Karamanli and Commissioner of Taxation (Taxation)
[2024] AATA 3398
•25 September 2024
Karamanli and Commissioner of Taxation (Taxation) [2024] AATA 3398 (25 September 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2023/4882
Re:Mehmet Karamanli
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member D Benk
Date:25 September 2024
Place:Sydney
I affirm the objection decision dated 8 December 2022. This means that the application for review is unsuccessful.
......................[SGD]..................................................
Senior Member D Benk
Catchwords
Deductions claimed in gaining or producing assessable income - whether expenses of a private, capital or domestic nature - onus of proof - rules for general deduction - apportionment and substantiation – decision affirmed
Legislation
Taxation Administration Act 1953 (Cth)
Income Tax Assessment Act 1997 (Cth)
Cases
Gashi v Commissioner of Taxation (2013) 2098 FCR 301
Commissioner of Taxation v Smith (1981) 147 CLR 578
Handley v Federal Commissioner of Taxation (1981) 148 CLR 182
REASONS FOR DECISION
Senior Member D Benk
25 September 2024
Mehmet Karamanli (the Applicant) has made an application to the Administrative Appeals Tribunal (the Tribunal) seeking that the decision made by the Commissioner of Taxation (the Respondent) refusing his claims for taxation deductions be set aside (reversed).
The Respondent maintains that its position is correct as the Applicant has failed to provide substantiation of his claims. This is the epicentre of the dispute.
The matter was heard on when 28 August 2024 when both parties gave evidence and made submissions via MS teams.
BACKGROUND
To following chronology is undisputed; relevantly;
i.The Applicant was employed as a PAYG employee for Platinum Traffic Services Pty Ltd as a traffic controller in the 2019/2020 financial year.
ii.On 9 July 2020, he lodged his income tax return and claimed $9,800 in work related deductions broken down as follows;
a.$3,400 in work related car expenses (using the cents per km method)
b.$1,500 in work related travel expenses
c.$850 in work related clothing expenses
d.$1,050 in work related self-education expenses
e.$2,300 in other work related expenses
f.$700 in supplemental deductions.
iii.Following internal review, on 19 August 2022, the Respondent disallowed all of the deductions made by the Applicant, primarily because it determined the Applicant had failed to provide substantiation of the outgoings either by way of receipts/bank statements or any other form of evidence.
iv.On 5 July 2023, the applicant applied to the Tribunal for review.
v.The matter underwent the usual case management pathway with the Respondent once again inviting the Applicant to provide further information regarding his claims.
vi.On 8 January 2024, the Respondent issued a summons on the Applicant’s then employer as it considered that this may be an avenue to obtain the information that the Applicant was unable to supply. There was full compliance with the summons, which will be addressed below.
ISSUES TO BE DETERMINED
The law relevant to this application is found in the Income Tax Assessment Act 1997 (Cth) (the 1997 Act). Having regard to the provisions found in the 1997 Act, the Tribunal has identified the following issues must be determined;
(a)Whether the deductions claimed by the Applicant were incurred in the gaining or producing of income;[1]
(b)Whether the deductions claimed, if proven are of a capital, private or domestic nature;[2]
(c)If the deductions claimed are capital in nature, the decline in value of any depreciating asset and its relationship to producing assessable income;[3]
[1] Section 8-1(1)(a) of the 1997 Act.
[2] Section 8-1(2)(b) of the 1997 Act.
[3] Section 40-25 of the 1997 Act.
In considering the above, the Tribunal must verify the deductions claimed with reference to the ‘substantiation requirements’ found in the 1997 Act[4] and also determine whether the basis of the apportionment relied upon by the applicant was appropriate/correct.
[4] Division 900 of the 1997 Act.
Applicant’s contentions
The Applicant was self-represented in these proceedings. To the extent that it overlapped, his oral evidence was largely consistent with previous written representation and records held by the respondent. Key submissions/contentions at hearing were;
(i)This matter has deeply affected him on many levels including physically, financially and mentally. Not only has he been financially disadvanged from a taxation point of view, for what he views to be legitimate expenses that he has claimed, he now also has a family assistance debt with Centrelink. He cannot get a straight answer from either department and testified that he is lost in the system;
(ii)He said that the passage of time has prevented him from being fully able to defend himself. He is confident he made claims correctly, but admits that he does not have any documentation to validate his oral statements or that he may have understood the parameters relating to each category of claim. He said that it is not his fault that the matter has taken so long to progress. He should not be a victim of the lapse of time nor, should he be punished for his productivity;
(iii)Regarding the record keeping in relation to the deductions claimed, relevant records were kept in a box in his brother’s garage and were destroyed when the home was flooded. As a result, no receipts or evidence about how the claims were made can be furnished. A letter from Centrelink confirming a payment for flood assistance has been provided confirming he was a victim of the flood;
(iv)Regarding the motor vehicle expenses, he cannot really remember how he calculated the $3,400 claimed but thinks it was the log book method. He confirmed that he did not have to carry bulky goods to and from work or between job sites. He does not agree with the documents provided by his former employer under Summons which state that he did not have to use his private vehicle and that at all times a company vehicle was provided for travel from the depot to job sites. He doubts the accuracy of the evidence stating that the back of house staff (meaning administration staff) have no idea about front line operations, and in any event there has been such a huge turnover in staff within the organisation that he cannot be confident that the information pertains to his particular work tasks or whether they are offered in response to some academic job description. He also left that employer under unhealthy circumstances and so does not know if they have deliberately misrepresented the situation. He maintains the claims despite not being able to provide them with reference to any records;
(v)Regarding the travel expenses, both the oral and documentary evidence revealed the Applicant could not remember what these expenses were for or what was claimed. Again, the Applicant submitted that he would have had primary documentation to make the claim but as a flood victim he has now lost the chance to prove himself. During cross examination, the Respondent attempted to prompt the Applicant regarding possible claims that fell under this criteria, but the Applicant testified he could not remember;
(vi)As regards work related clothing, the Applicant indicated he was not provided with high viz wear by the employer and would have to purchase his own. He recalls shopping around to get the best deal and would generally pay cash to get a discount but again, primary documentation has been destroyed in the flood. During cross examination, the Applicant testified that the clothing purchased was in fact only used for work and not domestically stating: “I would not wear the clothes to your wedding’. Testimony revealed that the clothing items did not have the employer’s branding and that they could technically be worn in a number of scenarios. The Applicant indicated that he had returned to a number of the stores where he purchased the clothing to get duplicate receipts and even emailed requests which have fell on deaf ears; presumably due to the passing of time and because the sales were generally in cash, making it difficult to narrow down the date of purchase;
(vii)Likewise with self-education, the Applicant testified that he could not recall the precise claims made amounting to $1,050. He knows that he had to renew a number of his ‘ticket’s and undertook site training that he had to pay privately for, but again has no receipts, invoices or evidence relating to each ticket or training event. He has approached the training co-ordinators who have failed to assist him with receipts. He recalls paying cash for the courses because he obtained a discount. Again, these documents were stored in the box that was destroyed in the flood;
(viii)As to the claims made relating to the ‘other work related expenses’, the Applicant testified that these related to an iPad and computer as he was required to print his daily work sheets prior to his shift. The Applicant had provided a receipt from JB HI FI for the iPad and from a computer shop for a gaming computer. The Respondent cross examined the Applicant extensively regarding the iPad purchase and queried given the date of purchase (which was just before tax time) that it was done in an effort to secure a work related deduction. The Applicant testified that he had purchased a number of iPad’s in that financial year and that the receipt on file may not relate to his iPad. His children used such devices during the Covid lockdown for school. In respect of the gaming computer, on cross examination, the Respondent queried why such a high powered computer would be required for simple tasks such as printing jobs. The Applicant conceded that the computer was used by him and his children but could not identify to what extent or for percentage of the time. He does not recall if he made such calculations when assessing his claim.
(ix)Finally, with regards to the claim for supplementary deductions, valued at $700, the Applicant honestly could not recall, but again circled back to the fact that he did have primary documents to validate such a claim, but these were destroyed by the flood and his recall has been compromised by the passage of time.
Respondent’s contentions
In both written and oral submissions, the Respondent maintains;
(a)The Applicant has failed to discharge his onus of proof, that is, he has failed to positively prove that the assessment is excessive or otherwise incorrect;
(b)The Applicant has had much time and opportunity to substantiate his claims but has failed to do so;
(c)Evidence produced under summons does not support the Applicants motor vehicle claims with the employer stating:
“Mr Karamanli was predominantly a Team Leader and TMA driver, which he has been given a company vehicle to go to and from work in for all shifts. This is shown on the dockets and job summary reports for each day. He was issued with the vehicle rego EAZ90L and when was driving the TMA the vehicle regos were either BF26RW, CN59WS or BW93HM. All shifts show him as either a Driver or a STS in company vehicle on the summaries”
(d)The Applicant’s own statements confirm that he may not have understood the law as regards self-education deductions and claims and work related clothing claims;
(e)The loss of or destruction of documents in a flood does not assist the Applicant’s case as he has failed to demonstrate that he took reasonable precautions to prevent the loss or destruction of the documents. In the alternative, despite being given many opportunities he has not obtained a substitute evidence which could help him satisfy the substantiation requirements.
(f)Even if some of the expenses can be established as being related to his income producing activities, apportionment is not possible as the Applicant has failed to establish the extent of private/domestic use and those related to any activity in producing or gaining assessable income;
(g)That the decision of the Respondent should be affirmed as the evidence has failed to establish either:
a.The expenses were actually incurred;
b.Alternatively the deductions claimed were not incurred in gaining or producing income as envisaged by the 1997 Act;
c.And to the extent that any expenses/deductions claimed were incurred, it is unclear whether they were of a capital, private or domestic nature.
Application of the law
As indicated, the law relating to this application is found in the 1997 Act.
Importantly, it is necessary to emphasise that the Applicant must establish that the assessment is excessive[5] or incorrect, or alternatively what the assessment should be. In plain English, this is referred to as the burden of proof and requires the Applicant to positively demonstrate/prove that his actual taxable income and the tax that has been levied on that income exceeds the actual substantive liability.[6]
[5] Section 14ZZK(b)(i) of the Tax Administration Act 1953.
[6] Gashi v Commissioner of Taxation (2013) 2098 FCR 301
Here the Applicant says that the passage of time, life events, stress with dealing with the Respondent and flood damage have all impeded his ability to meet that onus and requests that ‘common sense’ prevail, as his job as a traffic controller would necessitate the deductions claimed as they do not fall out of the ballpark.
The Act allows for the claiming of deductions. Deductions may be general[7] or specific[8]. The provisions are technical but to make the complex simple, in order to claim a general deduction, what must be demonstrated is that the ‘loss or outgoing’ (ultimately claimed as a deduction) was incurred in gaining or producing the assessable income reflected in the taxation return for the financial year.
[7] Section 8-1 of the 1997 Act
[8] Subsection 8-5(i) of the 1997 Act
The Act however stipulates that a loss or outgoing cannot be claimed to the extent that it is of a capital nature; a private or domestic nature; or alternatively incurred in relation to producing exempt income.
In assessing whether an outgoing is deductable, the Applicant must demonstrate that there is a sufficient nexus between the expense/outgoing and the activity which has produced his assessable income.[9]
[9] Commissioner of Taxation v Smith (1981) 147 CLR 578
Here, there is no dispute that the Applicant was employed as a traffic controller. To be successful in his claims, his evidence must then demonstrate that the outgoings claimed were incidental and relevant to his work activities as a traffic controller.[10] Case law establishes that the loss or outgoing must be found in whatever is productive of the assessable income.
[10] Handley v Federal Commissioner of Taxation (1981) 148 CLR 182
Matters become more complicated, as a taxpayer must then demonstrate whether the outgoings/losses were either capital in nature or a loss or outgoing of a private or domestic nature,[11] and the extent to which they relate to producing income.
[11] Section 8-1(2) of the 1997 Act
The above summary attempts to make the complex simple. There can be no argument that the taxation legislation is difficult to navigate and can be interpreted incorrectly without deliberate intent, particularly when an Applicant attempts to self-manage returns without the assistance of a tax agent. There is certainly no need to engage the services of a tax agent or accountant in a scenario where a PAYG employee has minimal claims. However, it can be a minefield where the claims are as large as they present in this factual circumstance, particularly given the nature of the employment, the level of taxable income and statements made by the employer relating to outgoings required by employees.
This then leads into the requirement of substantiation. The 1997 Act[12] requires all taxpayers to keep written or electronic records of expenses/outgoings claimed and to further produce them on request by the Respondent.[13]
[12] Division 900
[13] Sections 900-10, 900-165, 900-175 and 900-180 of the 1997 Act refers
The 1997 Act does have some flexibility to cater for misadventure, that is where documents have been lost and/or destroyed.[14] This flexibility can be engaged when the Respondent is satisfied that the Applicant has taken reasonable steps/precautions to prevent the loss or destruction of a document and where a substitution such as a bank statement or other evidence of the outgoing exists.
[14] Section 900-205 of the 1997 Act
Overall, I find that the Applicant has not satisfied his onus, that is, he has not established or positively proven that the outgoings claimed in his 2019/2020 had a nexus with the production of his income as a traffic controller. This is because;
(a)As regards the motor vehicle expenses, the Applicant has not provided any evidence to refute the employer’s statement. I appreciate he does not agree with the statements made and suggests they are erroneous as the ‘back of house’ have no idea what front line staff do on a daily basis, but I cannot ignore the documented shift summaries, which on my inspection confirm the Applicant was provided with a company vehicle. The Applicant did provide some evidence that there were times when he was driving between depots in his own vehicle, but without primary evidence and records of such shifts, I fail to reach the necessary level of persuasion;
(b)In respect of the claims for work related travel expenses, self-education expenses, work related clothing expenses and supplemental deductions, I find that the Applicant has not discharged the onus of establishing these outgoings. I accept that he would more likely than not have incurred some expenses, particularly in regards to clothing, but could not be satisfied when those expenses were incurred and if they fell within the relevant financial year. Likewise with self-education, the testimony was that various tickets and training events had to be renewed annually, biannually or even in three year cycles. In the absence of any documentation or even a copy of when the tickets were issued/renewed, I am not persuaded to the relevant degree of positive satisfaction that the expenses were incurred in the relevant financial year claimed. The testimony in relation to the iPad and home computer was unconvincing. There was no evidence that the Applicant had to engage in printing day sheets for his employer during Covid and further, even if he was required to, there has been no attempt to apportion work use against private use. The evidence disclosed that the Applicant’s children used the devices particularly for home schooling during Covid. Again, I am not satisfied that the outgoings were related to the production of assessable income. Even if I could satisfy myself of some apportionment, the amount would likely be so insignificant that it would not result in any real deduction in taxable income.
I have found the Applicant to be honest but at somewhat of a disadvantage due to the passing of time, his anxiety relating to these proceedings and dealings with the taxation office (which he testified were largely accusatory instead of supportive), and the loss of his primary documentation. Having said that however, despite his credibility, his testimony revealed that he did not really appreciate what was required to establish an outgoing, particularly in relation to work related clothing and self-education expenses, work related travel and the other categories claimed. Whilst documents have been destroyed, given that he had completed his return online, and has done so since, I would have expected as a bare minimum that he would be able to particularise his process of reasoning when making a claim, but his testimony fell short in this regard.
For these reasons, I find that the Applicant has not discharged his burden in establishing that the outgoings/deductions claimed had a nexus to gaining or production of his assessable income as a PAYG employee and nor can I find that he has demonstrated that he has complied with the requirements of substantiation or that he has established grounds from relief from those requirements.
For these reasons, I affirm the objection decision dated 8 December 2022. This means that the application for review is unsuccessful.
I certify that the preceding 23 (twenty-three) paragraphs are a true copy of the reasons for the decision herein of Senior Member D Benk
..............................[SGD]..........................................
Associate
Dated: 25 September 2024
Date(s) of hearing: 28 August 2024 Solicitors for the Respondent: A Mossman, Australian Taxation Office
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