about a table relating to the Company prepared by the Commissioner at R9/35, amounting to $706,479, for the period 1 January 2008 to 30 June 2011 and showing private loans, private deposits and private sales, Mr Hicks could only comment that they related to his personal collection which was kept separately from the other items. He added that only fossils relating to the business or the syndicate (and not privately owned), were kept in the back of the warehouse.
Mr Hicks’ evidence was that he collected money on behalf of some syndicate members, acting as a conduit. He said that he collected the money, in particular from Mr Van Rens and Mr Knight, and passed it on to Mr Pracas and others for the purchase of fossils and other items. On arrival in Australia from China, the items were held by Mr Hicks and Mr Pracas in their respective premises. He submitted that therefore the funds received by him were not assessable income, but a result of his membership of a syndicate, and represented amounts of capital collected by him from members of the syndicate.
Mr Hicks was audited by the Commissioner in 2011 and 2012. The Commissioner had become aware through Austrac that during 2003 – 2004, and 2005 – 2008, unidentified deposits from overseas totaling $867,462 were transferred to Mr Hicks. Mr Hicks said that he was unaware of the source and country of origin of the overseas funds, which he said were contributed to the syndicate by Mr Van Rens. He said he did not declare the funds as income because they were not his personal funds, but funds of the syndicate, some destined for Mr Pracas. The Commissioner held that the amount of $867,462 deposited to Mr Hicks’ account in the years ended 30 June 2004 – 2008 formed part of his assessable income.
In 2004, the Australian Federal Police executed search warrants on both Mr Hicks’ and Mr Pracas’ business premises. Many of the fossils and other items were seized and repatriated to China.
Mr Hicks said that Mr Van Rens now owns the bulk of the equity in the syndicate which has been inactive since 2008.
Mr Victor Pracas and Mr Kenneth Knight
Mr Hicks said that before moving from the Gallereum in 2008, he sold the majority of the syndicate stock to Mr Pracas for $2.24 million. He said that he had not yet been paid for it. He said that Mr Pracas displays the stock together with his own collection, and is attempting to sell the whole collection overseas without breaking it up.
I was informed that Mr Pracas is overseas and that no oral evidence from him would be put before the Tribunal. I noted however that an email dated 30 November 2011 from Mr Pracas to the Commissioner’s auditor stated that any stock held by him was on consignment only, and was sold to him by Mr Hicks. Further email communication from Mr Pracas to the Commissioner on 5 December 2011, indicated he could not recall the formation of the syndicate, that any assets it might have had were confiscated years previously, and that he could not recall any services that Mr Hicks had provided to him.
I noted that Mr Pracas wrote to the ATO about the syndicate, on 22 November 2013, in the following terms:
…But this wasn’t a legal entity. What I and Mr. Keith were involved was basically an amicable informal association for the purposes of acquiring fossils and artifacts …
…
With regards to my acquisition of a collection of antiquities which was dragged onto this issue, was also a misunderstanding as the items where (sic) in fact with me, and as I had not paid Mr Hicks in full as yet, I didn’t quite envisaged (sic) this as a purchase. But the fact is, previously I had agreed with Mr Hicks that the items acquired by me where (sic) not to be ever returned and in fact a purchase from me, although only a deposit on these goods had been paid. This matter has been cleared and the goods are legally mine.
On 5 December 2013, Mr Pracas wrote to the ATO via email and stated that the goods listed were in consignment and had not been sold to Mr Pracas by Mr Hicks. Mr Pracas stated that he did not recall being involved in a syndicate with Mr Hicks that included himself, but had offered to help sell a consignment of goods by searching for a buyer through various contacts overseas.
Another member of the syndicate, Kenneth Knight, who described himself as an artist, gave oral evidence before the Tribunal. He said that he had known Mr Hicks since 1999/2000.
Mr Knight told me that he became aware that Mr Hicks and Mr Pracas had contacts in China to supply fossils and artefacts. He said that he joined the informal syndicate which was formed to source these items. When asked about documentation, Mr Knight said that he did not see a need for formal agreements, although he remembered the members of the syndicate held several meetings. He said that they had hopes of making money from the sales of the artefacts and fossils, or to even have a travelling show.
I had before me as Exhibit A4, the statement of Mr Knight, the first draft of which he said he had shown to, and discussed with Mr Hicks. He said that he and Mr Hicks had discussed the payment of moneys to Mr Pracas, and recalled which syndicate members had paid Mr Pracas directly. Mr Knight said that he had paid Mr Pracas his share of the syndicate funds directly, but that Mr Hicks’ recollection was that Mr Knight had made his payment via Mr Hicks. I noted further that a letter in Exhibit R7/94 (also written by Mr Knight with input from Mr Hicks), stated relevantly, and in direction contradiction to his other evidence, that: Each of the syndicate members provided their funds to Keith Hicks who in turn passed the funds on to Victor Pracas for the eventual procurement of the fossils.
Mr Hicks said that he had no independent recollection of what Mr Knight had said in his statement, but agreed there was no written agreement that he pay money for the syndicate directly to Mr Pracas.
Mr Knight said that he gave his contribution of $55,000 followed by a further $5,000 for equity in the Syndicate directly to Mr Pracas, who sourced the majority of the items, and arranged payment through the syndicate funds which he said amounted to approximately $500,000. He said that when the items were imported, they were held by either Mr Hicks or Mr Pracas. He said that some years on, his equity in the syndicate was taken over by Mr Van Rens who paid him out the amount of his original investment. He said that at that point he ceased to be a member of the Syndicate.
It is difficult to accept the evidence of Mr Knight because both his statement and his letter at Exhibit R7/94 had been written with the assistance and input of Mr Hicks. Clearly this also touches on Mr Hicks’ credit.
When questioned about how he knew which items belonged to the syndicate, Mr Knight said that those items were very rare and valuable, and he saw them stored at the back of Mr Hicks’ shop with wrapping over them. He noted they were kept separately from other items which comprised the shop’s stock. Mr Knight described the syndicate fossils as follows: 5 - 10 were important pieces, 60 x 60 cms in size, and worth US$30,000. There were 150 items in the cheaper category, being little fossils, boxes of minerals and quartz, and other items. Mr Knight agreed he had not described the above in his statement, agreed that there was no register of the items, and no list of purchases. Mr Knight said however that as an artist, he had a good visual memory.
When asked by Mr Collins, whether he kept a register of sales or purchases by the Syndicate, Mr Hicks explained that he kept notes, but not a formal register. I noted a list of items which formed part of Exhibit A3. It was not of assistance in distinguishing syndicate items from Mr Hicks’ business or personal items.
When asked about distinguishing the items which belonged to the syndicate, Mr Hicks’ personal collection or the business, Mr Knight agreed that it was hard to distinguish, but said that all the items in the shop had white stickers, and were for sale, and the syndicate items were covered, and not visible to customers.
I noted that the auditors who attended Mr Hicks’ premises considered that 90% of the items were part of a private collection, and that only 10% were part of Mr Hicks’ business. Mr Hicks disagreed entirely with that finding, his explanation being that at the time of the auditors’ visit, he had just dispatched large number of items to Mr Pracas, the auditors only looked at one cabinet, and that the labelling of the items for sale was not completed. He said that he had 17,000 items, so that labelling was an ongoing process. Mr Hicks said when questioned that he did not provide the auditors with proof of what he was asserting, because he was not asked.
Ultimately Mr Hicks contended that the deposits were received as part of his role of collecting funds from syndicate members, and as a matter of convenience, and were in no way income.
The Commissioner rejected Mr Hicks’ explanation on the basis that:
(a)Mr Hicks did not provide sufficient explanation or evidence of the purpose or nature of the syndicate;
(b)there was no formal agreement evidencing the syndicate;
(c)Mr Hicks did not provide a register of goods acquired by the syndicate;
(d)Mr Hicks did not contend that the deposits related to the operation of the syndicate;
(e)Mr Hicks did not provide evidence of how the money collected by him was spent. He also did not state whether he was engaged as an agent of the syndicate or whether he received remuneration for that role; and
(f)Mr Hicks failed to explain why the deposits were not assessable.
For the reasons listed above, the Commissioner decided that the amount of $867,462 represented undeclared income which was assessable to Mr Hicks.
I have considered the evidence and submissions. There is documentary evidence before me in the Austrac reports regarding the source of the funds from overseas, which Mr Hicks assumed were from Mr Van Rens. The Austrac reports detail 12 deposits totalling $867,462 from both Mr Van Rens and Honeysuckle Assets. The funds from overseas were remitted to Mr Hicks, and nowhere are there any written documents evidencing their purpose. Mr Hicks’ evidence was that they were intended for the purchase of antiquities and fossils by himself, Mr Pracas and others. Mr Hicks was not able to assist in regard to whether, and how, payments were made to Mr Pracas, and why they came to be credited to his (Mr Hicks’) account first. There are several handwritten notes regarding loans in Exhibit A3 which were not helpful to my decision making.
Further there was contradictory evidence before me from Mr Knight and Mr Pracas, and no evidence from Mr Van Rens or other members of the so-called syndicate. In that regard I have noted the submissions of Mr McCoy that the syndicate was informal and that the lack of documentation should not be considered unusual. Mr Collins, on the other hand, submitted that it beggars belief that people would invest large sums of money without any agreement as to how it was to be expended or repaid, and no proper purchase and sales records.
Notwithstanding the evidence that the syndicate fossils were in the back of the shop and covered up, it is not possible from the evidence of Mr Hicks, Ms Rule or Mr Knight to distinguish between the so called syndicate fossils, Mr Hicks’ commercial items, and Mr Hicks’ personal collection. I was satisfied from the evidence that there was no clear delineation between syndicate items, Mr Hicks’ commercial collection and his private collection.
I cannot be satisfied from the evidence how the syndicate was formed, how the money was handled, how and by whom the fossils were purchased, and handled. Presently it seems Mr Pracas and Mr Hicks each hold some, and that according to Mr Hicks, the syndicate has not operated since 2008.
I am not satisfied that Mr Hicks has discharged his onus to satisfy me that the transfer of $867,462 from overseas to him in the years ended 30 June 2004, 2006, 2007 and 2008 should not be held to be assessable income to him. I accepted the findings of the Commissioner in that regard.
Whether payments of $180,535 made by the Company in reduction of Mr Hicks’ credit cards during the years ended 30 June 2008, 2009, 2010, and 2011 years formed part of his assessable income
The audit recorded that Mr Hicks received a total of $180,535 from the Company between 30 June 2008 and 30 June 2011, and that this money was used to pay Mr Hicks’ credit cards. That was not disputed. The Commissioner decided that those amounts represented undeclared income, assessable to Mr Hicks. He issued Mr Hicks with six notices of assessment and six notices of assessment of shortfall penalty covering the years ended 30 June 2004 and 30 June 2006 – 2010.
Section 6-5(1) and (2) of the ITAA provide that assessable income includes income according to ordinary concepts, called ordinary income, and that that income includes the ordinary income derived directly or indirectly from all sources whether in or out of Australia for a particular income year.
I am satisfied that Mr Hicks was aware of the requirement to declare wages and salaries, and to maintain documentation. He agreed when questioned that his records were not accurate.
Mr Hicks’ evidence, corroborated by Ms Rule, was that the Company did not pay wages or directors’ fees or make any other payments for service either to him or his wife. He agreed that he drew funds from the Company to pay credit cards, but stated that the payments were repayments of loans made to the Company by him and his wife. I am mindful that the documentation, including the annexures to Mr Hicks’ statements being the E-records, were not provided to the auditor, and did not appear until 2013 when the applications to the Tribunal were underway. They were prepared by Ms Rule, and Mr Hicks agreed there were some inaccuracies. Mr Hicks stated, and Mr McCoy submitted, that the repayment of the loans was documented in the E-records annexed to Mr Hicks’ statement.
Mr Hicks agreed when questioned, that the figures in the annexures did not correspond exactly with the amounts paid to his credit cards. Mr Collins submitted that therefore, the annexures should not be accepted as reliable documentation. He noted that in addition, the annexures did not appear until 2013 when the review process at the Tribunal was underway.
I am satisfied from the evidence and submissions that neither Mr Hicks nor Ms Rule entered into any formal agreement with the Company for the lending nor repayment of personal loan amounts or interest payments. At T2/19 of Mr Hicks’ T-Documents an amount of $65,700 is recorded as loan to company, between August 2008 and February 2010. I have already noted above that $180,535 was withdrawn between 1 July 2007 and 30 June 2011. Mr Hicks did not record any other earnings, and the documents disclose that Ms Rule’s expenses exceeded the income she declared from teaching.
At paragraph 17 and 18 of his statement made to the Tribunal, Mr Hicks listed the loans made to him, firstly via his credit cards which amounted to $296,300, and loans from family and friends which were as follows:
Provider Amount
G Bamford $25,000 (deceased)
P Carey $50,000
A Ognensis $100,000 (repaid)
G Hicks $40,000
E Hicks $12,000 (repaid)
VG & E Hicks $20,000 (repaid)
D Emmanuel-Smith $80,000 (repaid)
Dates were not provided, but from the evidence one can assume it was in the relevant periods. However, the figures were not accurate.
Mr Hicks amended the figure for Mr Carey’s loan to $85,000 at the hearing. However, I had a document prepared by the Respondent from the evidence before the Tribunal (T2 of Common T-Documents pages 38-39 and T29 of Mr Hicks’ T-Documents pages 129–131) which indicated that the loans from Mr Carey amounted to $101,370. The Tribunal also noted two additional loans, each of $5,000, made on 23 July 2007 and 24 July 2007 respectively, which would bring the total loans to Mr Carey to $111,370 Then there were the loans from VG and EM Hicks, (not $20,000), but $53,635, and the loans from Emmanuel Smith which were (not $80,000), but $98,500.
Mr Collins noted from R14/38 and R7/130 that Mr Carey deposited funds via EFTPOS in Mr Hicks’ shop on at least three occasions in 2009 (R14/38). This was not denied by Mr Hicks. Further, he accepted that the handwritten records, (Exhibit R14), in regard to loans from, and transactions with Mr Carey, were not accurate.
When questioned regarding the VG and EM Hicks amounts listed as loans from his parents on R14/39, Mr Hicks was unable to explain the unusual amounts, which may have been purchases, e.g. $22,508 on 6 May 2010, and $10,027 on 23 June 2010.
As there were no precise records kept and before the Tribunal regarding loans to the Company, I could not be satisfied with Mr Hicks’ evidence regarding the sale of private, business and/or syndicate antiquities. His evidence was unreliable, and that of course impacted also on the GST issues which are discussed below in relation to the Company.
Accordingly, I could not be satisfied that the $180,535 paid to Mr Hicks’ credit cards should not be assessed to him as income. That of course also impacts on his claims that the assessments for the relevant years were excessive. I am satisfied that he has been unable to discharge the onus in relation to the $180,535 paid to his credit cards which he asserts were repayment of loans.
I have found above that Mr Hicks has not been able to satisfy me that the payments of $180,535 made by the Company in respect of Mr Hicks’ credit card debts and the deposits totaling $867,462 made to Mr Hicks should not be included as part of his assessable income. It follows that the amended assessment for the years ended 30 June 2004, 2006, 2007, 2008, 2009 and 2010 issued by the Respondent were not excessive. The corresponding tax shortfall amount totals $395,012.94.
Mr Arthur Ognenis
Mr Hicks told me that whereas many of the transactions he made in the relevant period were without formal agreements, he and Ms Rule borrowed $100,000 from Mr Ognenis pursuant to a written contract (Exhibit A1). Their evidence was that the funds were provided to them for three months in August 2007. They gave evidence that the loan was rolled over a year later.
I am satisfied that the documents indicated no rollover, but that a second loan commenced a year later, in November 2008, and was repayable in November 2009. There was no evidence provided which satisfied me that the money was actually lent to the Company or repaid. Notwithstanding both Mr Hicks and Ms Rule had signed the loan documents, neither could explain what had occurred as to any rollovers.
Whether the penalty assessments for the years ended 30 June 2004, 2006 – 2011 were excessive.
I have found in the paragraphs above that Mr Hicks was not able to satisfy me and discharge his onus to indicate that his assessments for the relevant years were excessive.
The Commissioner submitted that the correct decision was to impose an administrative penalty of $197,456.40 for recklessness at 50% of the tax shortfall to Mr Hicks pursuant to section 284-90(1) of the TAA. The Commissioner submitted that the statements regarding income which Mr Hicks made were false for the relevant years, and that accordingly he met all the conditions for section 284-75(1) of the TAA. He submitted that neither Mr Hicks nor his accountant took reasonable care, and that they had been reckless in connection with the making of the statements regarding his income.
The Commissioner stated that the recklessness arose from the following:
·Mr Hicks did not maintain any records or documentation surrounding the syndicate, the assets purchased, the money provided to Mr Hicks or how it was spent;
·Mr Hicks did not enter into a formal agreement with syndicate members for the purchase and use of Chinese fossils in circumstances where, given the amount of money involved, it was considered that a reasonable person would have recorded the agreement in writing;
·Mr Hicks did not enter into a formal agreement with the Hicks Company for the lending or repayment of personal loan amounts;
·Mr Hicks did not maintain appropriate documentation for the loans such that he could clearly quantify the amounts lent to the Hicks Company;
·Mr Hicks record keeping and substantiation fell well below the standard required of a company / business person that had been in business for over a decade;
·Mr Hicks did not seek advice from a tax professional or accountant in relation to his belief that company funds secured by personal assets were loans to the company nor whether it was appropriate to withdraw company funds for personal use and the requirement to document that agreement.
·This behaviour demonstrates a disregard of the risks that Mr Hicks' knowledge and assumptions regarding such matters was incorrect. Mr Hicks proceeded regardless of the risks; and
·Mr Hicks was aware of the requirement to report salaries and wages and to maintain relevant documentation.
The Commissioner’s reasons for not agreeing to exercise his discretion to remit the penalty in whole or in part was:
·Mr Hicks did not have an agreement for the repayment of purported loans amounts and did not appropriately document the amounts in question;
·the amounts cannot be characterised as isolated bookkeeping or record keeping mistakes;
·Mr Hicks did not seek the advice from a tax professional or accountant in circumstances where a reasonable person would have done so;
·Mr Hicks has been a company director for nearly 20 years;
·the amounts are significant and occurred over 7 years of tax returns - being the years ended 30 June 2004, 2006 to 2011; and
·for the reasons set out above, the Hicks Company did not make isolated, honest and unintended mistakes, nor a genuine attempt to meet his tax obligations.
Mr McCoy’s submissions regarding the points made by the Commissioner have been referred to above. He referred to the fact that Mr Hicks agreed his documentation was not in pristine order, but submitted that the syndicate was an informal arrangement which was not unusual between friends. Mr McCoy submitted that Mr Hicks was relying on annexures to his statement which showed funds borrowed and lent, agreeing there was no written agreement regarding repayment, and no interest schedule provided. He urged me to accept the evidence of both Mr Hicks and Ms Rule, and not to find that the Applicants had been reckless in regard to their business and tax affairs.
I am mindful that Mr Hicks was aware of the requirement to report salaries and wages, but note his evidence that he had not received income from the Company in any shape or form, and that what he drew from the Company for payment of his credit cards was repayment of loans. He said that he did not lodge income tax returns between 2001 and 2011 because he did not earn assessable income in those years.
I have considered the evidence and submissions of both parties. I have considered the submissions regarding penalties, regarding recklessness, reasonable care and intentional disregard, and whether the discretion to either remit the penalties in whole or in part should be exercised in Mr Hicks’ favour.
I have found in the paragraphs above that Mr Hicks has not discharged his onus to show that the assessments were excessive, and I am not satisfied that the penalties should be remitted in whole or in part. In making that decision, I accept the submissions of the Respondent in regard to penalties which I have reproduced above.
THE COMPANY
Whether the assessments of GST for the relevant periods were excessive
As already stated above, both Mr Hicks and Ms Rule were the sole directors and shareholders of the Company at all times. Their evidence was that they did not receive any form of remuneration from the Company at all, neither for their services nor as directors. Ms Rule dealt with the accounts. She lodged BAS statements which reported a negative cash flow of $2,132,511 between 1 July 2000 and 30 June 2011. I am satisfied from the evidence that it is likely that the figures provided were wrong because regardless of whether payments to the directors were repayment of loans or income in their hands, the Company must have sourced the income from somewhere.
The Company did not lodge income tax returns for the years ending 30 June 2003 to 30 June 2010, and Mr Hicks conceded when giving his evidence that their records were inaccurate and incomplete. I am satisfied that the records of sales and purchases of items for the syndicate, Mr Hicks’ business and his private collection were not clear, and that he has not satisfied me to which category any particular items could be classified.
I have already stated above that the Commissioner audited Mr Hicks and Ms Rule. On 12 March 2012, the Commissioner wrote to Mr Hicks attaching an interim report concerning the Company’s GST obligations. It stated that the Company had incorrectly reported taxable supplies on its activity statements for the period 1 July 2007 to 30 June 2011 and incorrectly claimed GST credits on its activity statements for the period 1 July 2008 – 30 June 2011. On reconsideration of the Company’s submissions, the Commissioner revised the GST shortfall from $82,190 to $61,316.
I noted that between the years 2008 and 2011, the Company was an account holder and operated at least two bank accounts. Mr Hicks was an account holder and operated at least seven accounts and one joint account with Ms Rule. Ms Rule was an account holder and operated at least eight accounts.
When, as part of the audit, the Commissioner’s officers attended at the Company warehouse in October 2011, the auditor recorded Mr Hicks stating that:
·The Hicks Company did not have a business plan;
·The Hicks Company did not advertise in the Yellow Pages;
·The Hicks Company did not use Google to advertise or market its goods;
·the Hicks Company was not registered with the antique retail association;
·He did not maintain an inventory record and nor did he undertake a physical count for stock reconciliation;
·He did not maintain a register or manual record of second hand items purchased from private individuals.
The auditor recorded Mr Hicks telling him that he had sold the majority of the Company stock to a private collector, Mr Pracas, in June 2008 for $2.24 million. The balance of the stock was shifted to the warehouse after that date. The auditor asked Mr Hicks why he did not report the sale in the June 2008 quarter. Mr Hicks replied that Mr Pracas had not paid for the goods, and so, Mr Hicks did not report the sale. The auditor asked Mr Hicks why he had not taken steps to recover his goods during the three years Mr Pracas had had possession of them. Mr Hicks said that he was hopeful of receiving payment from Mr Pracas, but that his patience was running thin.
The auditor also recorded Mr Hicks telling him that the warehouse contained both his private collection, and that of the Company. Mr Hicks reported that labelling was an ongoing project as there were 17,000 pieces involved. The auditor recorded that based on the labelling of the objects indicated to him by Mr Hicks, he estimated that 90% of the items were part of Mr Hicks’ private collection, and only 10% were those of the Company. He wrote: Based on our visual assessment warehouse carried 90% private collection and 10% business stock… Mr Hicks advised business does not have a business plan, and nor does business advertise in the Yellow Pages… Business is not registered with antique retail association or retail business association.
Mr Hicks replied on 26 June 2012 and stated:
Just prior to the arrival of your auditors at our warehouse significant and large amount of business stock had been delivered to the premises of Mr V Pracas… where he is endeavouring to sell the pieces as part of a larger collection, on a consignment basis. There were many thousands of pieces included in this consignment deal and the value of such pieces exceeds $2 million.
However, Mr Hicks was not able to provide either the auditors or the Tribunal with documentation regarding the supply of stock to Mr Pracas, not how it was moved to him, nor how it was valued. It is implausible that such an amount of goods Mr Hicks described as thousands of pieces, would be transferred without appropriate documentation and payment.
Accordingly in the absence of tangible evidence, the visual inspection and estimate of private versus commercial goods (10% commercial), by the auditors of the items in Mr Hicks’ warehouse can be accepted.
In connection with an attempt by Mr Hicks to establish loans and repayments, and purchase and sales records, Mr McCoy submitted that the E-records of loans received and loans repaid to the Company were provided. He conceded they did not match source documents, but submitted that they should not be ignored, except where discrepancies had been shown. He submitted that essentially the parties were keeping afloat by injection of funds from friends and family and others, and refinancing and the sale of their home. He acknowledged that some loans were processed through the business and EFTPOS, accepting that that was not standard procedure. However, he submitted I should accept these transactions as loans nonetheless.
I had before me a stock list tendered at the hearing (Exhibit A3), but records of sales and purchases, and GST were unable to be matched accurately.
The Respondent submitted as follows:
(a)the Hicks Company did not record any agreement between it and its directors for amounts loaned by them to the company;
(b)the Hicks Company's lack of documentation means that it is not possible for it to quantify the amount loaned to the company by directors (which we do not accept);
(c)the Hicks Company has not sought to explain or provide evidence of the nature of the amounts withdrawn from the company in excess of the $65,700 referenced in the objection;
(d)payments made by the Hicks Company to the personal credit cards of Mr Keith Hicks for the period 1 July 2007 to 30 June 2011 total $180,535. Mr Hicks had no other personal source of income other than these payments and therefore did not have the capacity to contribute genuine personal funds for a loan to the company;
(e)during the relevant period, Ms Rule's private bills and expenses exceeded her net salary from the Department of Education. Ms Rule has not provided a credible explanation for why her private bills and expenses exceed her net salary;
(f)the Hicks Company was registered for PAYG withholding 1 March 2004 and therefore aware of the requirements to withhold on payments to directors; and
(g)the Hicks Company did not seek advice from tax professionals with regard to the entering of an agreement for the purported loans.
I have already dealt with several of the points above, asserted by the Commissioner in other parts of these Reasons for Decision.
Because of the inaccuracy and paucity of the documentation, I am not satisfied that the Company has discharged its onus in asserting that the assessments of GST for the relevant periods were excessive. I moved then to consider penalties the Commissioner has imposed.
Whether the penalties imposed in respect of the GST shortfall amounts for the periods from 1 January 2008 to 30 June 2011 were excessive
In considering whether the penalties for GST shortfalls for the relevant periods were excessive, I noted that The Respondent asserted that the Company's conduct demonstrated recklessness for the following reasons:
(a)the Hicks Company did not provide sufficient evidence to show that the amounts deposited into the relevant accounts was not consideration for taxable supplies made by the business and should not be reported for GST purposes;
(b)the Hicks Company's record keeping and substantiation fell well below the standard required of a business, especially one that has been in business for over a decade;
(c)the Hicks Company did not provide sufficient evidence of the personal loans provided to the company by Mr Hicks and Ms Rule; and
(d)the Hicks Company relied on the knowledge of the directors, Mr Hicks and Ms Rule, in preparing and lodging activity statements and did not seek appropriate advice from a taxation professional in lodging the company's activity statements or when entering into agreements with company directors for loan amounts. This behaviour demonstrates a disregard of the risks that Mr Hicks and Ms Rule's knowledge and assumptions regarding such matters was incorrect and proceeded regardless of such risks.
(e)The Hicks Company's lack of record keeping and ability to furnish relevant and appropriate evidence during the audit and objection reviews demonstrates that the Hicks Company failed to take the care that a reasonable person would be expected to take, to the point of gross carelessness. The Respondent contends that a reasonable person would have foreseen the consequences of the Hicks Company's actions.
(f)The Hicks Company has not demonstrated the existence of any facts that would warrant the exercise of the Respondent's discretion to remit all or part of the penalty imposed. Pursuant to section 16-30 of Schedule 1 to the TAA, the Hicks Company is liable for a penalty in the amount of $32,587.50. No remission of the penalty should be allowed.
I have considered the evidence and submissions of both parties. I have considered the submissions regarding penalties, regarding recklessness, reasonable care and intentional disregard, and whether the discretion to either remit the penalties in whole or in part should be exercised in the Company’s favour.
I am satisfied that the Company has not discharged its onus to show that the GST assessments were excessive, and I am not satisfied that the penalties should be remitted in whole or in part. In making that decision, I accept the submissions of the Respondent in regard to penalties which I have reproduced above.
The Lo Doc Home Loan
Both Mr Hicks and Ms Rule, signed an application for a $780,000 loan from the Adelaide Bank in 2009 (said to be $270,000 to refinance an existing housing loan and $510,000 for investment). Mr Hicks indicated on the application form that he was a director of the Company which paid him a net income of $250,000. Before me, both Mr Hicks and Ms Rule maintained that the Company had not paid them any wages or directors’ fees, and agreed when questioned, that they had not provided the truth regarding their income to the lender.
Mr Hicks and Ms Rule also declared on the bank’s application form that they had assets of $9,356,000 and liabilities of $3,873,000. Mr Hicks indicated that of the assets, $4,000,000 were monies owing. The Respondent submitted that this was difficult to reconcile with the stated negative cash flow of $2,132,511 reported for 1 July 2000 to 30 June 2011, and that Mr Hicks and Ms Rule’s evidence should not be accepted. Further that they had not discharged the burden of proving that the Respondent’s decision was excessive.
I noted that Mr Hicks and Ms Rule admitted they had told untruths on the application for a Lo Doc loan, and I find that this impacts on their credit.
Whether the penalty assessments for failure to withhold PAYG amounts for the periods 1 July 2007 to 30 June 2011 ought to be further remitted
The Commissioner held that PAYG withholdings were not made in relation to amounts paid by the Company to Mr Hicks and Ms Rule. The TAA provides that an entity must withhold an amount from salary, wages and other allowances it pays to an employee or director.
Mr Hicks and Ms Rule maintained that the Company had never paid them any remuneration for any role they played whatsoever, and that any payments made to them, were repayment of loans made to the Company.
The Commissioner held that due to the lack of documentation in relation to the purported loans Mr Hicks and Ms Rule were not able to quantify actual amounts loaned to the Company. The Commissioner also held that Mr Hicks and Ms Rule knew that they were required to withhold from payments to directors.
I am mindful that the documentation to support the assertions of Mr Hicks and Ms Rule regarding loans and repayment of loans, as well as moneys paid by the Company to them were inadequate. They drew money from the Company which has been discussed above. PAYG payments were not made. A penalty for recklessness was imposed by the Commissioner in relation to the PAYG situation. I am satisfied that was appropriate.
Superannuation
The Company’s tax returns for 2008 – 2011 record that superannuation payments were made on behalf of the Company:
Income year
Amount paid by the Co to Mr Hicks
Super paid by the Company
2007-08
$19,897
$1,791
2008-09
$66,890
$6,020
2009-10
$80,430
$7,239
2010-2011
$13,318
$1,199
The payments of superannuation are in line with the amounts paid by the Company to Mr Hicks. There was no evidence that the Company had employees for whom it paid superannuation. Both Mr Hicks and Ms Rule were unable to explain how the superannuation came to be calculated, and who gave their accountant the relevant information.
Accordingly, I accepted the argument of the Respondent that the payment of superannuation does not support the evidence of Mr Hicks and Ms Rule that they did not receive payments from the Company. Neither has discharged their onus in regard to the superannuation payments.
MS RULE
As already stated above, Ms Rule is married to Keith Hicks, and they are the sole shareholders and directors of the Company. Ms Rule’s evidence was that she maintained the Company’s accounting records on E-record, prepared the BAS each quarter, undertook bank reconciliations, and dealt with GST during the relevant years.
Ms Rule earned assessable income as a school teacher in the relevant years. She was an account holder, and operated eight bank accounts in her name, and one joint account with Mr Hicks.
Ms Rule declared income from her teaching job in each of the relevant years. However, in the audit the Commissioner noted that Ms Rule’s private bills and expenses exceeded the income she declared.
The issues in regard to Ms Rule were:
·whether the amended assessments for the years ended 30 June 2008, 2009, 2010 and 2011 were excessive; and
·whether the penalty assessments of $13,669 on the basis of recklessness, for the years ending 30 June 2008, 2009, 2010 and 2011 were excessive.
In coming to a decision, it was necessary to decide:
·whether the amounts of $69,524 paid to Ms Rule in excess of her net salary, by the Company, were repayments of loans she had previously made to the Company; and
·whether the repayment of her credit cards to the amount of $83,300 during the year ended 30 June 2009 was as a result of her refinancing her private residence which would indicate it was private in nature, and would therefore not constitute assessable income.
Whether the amended assessments for the years ended 30 June 2008, 2009, 2010 and 2011 were excessive
Ms Rule’s evidence was that both she and her husband made loans to the Company as recorded on their E-Records, and provided, as Annexure No.1, (recording loans to the Company), and Annexure No 2. (recording loan repayments), to Mr Hicks’ statement.Her evidence was that the Company had not paid wages or made any other payments as directors or for services rendered, either to her, or to Mr Hicks since they commenced the business. Ms Rule’s evidence was that she and Mr Hicks supplemented her income as a teacher by drawing down funds from personal loans, credit cards, overdrafts and their home mortgage. Mr Rule said that to assist with liquidity, they also relied on funds supplied by friends and family
I noted from the evidence that in addition to her income from teaching, Ms Rule received $69,524 from the Company which she did not declare on the basis that the amounts were repayment of loans to the Company. That was difficult for her to substantiate because she had not entered into a formal agreement with the Company for the lending or repayment of personal loan accounts. She had not kept documentation to quantify the amounts she said that she lent to the Company, there was no repayment schedule, and no interest charged by either party. Further, she did not seek advice from an appropriate professional about how to manage it.
Ms Rule wrote to the Commissioner, on 25 June 2012, in the following terms:
I also dispute your assertion that payments made to my credit card accounts could be construed as fees for the performance of my duties as a Director. … any such payments made by KA Hicks & Associates Pty Ltd to me were merely repayment of loan monies I had injected into the company.
… we refinanced our property at … and at that time all my credit cards were paid out to the total of $82,300. This would explain the $61,871 you claim I was paid by K A Hicks and Associates in 2008 – 9.
The other amounts (in excess of my regular income) could have come from the joint account I hold with my husband or gifts from my parents who regularly gave me money for hockey trips.
Ms Rule said that the repayment of credit cards to the value of $82,300 for the year ended 30 June 2009, was the result of refinancing her private residence, and was personal in nature, and not to be considered assessable income. The Commissioner found however, that Ms Rule had used a commercial loan advance of $250,000 from Lionheart Insurance (Lionheart), in the Company’s name to refinance personal credit cards. A letter from Mr Hicks and Ms Rule to Lionheart Insurance confirmed arrangements made with Lionheart which included paying off Ms Rule’s credit cards to the value of $82,300. Accordingly Ms Rule’s version of events could not be accepted.
The Commissioner found that the additional deposits to credit cards from the Company from 1 July 2007 to 30 June 2011 totaled $69,524 which was assessable income, noting that an amount of $31,500, said to be a loan from Ms Rule to the Company in the years 2008/09 had already been taken into account. Accordingly, there was a shortfall, of $27,338.35, and the Commissioner imposed a penalty.
In the period 1 July 2000 – 30 June 2011, the Company reported a negative cash flow of $2,132,511. During that period, in 2009, Mr Hicks and Ms Rule made an application to the Adelaide Bank to borrow $780,000 which they indicated as $270,000 to refinance an existing house, and $510,000 for investment purposes. I have already noted above, that both Applicants agreed they had signed the application untruthfully, with Mr Hicks indicating he was a director of the Company, and earned $250,000 net. That was of course inconsistent with his evidence to the Tribunal that the Company did not pay him or his wife at all.
The Respondent also drew to my attention the loan from Mr Ognensis which I have discussed above, and for which neither Mr Hicks nor Ms Rule seemed to have a plausible explanation.
In further support that Ms Rule’s evidence should not be accepted, the Respondent drew attention to the superannuation (also discussed above), which the Company tax returns indicated were paid in relation to Mr Hicks’ earnings. Once again, neither Mr Hicks nor Ms Rule had any explanation for the above.
I accepted the submissions of the Respondent in that I could not accept Ms Rule’s argument regarding the amounts in excess of her salary drawn from the Company and loans. She has not discharged the onus to show that the amended assessments for the years ended 30 June 2008, 2009, 2010 and 2011 were excessive, and that the amount of $69,524 paid to Ms Rule in excess of her net salary, by the Company, was repayment of loans she had previously made to the Company. Further, I am satisfied that the repayment of Ms Rule’s credit cards to the amount of $83,300 during the year ended 30 June 2009 was not private in nature as it was provided by as a commercial loan. The $83,300 paid to Ms Rule’s credit cards by the Company cannot act to reduce Ms Rule’s tax shortfall amount. They are all assessable amounts, and the penalty imposed by the Commissioner must be considered on that basis.
Whether the penalty assessments of $13,669, imposed on the basis of recklessness, for the years ending 30 June 2008, 2009, 2010 and 2011 were excessive.
In considering whether the penalty was correctly imposed and whether the discretion to remit some or all of the penalty should be exercised in Ms Rule’s favour, I have taken into account amongst other things:
·her evidence regarding her involvement with the Company;
·the lack of documentation regarding loans made by her to the Company, and loans said to be from family and friends;
·her inability to explain away the superannuation payments which appeared in the Company tax return at least three times;
·the loan from Mr Ognensis;
·the inconsistencies in the documentation regarding the couple’s financial affairs; and
·the fact that both she and Mr Hicks were willing to sign declarations in a loan application to the Adelaide Bank which were untrue.
I am satisfied from the evidence that Ms Rule understated her income in her tax returns for the years ended 30 June 2008 - 2011 to the amount of $69,524. I am satisfied that all the conditions for section 284-75(1) of Schedule 1 of the TAA had been met, and that the penalty was correctly imposed. I cannot be satisfied that reasonable care was exercised in relation to Ms Rule’s tax affairs, in relation to advice she sought, if any, from her tax advisor, or the tasks she undertook for the Company.
I accepted the Commissioner argument that Ms Rule was reckless and do not exercise the discretion to remit all or part of the penalty imposed.
DECISION
The Tribunal affirms each of the decisions under review.
I certify that the preceding 129 (one hundred and twenty-nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Ettinger ...(Sgd) T Freeman.......
Associate
Dated 11 September 2014
Dates of hearing 16 and 17 June 2014 Solicitors for the Applicant Mr M McCoy, Murfett Legal Counsel for the Respondent Mr M Collins Solicitors for the Respondent Jackson McDonald
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