Kalintas and Commissioner of Taxation
[2008] AATA 444
•29 May 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 444
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: NT2006/0368 to 0371
TAXATION APPEALS DIVISION )
ReAli KALINTAS
Applicant
And Commissioner of Taxation
Respondent
DECISION
TribunalProfessor GD Walker, Deputy President
Date29 May 2008
PlaceSydney
Decision The decision is that:
(a)Subject to (b) below, the reviewable decision is varied in the manner set out in paras 17 to 23 of the reasons; and
(b)The reviewable decision is remitted to the respondent for reconsideration on the basis that the applicant was employed by A&L Constructions (NSW) Pty Limited for a period not exceeding seven months between December 2001 and June 2002 and in that capacity earned the amount of $7,000.
...............[sgd]...............................
Professor GD Walker
Deputy President
CATCHWORDS – TAXATION – default assessment – onus on applicant to prove that assessments are excessive – decision under review is varied and remitted.
…
RELEVANT ACT/S:
Income Tax Assessment Act 1936 (Cth) (the ITAA): s 167
Taxation and Administration Act 1983 (Cth) (the TAA): s 14ZZK
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CITATIONS
Re Graham Docker and Associates Pty Ltd and Commissioner of Taxation [2005] AATA 1180
Jones v Dunkel (1959) 101 CLR 298
Green v Minister for Immigration and Citizenship [2008] FCA 125
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REASONS FOR DECISION
29 May 2008
Professor GD Walker, Deputy President
Basic facts
1. The applicant Mr Ali Kalintas arrived in Australia in 1993. Between 1993 and 1996 he was employed at Boral Industries, but as a result of industrial injuries he was in receipt of a disability support pension between 1996 and 5 July 2001.
2. During that time he undertook a bricklaying course and in September 2001 (or possibly in July 2001) he began work as an apprentice and labourer in the bricklaying industry. Between December 2001 and December 2002 he may have been employed by A&L Constructions (NSW) Pty Ltd (A&L) as a bricklayer, although in his evidence at the hearing he said he had worked for A&L for only between four and seven months.
3. Between December 2002 and March 2004, on his version of events, he had an informal partnership with Sape Fiaomonia & Sons (a Samoan bricklayer) whereby the partners shared bricklaying jobs but the applicant usually issued the invoices and then divided the income with his partner.
4. On 19 February 2004, the commissioner commenced a review of the applicant’s Goods and Services Tax (“GST”) and income tax affairs.
5. From the audit, it appeared that:
(a)The applicant’s tax agent Mr Mehmet Ali had cancelled the GST registration by July 2003 backdated to commence from 1 July 2002. When the auditors approached him for an explanation, he voluntarily provided them with a new set of BAS label values for the periods between 1 July 2001 and 31 March 2004. The auditors restored the original dates of GST registration. The auditors considered the income labels supplied by Mr Mehmet Ali at its face value as true and except for some unsubstantiated claims of the claims of input tax credits, the rest of the creditable acquisitions were taken to be true. The auditors revised the BAS label values for the Sep-01, Dec-01, Mar-02, Jun-02, Sep-03, Dec-03 and Mar-04 quarters to give effect to the tax agent’s disclosure. The disclosure made by the tax agent for the Sep-02, Dec-02, Mar-03, and Jun-03 quarters (2002-03 income years) was not given effect. These figures were found to be markedly deviant from rest of the periods, and on an annual basis for these periods the applicant has had a cash loss of $18,074. Third party information obtained by the commissioner in relation to a bank loan application lodged by the applicant revealed that the applicant has undisclosed income for the review period. As a consequence further investigations were required to be carried out.
(b)Following an interview with the taxpayer, it was identified that from 1996 to June 2001, the applicant was on a disability support pension due to a workplace accident. By June 2001, he had obtained a trade certificate in bricklaying and had commenced an enterprise from 1 July 2001.
(c)The applicant’s relevant work history can be summarised as follows:
(i)July 2001 to December 2001 – various bricklaying work
(ii)December 2001 to December 2002 – the applicant worked for A&L
(iii)December 2002 to March 2004 – the applicant had an informal partnership with Sape Fiaomonia where they shared jobs, however invoices were issued by both and the income was split. The applicant confirmed that he was paid by cheque, often cash cheques or in cash. When paid in cash, the money was rarely banked.
(iv)March 2004 to present – the applicant was employed by Alce Construction Pty Ltd
(d)In February 2002, the applicant approached Advanced Home Loan Services Pty Ltd (no longer trading) to arrange a home loan of approximately $160,000 for the purchase of vacant land at 6 Kay Street, Guildford.
(e)In April 2003, the applicant approached the same broker for a further loan of approximately $238,000 to construct a house on the vacant land.
(f)A document attached to the home loan application dated 10 December 2001 claimed that the applicant had been working with A&L as a bricklayer for the past 3 years with a gross weekly wage of $1,400.
(g)In an interview between the applicant and officers of the respondent on 1 December 2004, the applicant confirmed that he earned $1,400 per week from A&L, although he stated that he worked with A&L for one year, not the three years as stated on the form. The applicant also identified the following domestic and private expenses:
(i)Child related support payments: $300 per week
(ii)Estranged wife’s pocket expenses: $100 per week
(iii)Children’s private school fees: $6,000 per year
(iv)Gambling expenses of between $2,000 to $8,000 per week
6. The auditors of the respondent determined that there were undisclosed amounts of GST and undisclosed amounts of income for the period 1 July 2001 to 30 June 2004, taking into account the expenses listed above and amounts in the applicant’s bank accounts among other factors.
7. On 7 April 2005, Notices of assessment of GST net amount were issued for the following periods (T16-52 to T20-61):
(a)Quarter ended 30 September 2001 – the applicant’s GST net amount changed from a debit of $333 to a debit of $996
(b)Quarter ended 31 December 2001 – the applicant’s GST net amount changed from a debit of $432 to a debit of $955
(c)Quarter ended 31 March 2002 – the applicant’s GST net amount changed from a debit of $498 to a debit of $1854
(d)Quarter ended 30 June 2002 – the applicant’s GST net amount changed from a debit of $585 to a debit of $1451
(e)Annual GST return for the period 1 July 2002 to 30 June 2003 – the applicant’s GST net amount changed from $0 to a debit of $19048
On 12 May 2004 confirmations of revised activity statements were issued for the following periods:
(f)Quarter ended 30 September 2003 – Default assessment for a debit of $5337
(g)Quarter ended 31 December 2003 – Default assessment for a debit of $6,652
(h)Quarter ended 31 March 2004 – Default assessment for a debit of $63
(i)Quarter ended 30 June 2004 – Default assessment for a debit of $6029
The commissioner notes that the quarters ended 30 September 2003, 31 December 2003 and 31 March 2004 were not addressed in the objection decision and are accordingly not before the tribunal in these proceedings.
8. The applicant did not lodge a business activity statement (BAS) for the quarters from 1 July 2003 to 30 June 2004. The applicant’s tax agent voluntarily provided the BAS label values to the respondent upon request for the tax periods between 1 July 2003 and 31 March 2004.
9. On 18 April 2005 a Notice of assessment of penalty for having a GST tax shortfall in respect of the quarters ended 30 September 2001, 31 December 2001, 31 March 2002, 30 June 2002, 30 June 2004 and annual period 1 July 2002 to 30 June 2003 was issued to the applicant for the amount of $21,341.25. The tax shortfall penalty was calculated at 75 percent of the tax shortfall amount for intentional disregard (T21-62).
10. The applicant was also assessed for undisclosed amounts of taxable income. On 22 April 2005, the commissioner issued the following notices (T23-76 to T27-80):
(a)Notice of Amended Assessment for the year ended 30 June 2002. The applicant originally returned a taxable income of $15,254. His amended taxable income was $43,680.
(b)Notice of Amended Assessment for the year ended 30 June 2003. The applicant originally returned a taxable income of $12,834. His amended taxable income was $158,303.
(c)Notice of Assessment for the year ended 30 June 2004. The applicant’s taxable income was $158,303.
(d)Notice of assessment of penalty for having an income tax shortfall in respect of the years ended 30 June 2002 and 30 June 2003. The tax shortfall penalty of $53,788.60 was imposed at 75 percent of the tax shortfall amount for intentional disregard.
(e)Notice of assessment of penalty for having a tax shortfall amount in respect the year ended 30 June 2004. The tax shortfall penalty of $47,906.95 was imposed at 75 percent of the tax shortfall amount for intentional disregard.
11. On 3 June 2005 the applicant objected to the assessments (T30-85).
12. On 4 October 2006 the commissioner disallowed the applicant’s objection in full (T45-116).
13. The applicant appealed to this tribunal on 3 November 2006 (T1-1).
14. At the hearing, the applicant appeared in person while the respondent was represented by Mrs Michelle Hirshhorn of counsel instructed by Mr Ram Pandey for the respondent. The documents before the tribunal comprised the documents produced pursuant to s 37 of the Administrative Appeals Tribunal Act1975 (the T documents), taken into evidence as Exhibit R1, together with the other documents tendered by the parties at the hearing. The applicant gave oral evidence in person with the assistance of a Turkish interpreter. There were also three witnesses for the applicant and one for the respondent providing oral evidence.
Issues
15. The issues to be determined in this application are:
(a)Whether the GST notices of assessment for the period from 1 July 2001 to 30 June 2004 (excluding the September 2003, December 2003 and March 2004 quarters) are excessive; and
(b)Whether the notices of amended assessment for the years ended 30 June 2002 and 30 June 2003, and the notice of assessment for the year ended 30 June 2004 are excessive.
Applicable law
16. Section 167 of the Income Tax Assessment Act 1936 (Cth) (the ITAA) provides as follows:
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167. Default assessment
If:
(a)any person makes default in furnishing a return; or
(b)the Commissioner is not satisfied with the return furnished by any person; or
(c)the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.
…
Respondent’s position
17. It should be noted that the respondent does not seek to have the decision under review affirmed, but submits that the preferable course is to vary it in the manner that it proposes. Having reviewed the objection decision and the available evidence, the respondent has revised his decision in a manner considerably more favourable to the applicant than was originally the case. The respondent’s revised position may now be summarised.
(a)Notices of Assessment of GST net amount:
In respect of the Notices of assessment of GST net amount for the September 2001 quarter, December 2001 quarter, March 2002 quarter, June 2002 quarter, annual GST return for the period 1 July 2002 to 30 June 2003, September 2003 quarter, December 2003 quarter, March 2004 quarter and 30 June 2004 quarter the respondent is prepared to reduce the applicant’s GST net amount from the total amount as determined by the audit of $44,351 to $19,215 as set out below:
GST Period GST net amount as determined by audit Dr/ Cr Newly contended GST net amount Dr/ Cr Reduction 1 July to 30 September 2001 quarter $996 Dr $215 Dr -$781 1 October to 31 December 2001 quarter $955 Dr $602 Dr -$353 1 January to 31 March 2002 quarter $1,854 Dr $1,345 Dr -$509 1 April to 30 June 2002 quarter $1,451 Dr $1,345 Dr -$106 1 July 2002 to 30 June 2003 annual GST return $19,048 Dr $6,565 Dr -$12,483 1 July 2003 to 30 September 2003 quarter $5,337 Dr $1,848 Dr -$3,489 1 October 2003 to 31 December 2003 quarter $6,652 Dr $5,630 Dr -$1,022 1 January 2004 to 31 March 2004 quarter $63 Dr -$2,149 Cr -$2,212 1 April 2004 to 30 June 2004 quarter $6,029 Dr $3,814 Dr -$2,215 Total $42,385 $19,215 -$23,170 The commissioner notes that the Notice of Decision on Objection dated 4 October 2006 does not refer to the quarters ended 30 September 2003, 31 December 2003 or 31 March 2004. Accordingly, these periods are not before the tribunal in these proceedings. However, consequent on any decision of the tribunal, the commissioner will adjust these quarters in accordance with the table above.
(b)Income tax for years ended 30 June 2002, 30 June 2003 and 30 June 2004:
In respect of the income years ended 30 June 2002, 30 June 2003 and 30 June 2004, the respondent is prepared to amend the applicant’s taxable income in the relevant years as follows:
Income year ended Taxable income as determined by audit Newly contended taxable income 30 June 2002 $43,680 $25,887 30 June 2003 $158,303 $35,954 30 June 2004 $158,303 $91,437 (c)GST shortfall penalties:
In respect of the GST shortfall penalties of $21,341.25 imposed for having a tax shortfall amount, the respondent is prepared to remit the penalties in full;
(d)Income tax shortfall penalties:
In respect of the income tax shortfall penalties of $53,788.60 imposed in respect of the income years ended 30 June 2002 and 30 June 2003, the respondent is prepared to remit the penalties in full;
(e)Failure to lodge penalty:
The failure to lodge penalty of $47,906.95 in respect of the year ended 30 June 2004 was incorrectly imposed under subsection 284-75(1) of Schedule 1 to the TAA. The penalty should have been imposed under subsection 284-75(3) of Schedule 1 to the TAA. In respect of the penalty of $47,906.95 imposed in respect of the income year ended 30 June 2004, the respondent is prepared to remit the penalty in full.
Explanation of the respondent’s revised calculations
18. GST period 1 July 2001 to 30 June 2002:
(a)The applicant’s work history is unknown between July 2001 and December 2001. Accordingly, the respondent has accepted the amounts of taxable supplies and creditable acquisitions reported by the applicant in his BASs for the quarters ended 30 September 2001 and 31 December 2001 to be correct.
(b)The applicant has claimed that he was working for A&L between December 2001 and December 2002. The written “employer certificate” states that the applicant received $1,400 per week (see T56-268). The respondent has accordingly calculated the applicant’s taxable supplies in respect of the quarters ended 31 March 2002 and 30 June 2002 to be $18,200 for each quarter ($1,400 x 13 weeks).
(c)In the absence of any substantiating documents, the respondent will allow 18.71 percent of the taxable supplies as creditable acquisitions for the purpose of input tax credits (“ITCs”) and allow 40 percent of the income as allowable deductions for the purposes of income tax. These two figures are in accordance with typical averages for the bricklaying industry from published industry reports.
(d)A summary of the calculations is provided below:
Quarters Taxable supplies
(G1)
Creditable acquisitions
(G11)
GST payable
(A1)
ITC allowable
(1B)
Net amount of GST Sep-01 $2,920 $389 $265 $35 $230 Dec-01 $8,140 $1,540 $740 $140 $600 Mar-02 $18,200 $3,405 $1,655 $310 $1,345 Jun-02 $18,200 $3,405 $1,655 $310 $1,345 Total $47,460 $8,739 $4,315 $795 $3,520 19. Income tax year ended 30 June 2002:
(a)The respondent contends that the applicant’s taxable income for the year ended 30 June 2002 should be $26,682, calculated as follows:
(i)The applicant’s gross business income for the year ended 30 June 2002 is $43,145 (taxable supplies – GST payable: $47,460 - $4,315 = $43,145)
(ii)The respondent will allow 40 percent of the income as allowable deductions in accordance with industry standards from published industry reports ($43,145 x 40% = $17,258). This amount will be reduced by the amount of ITC allowed $795. The net amount of allowable deduction = $17,258 - $795 = $16,463
(b)A summary of the calculations is provided below:
Gross business income $43,145
Less allowable expenses $16,463
Revised Taxable income $26,682
20. GST period 1 July 2002 to 30 June 2003:
(a)The gross business income of the applicant as returned in his income tax return for the year ended 30 June 2003 was $72,878. However, the respondent has calculated the applicant’s gross business income for the period 1 July 2002 to 30 June 2003 to be $64,707. This amount is comprised of the amount of total deposits in his bank statements (see T D).
Date Amount Description T-document reference 15/07/2002 $600.00 Cash deposit T50-209 17/07/2002 $300.00 Cash deposit T50-209 16/08/2002 $1,100.00 Cash deposit T50-206 20/08/2002 $20.00 Cash flexiteller Deposit T50-206 16/09/2002 $852.00 Cash deposit T50-204 17/10/2002 $855.00 Cash deposit T50-204 15/11/2002 $850.00 Cash deposit T50-204 25/11/2002 $13,420.00 Cashing of cheque with Arab Bank Australia Limited T51-219 28/11/2002 $3,000.00 Cash deposit T50-204 2/12/2002 $1,500.00 Cheques deposit T50-204 17/12/2002 $900.00 Cash deposit T50-204 2/01/2003 $5,300.00 Cheques deposit Supp T-doc T58-297 9/01/2003 $1,700.00 Cheques deposit Supp T-doc T58-297 17/01/2003 $860.00 Cash deposit Supp T-doc T58-297 17/02/2003 $1,000.00 Cash Deposit Supp T-doc T58-297 10/03/2003 $2,500.00 Cash and/or cheques deposit T50-205 17/03/2003 $1,000.00 Cash deposit T50-198 14/04/2003 $1,300.00 Cheques deposit T50-198 16/04/2003 $500.00 Cheques deposit T50-199 17/04/2003 $900.00 Cash deposit T50-199 22/04/2003 $2,000.00 Cash deposit T50-199 1/05/2003 $1,050.00 Cash deposit T50-199 12/05/2003 $1,500.00 Cheques deposit T50-199 19/05/2003 $950.00 Cash deposit T50-199 22/05/2003 $300.00 Cash deposit T50-199 20/06/2003 $14,650.00 Cheques deposit T50-201 26/06/2003 $800.00 Cheques deposit T50-201 27/06/2003 $5,000.00 Cheques deposit T50-201 Total $64,707.00 (b)In the absence of any substantiating documents, the respondent will allow 18.71 percent of the taxable supplies as creditable acquisitions for the purpose of ITCs and allow 40 percent of the income as allowable deductions for the purposes of income tax. Those two figures are in accordance with typical averages for the bricklaying industry from published industry reports.
(c)A summary of the calculations is provided below:
Quarters Taxable supplies
(G1)
Creditable acquisitions
(G11)
GST payable
(1A)
ITC allowable
(1B)
Net amount of GST Sep-02 $2,872 $537 $261 $49 $212 Dec-02 $20,525 $3,840 $1,866 $349 $1,517 Mar-03 $12,360 $2,313 $1,124 $210 $914 Jun-03 $28,950 $5,417 $2,632 $492 $2,140 Total $64,707 $12,107 $5,883 $1,100 $4,783 21. Income tax year ended 30 June 2003:
The respondent contends that the applicant’s taxable income for the year ended 30 June 2003 should be $35,394.00, calculated as follows:
The applicant’s gross business income for the year ended 30 June 2003 is $59,924 (taxable supplies – GST Payable: $64,707 - $5,883 = $58,824)
The respondent will allow 40 percent of the income as allowable deductions in accordance with industry standards from published industry reports ($58,824 x 40% = $23,530). This amount will be reduced by the amount of ITC allowed $1,100. The net amount of allowable deduction = $23,530 - $1,100 = $22,430
A summary of the calculations is provided below:
Gross business income $58,824
Less allowable expenses $23,430
Revised Taxable income $35,394
22. GST period 1 July 2003 to 30 June 2004:
(a)In calculating the revised amounts in respect of the period 1 July 2003 to 30 June 2004, the respondent accepted the applicant’s BASs for the relevant periods and relied upon documents signed by the applicant providing figures for the BAS quarters ended 30 September 2003, 31 December 2003, 31 March 2004 and 30 June 2004. (see T49-186 to T49-189)
(b)A summary of the calculations is provided below:
Quarters Taxable supplies
(G1)
Creditable acquisitions
(G11)
GST payable
(A1)
ITC allowable
(1B)
Net amount of GST Sep-03 $60,029 $39,704 $5,457 $3,609 $1,848 Dec-03 $84,252 $22,314 $7,659 $2,029 $5,630 Mar-04 $0 $23,641 $0 $2,149 -$2,149 Jun-04 $108,975 $67,018 $9,907 $6,093 $3,814 Total $253,256 $152,676 $23,023 $13,880 $9,142 23. Income tax year ended 30 June 2004:
(a)The respondent has calculated the applicant’s revised taxable income for the year ended 30 June 2004 as $91,437 as follows:
The applicant’s gross business income for the year ended 30 June 2004 is $228,577: (taxable supplies – GST payable: $253,256 - $23,023 = $230,233)
The applicant’s allowable deductions is $138,797: (creditable acquisitions – allowable ITCs: $152,676 - $13,880 = $138,796)
(b)A summary of the calculations is provided below:
Gross business income $230,233
Less allowable deductions $138,796
Revised Taxable income $ 91,437
Applicant’s evidence
24. In his statement (part Exhibit A1) and in his oral evidence he stated that when he began working as a bricklayer he was earning only about $100 a day because of his lack of experience. He was employed by A&L on a casual basis because work conditions were affected by weather.
25. In December 2001 he approached a finance broker at Bankstown to seek a loan to purchase a vacant lot of land at Guildford, New South Wales. He was told that he needed payslips from his employer to show that he was earning at least $1,400 gross per week if the loan were to be approved. He then told his employer who provided him with a letter and payslips falsely showing that he earned that amount (T pp268-270). Subsequently he obtained approval for a $160,000 with which to loan to complete the purchase.
26. He continued working for A&L for approximately seven months until the work ceased. After that he performed various bricklaying jobs until December 2002, when he entered into an equal partnership with Sape Fiaomonia. They began with small jobs but grew to the point that they had employees of their own. The partnership continued until 2004. During that period, in April 2003, he borrowed a further $238,000 to construct a dwelling on the vacant land he had purchased. In about July of that year, however, he succumbed to a gambling habit, which absorbed more than half of his earnings and caused him to incur large losses.
27. His winnings from the club were deposited into his bank account. In April 2006 he refinanced his home loan in the amount of $98,000 because he could not maintain the repayments. He used those funds to meet his monthly payments until it was exhausted, and in due course the house had to be sold in April 2007.
28. In February 2004 he received an ATO communication stating that he owed about $12,000, which he challenged. The respondent subsequently reviewed the matter and propounded successively larger estimates rising to $200,000. In reaching those figures they adopted the estimate of $1,400 gross per week that he had stated when applying for the loan, but also included his building loan instalments as well as his gambling winnings.
29. In 2005 he engaged a barrister and an accountant to endeavour to bring some order to his tax affairs, but eventually he ran out of funds to meet the fees. At about that time the partnership broke down and he worked only on small bricklaying jobs. His financial position continued to deteriorate. He then began work with Alce Constructions, which remains his employer to date.
30. He stated that during his partnership with Sape Fiaomonia, he was dealing with the money side of the business. Cheques were deposited into his account and employee wages were paid from those sums. Consequently he believes that his income tax assessments for the years 2002 to 2004 should be divided by 50 percent because Sape Fiaomonia’s share should have been deducted. Thus, the figures for gross business income set out on pages 22 and 24 of Exhibit A1 related to both the applicant and his partner and for present purposes should be halved.
31. In cross-examination he admitted that he had read and signed the transcript of the interview at Penrith with ATO officers (T p39-45), but said it was an edited version and not everything he had said had been included. When his attention was drawn to the covering letter of 6 December 2004 (T p38) giving him the opportunity to suggest amendments, he replied that the ATO had sent him “millions of letters” and that he no longer even opened them.
32. As regards to letter from A&L attesting to his 2001 earnings (T p268), he said that was the letter for which he had been asked by the finance broker. But he claimed he did not know it would be used for the purposes of applying for a house loan.
33. Similarly, in the loan request form he completed on 4 April 2003 (T p252-257), he had described himself as an employee of Sape Fiaomonia when he claimed in his evidence that he had been partners with Fiaomonia. He agreed, adding that he had made the statement in order to obtain the loan.
34. He said that all the partnership’s receipts were deposited in his savings account, but admitted that there were no records of any withdrawals from that account for Sape Fiaomonia.
35. Previously he had held some records relating to the period in question but his then accountant had lost them after cancelling the applicant’s GST without his signature and without his instructions.
36. Asked why he did not inquire of his accountant why there were no BASs to sign, he replied that his “issue” with the ATO began at about that time, some two months after the GST had been cancelled. He had known nothing about GST, which was new at the time, and had left everything to his accountant. On one occasion he had taken invoices to his accountant, but had been told by the accountant that he did not need them.
37. As regards the schedules prepared by the respondent (T p176-190), he said that he had simply signed them and did not understand the figures. An officer of the respondent had placed the schedules in front of him. Ms Callinan had gone through the figures, which seemed excessive to him, but he signed them because he did not think there was anything else he could do. He had not realised what trouble was awaiting him as everyone had assured him that everything would be all right. He signed because the government wanted him to and he thought he had no choice. He believed they had taken advantage of his lack of English, which at that time was much greater.
38. He had derived his estimates of his gambling receipts from the Lidcombe Catholic Club, where he was a registered gambler.
39. Mr Gaetano Ruggiero, bricklayer, in his statutory declaration of 30 October 2007 (Exhibit A1, p19) declared that he had known the applicant for about nine years. He began employment with the applicant in 2002, continuing through to 2004. During that time the applicant had introduced him to his business partner, Mr Sape Fiaomonia. One of the applicant’s work responsibilities was the wage reconciliation from the builder. It was common practice for the applicant to obtain payment from the builder and distribute it to the workers, including Mr Ruggiero. On some occasions the wages were distributed by Mr Fiaomonia.
40. He had no doubt that the applicant and Mr Fiaomonia were partners. The applicant had introduced Mr Fiaomonia to him as such. He did not, however, know what amounts the applicant received from builders.
41. Mr Ferdi Serkaya also worked occasionally for the partners between 2002 and 2004 (Exhibit A1, p18). Although he had never seen a partnership agreement, he knew that such an arrangement existed. He was not, however, aware of their income from builders.
42. A statement to a similar effect signed by Mr Haluk Akbulut (Exhibit A1, p17) was also in evidence. Although he saw no partnership agreement either, he knew that the applicant and Mr Fiaomonia were dealing with their money together. Although he knew that they were dealing with money in that way, he did not know what amounts were involved.
Applicant’s submissions
43. The applicant made some brief submissions by way of opening and summation. He said he was trying to explain his position, but the figures proposed by the respondent were all false. He had dealt with different ATO officers on each occasion, who had all said similar things. He had no time to read the documents put before him. The process had destroyed his life and he could not even listen to the respondent’s submissions.
44. He had borrowed money to spend on gambling in the clubs. In order to obtain his loan to buy the Guildford land, he had been required to show a weekly income of $1,400. The bank had accepted that figure, but he had told the ATO that the figure was not true. He had never made that amount of money and had only worked four or five months with A&L. He had supplied evidence to the respondent, much of which was in a form of documents not contained in the T documents, but still they would not accept his arguments. All the income shown in the documentary evidence had to be divided by two. In his view he owed less than $10,000, while the respondent was taking figures from the air, from statistics or from the club gambling statements.
45. The respondent had claimed his figures were right four years ago when he had said the applicant owed $277,000. The respondent had now accepted that claim was made in error, but was making an error at the hearing also. He had not earned that amount of money.
Respondent’s evidence
46. In addition to the material contained in the T documents, the respondent adduced oral evidence from Mr Lakshmi Iyengar, a senior ATO compliance officer who has been involved with the present case since the objection stage. It was his responsibility to review the matter for the purposes of the preparation of the respondent’s statement of facts, issues and contentions.
47. Mr Iyengar explained the methodology used. In relation to the table in para 18 above, the figures for the September and December quarters 2001 were reproduced from figures supplied by the applicant is his BAS. The March and June 2002 amounts were derived by way of estimate based on the applicant’s stated gross weekly earnings of $1,400 which he had asserted in his loan application and confirmed at the interview on 1 December 2004 (T p39-40). That amount was corroborated by the letter and payslips from A&L (T pp268-270). The sums paid were described as payments to an employee, although the applicant’s tax returns did not show that he was employed (see, eg, T pp236-239). They described his receipts as business income.
48. The amounts in para 19 above were derived from the table in para 18. In para 20(b) above the respondent had allowed 40 percent by way of deductions on the basis of the industry standard as set out in the ANZSCI bricklaying services cost figures (Exhibit R2, pp9-10). The relevant costs added up to 39.69 percent, but the respondent had rounded it up to 40 percent. If the respondent had not allowed that percentage, the applicant would have been required to pay much more by way of tax. As the applicant had no proper accounting system, the respondent had no option but to use the standard industry percentages.
49. As regards the table in para 20(a) above, the respondent had proceeded from deposit figures because they constituted the only reliable information that the applicant had, although they would be likely to be highly conservative figures. Irrelevant deposits, notably gambling winnings and home loan instalments had been specifically excluded. The proceeds of gambling were derived from the Lidcombe Catholic Club documents because the applicant was a registered gambler who used a card, rather than cash. The amounts involved were very large. The table in para 20(c) transcribed that information on a quarterly basis.
50. The same process was adopted in relation to the applicant’s income tax for the year ended 30 June 2003 (para 21 above). For 2004, it was impracticable to total the deposits because the applicant lacked a full set of bank statements, but the calculations instead relied on the schedules the applicant had signed at the interview, even though some tax invoices were missing. Although the applicant had no accounting system, he had provided a complete set of signed BASs on which the respondent could rely. The applicant had signed the schedule relating to the 2004 year (T p190) showing a total income of $253,250.50, which was the total of all the summaries. Those numbers were reproduced in the table at para 22(b).
51. A similar method had been adopted for the income tax year ended 30 June 2004, except that for that year the applicant had provided some information, on which the respondent therefore relied.
52. Mr Iyengar noted that no partnership return had been sighted at any stage, nor had such a return been mentioned at the interview.
53. Asked by the applicant in cross-examination about the estimated $18,200 in taxable supplies for the March 2002 quarter (para 18(d) above) in light of the applicant’s then lack of experience in bricklaying, Mr Iyengar replied that the respondent always uses industry standards when there are no proper records kept, even if the period covered is only two months.
54. In re-examination, he clarified that he had relied on information supplied at the interview, but also on data from the ATO Low Doc Loans Project (Low Docs). The ATO had found that some applicants asserted large incomes in loan applications, amounts that greatly exceeded the income declared in their returns. Consequently, the ATO had obtained documents from the banks pursuant to the Low Docs approach that showed the applicant had claimed to have received more income than he had declared. Specifically, he had claimed in the documents submitted to the National Australia Bank (NAB) that he had worked for A&L for three years for $1,400 gross per week. The payslips that he gave to the bank confirmed those figures.
55. On the other hand, the standard ANZSIC deductions (Exhibit R2) were to the applicant’s benefit, because he has supplied no documentation for his expenses. The ANZSIC rates provided a reasonable basis for reducing the applicant’s tax liability.
Consideration
56. The respondent relies on s 14ZZK of the Taxation and Administration Act 1983 (Cth) (the TAA), which places the onus on the applicant to prove that its assessments are excessive.
57. The respondent is not required to prove that his figures are correct and can act only on the information that he has. The taxpayer has an obligation to keep proper records and if that is not done, the commissioner can ascertain his income by applying accepted standards.
58. In Re Graham Docker and Associates Pty Ltd and Commissioner of Taxation [2005] AATA 1180, the tribunal noted that:
…
The challenge facing the applicant in this application is twofold – the respondent has adopted a plausible methodology in its calculations, and the applicant lacks documentary evidence to demonstrate that the respondent’s calculations had produced a distorted result. Under section 14ZZK of the Taxation Administration Act 1983 (Cth), the applicant … has the burden of proving that the assessment is excessive. It is not for the respondent to prove that the assessment was correctly made. … (at para 25).
…
59. The tribunal in Docker continued:
… Nor is it necessary for the Commissioner to adduce evidence to sustain or support the assessments: Gauci v Commissioner of Taxation (1975) 135 CLR at 89 …; McCormack v The Commissioner of Taxation … (1979) 143 CLR 284 at 301, 306; The Commissioner of Taxation v Dalco … (1990) 168 CLR 614. The taxpayer also needs to establish the amount which should be substituted for the amount assessed: Martin v Federal Commissioner of Taxation (1993) 93 ATC 5200.
…
60. Although the respondent carried no burden of proof, Mr Iyengar was called to give evidence of the methodology adopted by the respondent in reaching the results set out in (paras 17 to 23) above. The data relied on had been drawn from the applicant's own statements in his loan application, at the interview, in the schedules he signed at the interview, on bank statements, gambling account statements, BASs signed by the applicant and industry standard rates. Much of the information was used to the applicant's advantage.
61. The applicant provided no written evidence of his partnership agreement with Sape Fiaomonia and no partnership return has ever been lodged. There is no evidence of any bank withdrawals to pay Sape Fiaomonia, nor was he called to give evidence. While it is true that business partnerships sometimes break up in conditions of acrimony, and that might account for the lack of evidence from the partner, the absence of any proper records fails to substantiate the applicant’s claim that 50 percent of the receipts from builders during the 2002 – 2004 period should be attributed to the partner and not to the applicant. The evidence, including that of the supporting witnesses, may support a conclusion that some kind of informal partnership arrangement was in operation, but the applicant's claim that he was entitled to only half of the receipts shown is unsubstantiated.
62. Subject to the qualification below, I find that the applicant has failed to discharge the burden of proving that the respondent’s assessments are excessive.
63. My qualification relates to the respondent’s estimates of taxable supplies to the value of $18,200 for the March and June quarters 2002. Those sums were derived from the applicant’s loan request and from the signed record of interview and, other things being equal, are quite defensible. Nevertheless, the applicant was especially adamant that as a novice in the bricklaying industry, he could never have earned such amounts, especially as he was working part-time and as an apprentice. He disavows the assertion in his loan application that he was receiving $1,400 gross per week at A&L on the basis that the finance broker (who is no longer in business) suggested that he needed to fill in that amount in order to obtain a loan. That explanation reflects poorly on the applicant and does nothing to enhance his credibility.
64. Nevertheless, the task at hand is to arrive at the best possible estimate of his actual income.
65. Some corroboration for the applicant's claim is provided by the signed letter from Mr Ramazan Zengin (Exhibit A1, p16), who states that he started working at A&L with the applicant at the same time and ceased employment with him at the same time also. They were holding similar part-time positions and were paid the same wages. Mr Zengin during that period earned approximately $7,000 and believes the applicant earned a similar amount.
66. While Mr Zengin was not in a position to give firm evidence about the applicant’s earnings, he had known him for seven years and could reasonably be expected to have a general idea as to whether they were earning comparable amounts in similar positions with the same employer.
67. Ms Hirschhorn pointed out that the statement was not in the form of a statutory declaration and that Mr Zengin had not been called. Consequently, the tribunal could not know what he would actually have said. Although he wrote that he had ceased at the same time as the applicant, for all we knew the applicant might have resumed working with A&L later. The letter therefore deserved little weight.
68. While all that is true, the letter is quite credible in light of the applicant’s inexperience as a bricklayer at the time and does provide some corroboration for the applicant’s evidence on that point. It may also be noted that Tamberlin J has recently held that the rule in Jones v Dunkel (1959) 101 CLR 298 has no application in tribunal proceedings (Green v Minister for Immigration and Citizenship [2008] FCA 125 at para 41).
69. It also seems quite possible that at the December 2004 interview, he was constrained by his relative lack of English skills and may not have wanted to admit having made a materially false statement in a loan application.
70. On the preponderance of probabilities I therefore find that the applicant worked for A&L for a period not exceeding seven months and earned approximately $7,000 from that employment.
71. In all other respects the applicant has failed to discharge the burden of proving that the assessments are excessive.
Conclusion
72. As was noted above, the respondent does not seek to have the decision under review affirmed, but rather varied in accordance with its position as stated above.
73. The decision is therefore that:
(a)Subject to (b) below, the reviewable decision is varied in the manner set out in paras 17 to 23 above; and
(b)The decision under review is remitted to the respondent for reconsideration on the basis that the applicant was employed by A&L Constructions (NSW) Pty Limited for a period not exceeding seven months between December 2001 and June 2002 and in that capacity earned the amount of $7,000.
I certify that the 73 preceding paragraphs are a true copy of the reasons for the decision herein of Professor GD Walker, Deputy President
Signed: ........................[sgd]...............................................
Renee Wallace, AssociateDate/s of Hearing: 11 April 2008
Date of Decision: 29 May 2008
Solicitor for the Applicant: Self-represented
Solicitor for the Respondent: Mr R Pandey, ATO
Counsel for the Respondent: Ms M Hirshhorn
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