Ke and Commissioner of Taxation (Taxation)

[2019] AATA 4057

Ke and Commissioner of Taxation (Taxation) [2019] AATA 4057 (3 October 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Numbers:         2018/1631, 2018/1632, 2018/1633

Re:Yan Ke

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Member D K Grigg

Date:3 October 2019

Place:Brisbane

The decision under review in relation to the 2013 financial year:

(a)is varied as follows:

(i)the Applicant’s taxable income was $90,280; and

(ii)the penalty imposed should be remitted to $29,025.90; and

(b)is remitted to the Commissioner for the purpose of recalculating the GST component based on the varied taxable income.

The decision under review in relation to the 2014 financial year is affirmed.

............................[SGD]........................................

Member D K Grigg

Catchwords

TAX – where income tax assessments issues by the Australian Tax Office following an audit – whether assessment excessive – whether administrative penalty correctly imposed under section 284-75(3) of Schedule 1 of the Tax Administration Act 1953 – whether discretion should be exercised to remit the penalty – decision under review affirmed.

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

Income Tax Assessment Act 1936 (Cth)

Income Tax Assessment Act 1997 (Cth)

Taxation Administration Act 1953 (Cth)

Cases

Allied Pastoral Holdings Proprietary Limited v Commissioner of Taxation [1983] 1 NSWLR 1

Commissioner of TaxationvCassaniti [2018] FCAFC 212

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614

Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81

Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 276

Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63

Secondary Materials

Practice Statement Law Administration PS LA 2014/4

PS LA 2012/5 “Administration of the false or misleading statement penalty - where there is a shortfall amount”

Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted

REASONS FOR DECISION

Member D K Grigg

3 October 2019

BACKGROUND

1. This matter concerns amended income tax assessments issued to the Applicant by the Australian Tax Office (“ATO”) for the financial years ended 30 June 2013 and 30 June 2014 and the imposition of administrative penalties.

2. During the periods in question the Applicant was a registered tax agent who carried on the business of providing tax agent services.[1] The Applicant was initially registered as a tax agent on 1 May 2005.[2]

   [1]      Exhibit 1, T Documents, T47, page 435, ATO Audit Position Paper; Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 2.

   [2]     Exhibit 1, T Documents, T61, page 653, Objection lodged by the Applicant dated 28 June 2017.

3. The Applicant lodged her income tax return (“ITR”) with respect to the financial year ended 30 June 2013 on 4 June 2014 (“2013 ITR”).[3]

   [3]      Exhibit 1, T Documents, T3, pages 14 – 29, Income Tax Return 2013, dated 4 June 2014.

4. The Applicant lodged her ITR with respect to the financial year ended 30 June 2014 on

   
   

   28 January 2015 (“2014 ITR”). [4]

   [4]      Exhibit 1, T Documents, T4, pages 30 – 57, Income Tax Return 2014, dated 28 January 2015.

5. On 1 March 2016 the ATO advised the Applicant that her 2013 ITR and 2014 ITR had been selected for audit.[5] The ATO requested that the Applicant provide further information by 31 March 2016 regarding, in particular:

   (a)whether she had received any money from the Yan Ke Family Investment Trust, Daye Family Trust, Daye Pty Ltd (“Daye”) or Daocom Systems Pty Ltd (“Daocom”); and

   (b)details of any properties she owned, and any income and expenses incurred in relation to those properties.

   [5]      Exhibit 1, T Documents, T37, pages 197 – 199, Letter from the ATO to the Applicant, dated 1 March 2016.

6. Due to the Applicant’s sister, Yan Ru Ke (“Yan Senior”) being gravely ill in 2016, the Applicant obtained extensions of time from the ATO to provide the requested information. The Applicant explained to the ATO that:[6]

   (a)Yan Senior had been her bookkeeper and was seriously ill;

   (b)she did not have very good accounting records; and

   (c)she did not put a lot of time into her business in the 2013 and 2014 financial years because her child was diagnosed with a medical condition that required a lot of her attention.

   [6]      Exhibit 1, T Documents, T38, pages 200 – 206, Email communications between the ATO and the Applicant in April 2016.

7. On 26 April 2016 the ATO wrote to the Applicant again and noted that she had provided minimal information since being requested to do so several weeks earlier. The ATO also noted that since 2014 the Applicant had lodged 900 client ITRs which contained claims for work expenses which were disallowed by the ATO due to the clients being unable to substantiate the amount claimed. The ATO informed the Applicant they would be monitoring any further ITRs lodged by her on her client’s behalf.[7]

   [7]      Exhibit 1, T Documents, T39, page 207, Email from the ATO to the Applicant dated 26 April 2016.

8. The Applicant provided some additional information to the ATO by email on 26 April 2016 and informed the ATO that:[8]

   (a)she had calculated her assessable income by multiplying the number of ITRs she had prepared for her clients in the 2014 year by $80 (the fee she charged per ITR). She then discounted the total amount by 18% to take into account bad debts;

   (b)she was the owner of two properties, other than her principal home;

   (c)in relation to a property she owned in Box Hill Victoria, Yan Senior lived there and it was not used for income producing purposes (“Box Hill Property”);

   (d)in relation to a property she owned in Ashwood Victoria, she lived there until early 2013 and it was then rented from May 2013 (“Ashwood Property”); and

   (e)she received no profit or distributions from the Yan Ke Family Investment Trust, Daye Family Trust, Daye, or Daocom.

   [8]      Exhibit 1, T Documents, T40, pages 209 – 210, Email from the Applicant to the ATO dated 26 April 2016.

9. The Applicant provided the ATO with a worksheet to demonstrate how she had calculated her income generated from her business for the 2013 financial year. It indicated among other things that she had calculated her gross income by:[9]

   [9]      Exhibit 1, T Documents, T38, page 206, Handwritten calculations of the Applicant of business income for 2013 Income Tax Return.

Gross income 442 [ITRs] @ 70 x 70%		$21,700
(30% deducted from gross as)
less	Discount 10%
Bad debt 10%
Referee fee 10%
less	Rent (215 @ 26 wk)	$5,600
Business consulting fee (137.5 x 12)	$1,650
Insurance	$768

1. During the 2013 and 2014 income years, the Applicant says she charged between
   $70 and $100 per individual ITR and gave discounted rates to promote the business. For example, there was a promotion for a ‘2-for-1 half price’ discount or a ‘2-for-all half price’ discount.

2. To corroborate her business expenses claims the Applicant provided, inter alia:

   (a)two invoices from Project M Asset Management (“PMAM”) totalling approximately $5,600 for rental expenses;[10]

   (b)invoices from Adroit Insurance Group (“Adroit”) for professional indemnity insurance;[11] and

   (c)an invoice from Sempre Business Consulting (“SBC”) for bookkeeping services for the 2013 financial year totalling $1,650.[12]

   [10]     Exhibit 1, T Documents, T40, pages 222 – 223, Invoices from PMAM, dated 31 July 2013 and 31 August 2013.

   [11]     Exhibit 1, T Documents, T40, page 234, Invoice from Adroit Insurance Group, dated 14 February 2014.

   [12]     Exhibit 1, T Documents, T46, page 431, Invoice from SBC, dated 30 June 2013.

3. On 28 April 2016 after receiving the audit notice from the ATO, the Applicant lodged an amended ITR for the 2013 financial year (“2013 Amended ITR”).[13]

   [13]     Exhibit 1, T Documents, T5, pages 58 – 73, Amended Income Tax Return 2013, dated 28 April 2016.

4. The differences between the 2013 ITR and 2013 Amended ITR are shown in the table below:

   2013 Financial year

2013 ITR	2013 Amended ITR
Applicant’s home address	Reservoir Victoria	Salisbury Queensland
Applicant’s postal address	Salisbury Queensland	Salisbury Queensland
Total assessable income	$8,396	($9,958)
Total business income	$21,700	$21,700
Main business activity	Business and professional services provided from the Salisbury address	Business and professional services provided from the Salisbury address
Rental income	$0	Rent  $2,954 Interest deductions $16,588 Capital works $4525 Net rent = ($18,354)
Total business expenses	$24,883	$24,883
Business loss	$3,183	$3,183

1. The main amendment was the Applicant’s claim for interest deductions and capital works in relation to the Ashwood Property.

2. The Applicant then lodged an amended ITR for the 2014 financial year on 3 May 2016 (“2014 Amended ITR”).[14]

   [14]     Exhibit 1, T Documents, T6, pages 74 – 101, Amended Income Tax Return 2013, dated 3 May 2016.

3. The differences between the 2014 ITR and 2014 Amended ITR are shown in the table below:

   2014 Financial Year

2014 ITR	2014 Amended ITR
Applicant’s home address	Reservoir Victoria	Salisbury Queensland
Applicant’s postal address	Salisbury Queensland	Salisbury Queensland
Total assessable income	$7,736	$15,251
Total business income	$20,650	$20,000
Main business activity	Business and professional services provided from the Salisbury address	Business and professional services provided from the Salisbury address
Rental income	$0	Rent - $17,724 Interest deductions $27,317 Capital works $5,377 Net rent = ($23,711)
Total business expenses	$24,703	$28,100
Business loss	($4,053)	($4,053)

1. On 6 May 2016 after receiving the 2013 Amended ITR and 2014 Amended ITR, the ATO issued amended notices of assessment providing that the Applicant had a taxable income of $0.00.[15]

   [15]     Exhibit 1, T Documents, T7 – T8, pages 102 – 108, Notice of amended assessment for the 2013 and 2014 financial years, dated 6 May 2016.

2. Between March and August 2016, the ATO conducted the audit of the Applicant’s tax affairs.

3. Investigations undertaken by the ATO indicated the following in terms of the Applicant’s property ownership:

   (a)on 28 May 1999 the Applicant became the owner of the Ashwood Property;[16]

   (b)on 17 June 2002 the Applicant became tenants in common with Yan Senior in the Box Hill Property;[17]

   (c)on 15 May 2006 the Applicant and Yan Senior mortgaged the Box Hill Property to the National Australia Bank (“NAB”);[18] and

   (d)on 15 May 2006 the Applicant mortgaged the Ashwood property to the NAB.[19]

   [16]     Exhibit 1, T Documents, T9, page 110, Transfer of Land; T63, page 829, Extract of Contract.

   [17]     Exhibit 1, T Documents, T10, page 111, Transfer of Land.

   [18]     Exhibit 1, T Documents, T13, pages 116 – 117, Mortgage of Land.

   [19]     Exhibit 1, T Documents, T19, page 123, Title Search.

4. Documents obtained from the real estate agent managing the Ashwood Property, Stockdale & Leggo, provided that the Ashwood Property was first listed for rent on approximately 1 June 2012 and had been tenanted from 3 July 2012.[20] A copy of a lease schedule and end of financial year statement for the 2013 year also showed that the Ashwood Property had been leased on 3 July 2012.[21] The end of financial year statements showed that the Ashwood Property generated rent of $2,954 for the 2013 financial year and $17,724 for the 2014 financial year.[22]

   [20]     Exhibit 1, T Documents, T41, page 287, Extract of email communication between ATO and Stockdale & Leggo, May 2016.

   [21]     Exhibit 1, T Documents, T41, page 291, Lease schedule for the Ashwood property; T40, page 217, Rental property schedule 2014.

   [22]     Exhibit 1, T Documents, T41, pages 289 – 290, Statements for period 1 Jul 12 to 30 Jun 13 and 1 Jul 13 to 30 Jun 14.

5. On 30 June 2016 the Applicant attended a formal interview under section 353-10 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (“TAA”), conducted by duly authorised officers of the Commissioner.[23] The Applicant took a support person, Mr Rob Nicholls, with her to the audit interview.

   [23]     Exhibit 1, T Documents, T42, pages 292 – 416, ATO Audit Interview, conducted 30 June 2016.

6. On 2 August 2016 the ATO provided the Applicant with a summary of proposed income tax amendments resulting from its audit findings.[24] The Commissioner, among other things, found that:

   (a)the Applicant’s taxable income for 2013 was $110,116 not $0.00 as she had reported;

   (b)the Applicant’s taxable income for 2014 was $162,742, not $0.00 as she had reported;

   (c)the Applicant had sought to avoid tax due to fraud or evasion in the 2013 financial year;[25]

   (d)the Applicant was liable to administrative penalties for making false and misleading statements in her ITRs for the 2013 and 2014 financial years;

   (e)the Applicant was required to be registered for GST from 1 July 2013;

   (f)the Applicant was liable to pay GST net amounts; and

   (g)the Applicant was liable to administrative penalties for failure to provide business activity statements (“BAS”) and to report GST.

   [24]     Exhibit 1, T Documents, T47, pages 432 – 483, ATO correspondence to Applicant, dated 2 August 2016.

   [25] Section 170(5) of the ITAA 1936 provides the Commissioner may amend an assessment at any time if they are of the opinion that there has been fraud or evasion.

7. The Commissioner formed the view that the Applicant had not provided supporting documents and that her declared gross income was not based on actual amounts received, but on a self-devised formula which the Applicant had revised on at least two occasions. The Applicant had originally stated that her income was based on 442 prepared ITRs.[26] Later the Applicant changed this to 353 prepared ITRs. Her tax lodgement software, on the other hand, had identified 406 ITRs. Further, the Commissioner found that the Applicant originally told the ATO via email[27] and during the audit interview,[28] that the Ashwood Property was not rented until May 2013, yet the lease schedule shows the property had been rented since 3 July 2012. In relation to the Box Hill Property, a review of the Applicant’s bank statements had shown monthly deposits of $1,371 described as “bhrent”. This rental income had not been included in her original 2013 ITR and 2014 ITR. The Applicant provided no substantiation for the rental expenses. Although $16,588 had been claimed as interest against the Ashwood Property, there was no evidence that the home loan disclosed related solely to the Ashwood Property.

   [26]     Exhibit 1, T Documents, T42, page 311, ATO Audit Interview, conducted 30 June 2016.

   [27]     Exhibit 1, T Documents T40, pages 209 – 210, Email from the Applicant to the ATO dated 26 April 2016.

   [28]     Exhibit 1, T Documents, T42, page 303, ATO Audit Interview, conducted 30 June 2016.

8. On 26 August 2016 Yan Senior wrote to the ATO to support the Applicant regarding unexplained and unsubstantiated transactions. Yan Senior stated that:[29]

   (a)the Applicant had left her to do the bookkeeping and that she did it the “old way” by going to the bank in person because she “can’t do any computer (Internet etc)”;

   (b)the Applicant had difficulties with her husband; and

   (c)this is partly her fault because she cannot find the paperwork.

   [29]     Exhibit 1, T Documents, T48, page 484, Correspondence from Yan Senior to ATO, dated 26 August 2016.

9. On 6 September 2016 the Commissioner advised the Applicant of his interim findings in the course of the audit with respect to the Applicant's liabilities for penalties and interest for the relevant years.[30]

   [30]     Exhibit 1, T Documents, T51, pages 490 – 555, Correspondence from ATO to the Applicant, dated

10. Upon completion of the audit, the Commissioner determined that:[31]

    (a)in relation to the 2013 year, there had been an avoidance of tax due to fraud or evasion;

    (b)the Applicant had understated her assessable income for the 2013 and 2014 financial years;

    (c)the Applicant was liable to administrative penalties for making false and misleading statements in her ITRs for the 2013 and 2014 financial years;

    (d)due to the Applicant’s income exceeding the GST registration threshold, the Applicant should have been registered for GST from 1 July 2013 and paid GST accordingly (as assessed);

    (e)the Applicant was liable to administrative penalties for failure to provide BAS and report GST; and

    (f)the Applicant was liable to pay the shortfall interest charge ("SIC") on income tax shortfalls, and general interest charge ("GIG") on unpaid GST net amounts.

    [31]     Exhibit 1, T Documents, T58, pages 591 - 592, ATO Decision and Reasons for decision, dated

11. On 12 September 2016 the ATO also issued the Applicant with GST assessments for the 2013 and 2014 financial years totalling $13,096.[32]

    [32]     Exhibit 1, T Documents, T52, page 556, Notice of assessments of net amount, dated 12 September 2016.

12. On 19 September 2016 the ATO issued notices of amended assessments noting the Applicant’s amended taxable income:

    (a)for the 2013 financial year as $110,166, with the amount of $49,819.83 of tax payable;[33] and

    (b)for the 2014 financial year as $162,742, with the amount of $65,690.49 of tax payable.[34]

    [33]     Exhibit 1, T Documents, T54, page 560, Notice of amended assessment – year ended 30 June 2013, dated 19 September 2016.

    [34]     Exhibit 1, T Documents, T55, page 566, Notice of amended assessment – year ended 30 June 2014, dated 19 September 2016.

13. On 3 October 2016 the ATO issued the following administrative penalties:

    (a)$38,470.30 for the 2013 financial year for making a false and misleading statement;[35] and

    (b)$55,293.40 for the 2014 financial year for making a false or misleading statement.[36]

    [35]     Exhibit 1, T Documents, T59, page 646, Notice of assessment of shortfall penalty, dated 3 October 2016.

    [36]     Exhibit 1, T Documents, T60, page 648, Notice of assessment of shortfall penalty, dated 3 October 2016.

14. On 28 June 2017 the Applicant lodged an objection to the amended income tax assessments and the imposition of the penalties and interest raised by the ATO (“Objection”). The Applicant argued that:[37]

    (a)deposits in her bank accounts totalling $8,127, included by the ATO as income, were in fact reimbursements by clients for the incorporation of the companies, and that the ATO had not allowed the outgoings related to those transactions as a deduction;

    (b)deposits in her bank accounts totalling $16,578.12 from Zozohu Trading Pty Ltd  (“Zozohu”), were repayments of loans the Applicant had made to Zozohu;

    (c)cash receipts in her bank accounts totalling $22,362.92 were not income but gifts from family and friends;

    (d)a deposit in her bank account of $10,000 was a loan repayment from the Yan Ke Family Investment Trust;

    (e)deposits in her bank accounts totalling $16,452 were gross rental income;

    (f)deposits in her bank accounts totalling $3,025.59 were loan repayments or reimbursements from clients for expenses incurred by her on their behalf; and

    (g)other deposits in her bank accounts totalling $2,040 were gifts from family members.

    [37]     Exhibit 1, T Documents, T61, pages 650 – 807, Objection lodged by the Applicant, dated 28 June 2017.

15. The Applicant lodged additional documents in support of her objection.

16. On 23 February 2018 the ATO advised the Applicant that they had considered her objection and decided not to reduce her assessable taxable income and penalties on the grounds that there was insufficient evidence to support her claims.[38]

    [38]     Exhibit 1, T Documents, T2, pages 4 – 13, ATO's Reason for our decision, dated 23 February 2018.

1. On 28 March 2018 the Applicant applied to this Tribunal for review of the ATO’s decision.[39] The Tribunal has jurisdiction to review decisions under the Act pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) and Part IVC of the TAA.

   LEGISLATIVE BACKGROUND

   [39]     Exhibit 1, T Documents, T1, pages 1 - 6, Application for review, dated 28 March 2018.

   Notice of Amended Assessments

2. Pursuant to section 166 of the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”) the Commissioner must make an assessment of the taxable income of a person, the tax payable thereon, and any tax offset refunds, from ITRs and/or from any other information in the Commissioner's possession.

3. Section 167(b) of the ITAA 1936 provides that, where, as here, the Commissioner is not satisfied with the ITR furnished by any person, the Commissioner may make an assessment of the amount upon which income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

4. Section 175A(1) of the ITAA 1936 provides: “A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.”

   Burden of Proof

5. Section 14ZZK(b)(i) of the TAA provides that the Applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been.

6. The High Court decision in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 confirms that the onus is on the taxpayer to establish that default assessments issued by the Commissioner are excessive. The High Court explained that where the Commissioner and taxpayer have not agreed on the assessment:[40]

   “… the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment … unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail.”

   [40] (1990) 168 CLR 614, at 624, citing Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, (44).

7. In Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 Latham CJ found as a general rule:

   [2]. “…the taxpayer must…go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right.”

8. In Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 Mason J explained:

   [6]. “The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.”

9. However, in Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 276, Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records:

   31. A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.

   (emphasis added)

10. In the recent Full Federal Court decision of Commissioner of TaxationvCassaniti [2018] FCAFC 212 (“Cassaniti”), the Court considered the issue of burden of proof and how a court or tribunal should determine whether that burden of proof has been discharged. One of the submissions made by the Commissioner was that the taxpayer’s evidence “was insufficient” because she had failed to call any witnesses to corroborate her claims. Steward J found (at [88]) that:

    “Contending that evidence was “insufficient” in the face of three sworn affidavits of the respondent, together with the exhibits attached thereto, and her answers in cross examination, may suggest that a taxpayer bears a special burden of proof. However, other than the necessity to scrutinise evidence given by the taxpayer him or herself with care, no such special burden exists.”

11. Steward J then set out five propositions which he derived from Allied Pastoral Holdings Proprietary Limited v Commissioner of Taxation [1983] 1 NSWLR 1:

    [88]     …

    (1)first, where the onus is on the taxpayer (whether pursuant to s 14ZZO of the TAA or otherwise) the degree or standard of proof required is that which ordinarily applies in civil proceedings. The direction given to a jury in civil cases aptly describes that onus by reference to a pair of scales and to the arguments of each party being placed at each end.  As Hunt J said in Allied Pastoral:

    …if the plaintiff succeeds… in weighing down those scales ever so slightly in his favour then he has discharged the burden he carries…

    (2)secondly, for that purpose it is not obligatory for a taxpayer, in order to discharge his burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position;

    (3)fourthly, there is no requirement that evidence can only be accepted as admissible and probative if it is corroborated;

    (4)fifthly, the tribunal of fact is free to accept the evidence of the taxpayer alone if it finds the taxpayer to be truthful;

    (5)finally, it would usually be prudent to corroborate the evidence of a taxpayer. It is also prudent to adduce contemporaneous objective evidence. But prudence should not be confused with the requirements of the law.

    (emphasis added)

12. The important thing to note here about Cassaniti is that Steward J specifically found that the tribunal of fact would be free to accept the evidence of the taxpayer, without corroborating witnesses or other evidence on the proviso that the taxpayer was found to be truthful.

    Penalties

13. Administrative penalties are able to be imposed pursuant to section 284–75(3) of Schedule 1 to the TAA in the following circumstances:

    284-75   Liability to penalty

    (1)    You are liable to an administrative penalty if:

    (a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a taxation law …; and

    (b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

    …

    (3)    You are liable to an administrative penalty if:

    (a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and

    (b)that document is necessary for the Commissioner to determine a * tax-related liability (other than one arising under the * Excise Acts) of yours accurately; and

    (c)the Commissioner determines the tax-related liability without the assistance of that document.

    Note:You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286-C.

14. The base administrative penalty is 75% of the relevant tax related liability.[41] The base penalty is increased by 20% if the taxpayer “took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated”.[42]

    [41] Section 284–90, Schedule 1, TAA.

    [42] Section 284-220(1), Schedule 1, TAA.

15. Pursuant to section 298–20 of Schedule 1 of the TAA the Commissioner has the power to remit all or part of the penalty amount calculated.

16. The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice Statement Law Administration PSLA 2014/4 (“PS 2014/4”) explains the circumstances in which an entity will become liable to a penalty pursuant to section 284-75(3) of the TAA and how that penalties assessed including any remission.

17. Pursuant to paragraph 27 of PS 2014/4 a relevant matter for the remission of a penalty includes “a major objective of the penalty regime is to promote a consistent treatment by reference to specified rates of penalty” and that this objective could be compromised if penalties are omitted without just cause or as a matter of course.

18. Paragraph 28 of PS 2014/14 goes on to provide that the discretion to remit penalties should be approached in a fair and reasonable way and sets out that a remission, either in full or in part will generally occur, as follows:

    ·an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, their obligation

    ·an entity understood their obligation to lodge but circumstances beyond their control affected their ability to lodge

    ·the amount of penalty imposed by law causes an unjust result

    ·there were credits available to offset the amount of the tax-related liability payable, or

    ·there was extraordinary cooperation during an examination.

19. Also relevant is Practice Statement Law Administration PS LA 2012/5 “Administration of the false or misleading statement penalty - where there is a shortfall amount” (“PS 2015/5”). It provides relevantly:

    False

    7A. A statement is false if it is contrary to fact or wrong.

    7B. It may be false because of something contained in the statement or because something is omitted from the statement.

    7C. If a statement was correct at the time it was made but is subsequently made incorrect because of a retrospective amendment to the law, it is not later considered false (or misleading). It is the nature of the statement at the time that it was made that is relevant.

    7D. It does not matter if the person who made the statement did not know that it was false.

    Misleading

    7E. A statement is misleading if it creates a false impression, even if it is literally true.

    7F. It may be misleading because of something contained in the statement or because of something omitted from the statement.

    7G. The reason it is misleading may be because it is uninformative, unclear or deceptive.

    In a material particular

    7H. A material particular is something that is likely to affect a decision regarding the calculation of an entity's tax related liability or entitlement to a payment or credit.

    7I. An inconsequential statement which does not affect an entity's tax position will not be a material particular for penalties for false or misleading statements that result in shortfall amounts.

    7J. Most of the information provided in a label in a tax return or activity statement will be a material particular. It will be used to calculate a tax-related liability.

    …

    16. Stage 4 – considering whether to remit the penalty

    16F.   Relevant matters to consider in making a remission decision include:

    -     that the purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations

    -     that the penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty. This objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and

    -     that the amount of the penalty rate alone is not a valid reason for remission, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances.

    16G. Matters that you shouldn't usually consider include:

    …

    -   whether there is a capacity to pay the penalty (except in relation to determining whether a trustee or beneficiary is the more appropriate entity to bear their penalty).

    17. Examples of situations warranting remission

    17A. If imposition of the penalty provides an unintended or unjust result, we may remit the penalty in whole or in part.

    …

    Mechanical process of the law

    17C. In some instances, the mechanical or calculation process of the law could result in an unintended or unjust result, and remission in part or full may be warranted.

    Multiple penalties

    17S. There may be some circumstances where the entity's behaviour results in more than one type of penalty applying under the law. The remission treatment of the penalties will differ according to the penalties that apply and the action or actions that lead to each penalty.

    17T. For example, an entity may be liable to a penalty for failing to keep or retain records, as well as false or misleading statement penalties for incorrectly reporting. However, while the failure to keep records may have led to the false or misleading statements, keeping records and reporting correctly are not the same obligations and may not necessarily comprise the same actions. The failure to keep records reflects day to day business management practices. The underreporting of income or over claiming of credits is a separate action and separate decisions need to be made.

    17U. In those circumstances, both penalties apply and there is no automatic remission of the lesser penalty. The relevant remission principles should be considered for each penalty. However, we should consider whether maintaining both penalties produces an unjust result.

    17V. This is especially relevant where multiple penalties arise from the same course of action. For example, where an amount in an assessment is both a shortfall amount for the purposes of both a false or misleading statement penalty and a scheme shortfall penalty although both penalties might apply by law, one would generally be remitted to prevent an unjust result.

    Voluntary disclosure

    Before notification of examination

    17AD. Where penalties are reduced by 80% for a voluntary disclosure made before notification of a review, audit or other examination any penalty remaining after the reduction should be remitted in full, unless the entity was reckless or intentionally disregarded the law.

    17AE. However, a disclosure made after being told of an examination (even if we treated it as being before notification or it was during a review) does not get remission of the remaining 20% of the penalty because the voluntary disclosure was made.

20. The Commissioner has also issued a ruling, Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted (“TR 94/7”). TR94/7 provides relevantly:

    2.    The discretion to remit penalty otherwise attracted under a shortfall section should be exercised in only those exceptional cases where, having regard to all of the circumstances, the application of a particular shortfall section and/or the rate of penalty prescribed under that section would provide a clearly unreasonable or unjust result.

    PROCESS OF HEARING – AGREED FACTS

21. The Applicant was represented at the hearing by Ms Leisa Rafter and Mr Chris Ball, Partners at BDO Australia. The Commissioner was represented by Ms Florence Chen of Counsel. An interpreter was provided for the Applicant and witnesses.

22. Evidence was given at the hearing by the Applicant (in person), Yan Senior (by telephone) and Yan Xiong Ke, the Applicant’s brother (by telephone from China). In support of the Applicant’s claims Yan Senior and Mr Ke also provided statutory declarations. Sadly, Yan Senior died before the hearing could be resumed in March 2019. Prior to her passing she had prepared an updated witness statement which was tendered without objection by the Commissioner.[43]

    [43]     Exhibit 13, Amended Witness Statement of Yan Ru Ke, dated 21 December 2018.

23. The hearing began on 26 November 2018. It became apparent on Day 2 of the hearing that the hearing should be adjourned in order to enable the parties to review their respective positions and to enable the Applicant to obtain additional documentation. The parties agreed to provide the Tribunal with a statement of agreed facts prior to the resumption of the hearing. The Statement of Agreed Facts (“SOAF”) was provided by the parties on 27 February 2019. The hearing was then resumed for a further two days on
    25 March 2019 and 26 March 2019. Final oral submissions were heard on 15 May 2019.

24. The SOAF indicated that the parties had narrowed some of the issues in dispute. The parties set out in tabular form the deposits in the Applicant’s accounts which the Commissioner now agrees are not assessable to the Applicant[44] and, in Appendix 3, the deposits which remain in dispute.[45]

    [44]     Exhibit 10, Statement of Agreed Facts, dated 27 February 2019, Appendix 1 and 2.

    [45]     Exhibit 10, Statement of Agreed Facts, dated 27 February 2019, Appendix 1 and 2.

25. In the event the Tribunal finds that the gross rental proceeds from the Ashwood Property during the relevant years have been included in the Applicant's assessable income for the relevant years, as assessed by the Commissioner:

    (a)certain rental deductions claimed by the Applicant are not in dispute in these proceedings, detailed in Appendix 4; and

    (b)certain rental deductions claimed by the Applicant are in dispute in these proceedings, detailed in Appendix 5.

    Agreed Facts

26. The parties agree on the following facts, as set out in the SOAF.

27. Throughout the relevant years, the Applicant was an Australian resident for taxation purposes, and was a registered tax agent who carried on a tax agent services business under her own Australian Business Number ("ABN").

28. The Applicant maintained the following relevant bank accounts:

    (a)NAB Account number #0681 ("Account #0681");[46]

    (b)NAB home loan Account number #7741 ("Home Loan Account #7741");[47]

    (c)Australia and New Zealand Bank ("ANZ") Access Select Account number #22989 ("Account #22989");[48] and

    (d)Commonwealth Bank Australia ("CBA'') Transaction Account number #8094 ("Account #8094"). This account was maintained jointly by the Applicant and Yan Senior.

    [46]     Exhibit 1, T Documents, T66, page 834, National Australia Bank Statement, period ending 31 July 2012.

    [47]     Exhibit 1, T Documents, T67, page 918, National Australia Bank Home Loan Statement, period ending

    [48]     Exhibit 1, T Documents, T69, page 980, Australia and New Zealand Banking Group Statement, period ending 13 July 2012.

29. The Applicant was the owner of the following properties:

    (a)Ashwood Property, purchased by the Applicant on 28 May 1999 for $197,575.00;[49]

    (b)Box Hill Property, purchased by the Applicant and Yan Senior, as Tenants in Common, on 17 June 2002 for $350,000.00;[50]

    [49]     Exhibit 1, T Documents, T9 page 110, Transfer of Land, dated 28 May 1999; T63, page 829, Extract of Contract.

    [50]     Exhibit 1, T Documents, T10, page 111, Transfer of Land, dated 17 June 2002.

30. Home Loan Account #7741 is secured by the Ashwood Property and Box Hill Property.

31. During the 2013 year, the Ashwood Property:[51]

    (a)was managed by Stockdale & Leggo Real Estate;

    (b)was leased to a tenant from 3 July 2012; and

    (c)was leased to the tenant for the gross sum of:

    (i)$1,390.00 per calendar month from 3 July 2012 to 3 October 2012; and

    (ii)$1,477.00 per calendar month from 3 October 2012 onwards.

    [51]     Exhibit 1, T Documents, T41, pages 285 – 291, Email communication between ATO and Stockdale & Leggo, dated May 2016.

1. During the 2014 year, the Ashwood Property:[52]

   (a)was managed by Stockdale & Leggo Real Estate;

   (b)was leased to a tenant; and

   (c)was leased to the tenant for the gross sum of $1,477.00 per calendar month.

   [52]     Exhibit 1, T Documents, T41, pages 285 – 291, Email communication between ATO and Stockdale & Leggo, dated May 2016.

2. Throughout the relevant tax years, the residents of the Box Hill Property included:

   (a)Mr Jianchang Zhu;

   (b)Mr Wenjun Zhu;

   (c)Ms Qiu Ling Pu; and

   (d)Ms Ying Zhu.

   Areas of Dispute

3. The areas that remain in dispute can be grouped into the following categories:

   ·deposits the Applicant contends are not income but reimbursements from clients for company or trust establishment fees;[53]

   ·deposits the Applicant contends are not income but represent loan repayments from Zozohu;[54]

   ·deposits the Applicant contends are not income but gifts from family and friends;[55]

   ·deposits the Applicant contends are not income but financial support provided by her family;

   ·deposits the Applicant contends are not income but were made by Yan Senior to assist her with mortgage repayments on the jointly owned property;[56]

   ·deposits the Applicant contends are not income but was money received from her grandfather’s estate;

   ·a deposit the Applicant contends is not income but was money she received from her father for Chinese New Year; and

   ·claimable expenses which the Applicant contends are referable to the Ashwood Property.[57]

   [53]     Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 7.

   [54]     Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 11.

   [55]     Exhibit 9, Statement of the Applicant, dated 3 August 2018, paras 8, 12 and 13.

   [56]     Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 19.

   [57]     Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 17.

   ISSUES FOR THE TRIBUNAL

4. The issues for determination by the Tribunal are whether:

   (a)the amended assessments for the financial years ended 30 June 2013 and 2014 are excessive, which involves determining whether:

   (i)certain cash deposits received by the Applicant were of a private and domestic nature or loan principal repayments and therefore, not ordinary income assessable under section 6-5 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"); and

   (ii)rental property income and expenses from the Applicant's rental property have been correctly included in the Applicant's taxable income for the 2013 and 2014 income years;

   (b)the Applicant should have been registered for GST in the 2013 and 2014 financial years, and if yes, the GST payable;

   (c)the administrative penalties were correctly imposed under section 284-75(1) and section 284-75(3) of Schedule 1 of the TAA; and

   (d)the discretion to further remit the penalties under section 298-20(1) of Schedule 1 of the TAA should be exercised.

   WERE THE ATO AMENDED ASSESSMENTS EXCESSIVE?

5. From the audit undertaken by the ATO, the ATO determined that the Applicant had not declared all income amounts earned/received during the periods in question. Those amounts were noted as deposits credited to the Applicant’s accounts.

6. Given that some transactions are no longer in dispute, the Commissioner contends:

   (a)the reviewable decision in relation to the 2013 financial year should be amended as follows:

   (i)the Applicant’s taxable income was $90,280 (not $110,166); and

   (ii)the penalty imposed should be remitted to $29,025.90 (not $38,470.30); and

   (b)the reviewable decision in relation to the 2014 financial year should be affirmed.

7. On Day 1 of the hearing Ms Rafter told the Tribunal that the Applicant contends the  assessed taxable income is excessive and that her corrected taxable income:

   (a)in the 2013 financial year was $19,312; and

   (b)in the 2014 financial year was $37,857.

8. It was noted that the Applicant’s contended taxable income differs from the amounts claimed in her 2013 Amended ITR and 2014 Amended ITR.

9. Before considering the remaining areas of dispute, it is useful to consider the basis upon which the Applicant originally calculated and declared her assessable income in her ITRs. This evidence establishes a pattern of conduct and is relevant to the Applicant’s credibility and to the issue of penalties.

   Business income claimed in ITRs

10. During examination the Applicant explained that clients sometimes paid her in cash and that that money was not always deposited into her accounts. The Applicant said that the bookkeeping was not precise, and she “was not experienced” in bookkeeping, although she was a registered tax agent, and a qualified accountant.

11. The Applicant explained that the ITRs that she had lodged were her best estimate of income and that she “wasn’t able to get everything very accurate with every transaction”. The Applicant acknowledged that her record keeping was not in accordance with the Commissioner’s record-keeping requirements. This is again significant given that the Applicant is a registered tax agent.

12. The Applicant explained that in 2013/2014 she charged between $70 and $100 to prepare an ITR.[58] In addition to preparing ITRs, she also undertook other tax work and prepared BAS statements for clients.

    [58]     Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 4.

13. On Day 1 of the hearing, the Applicant acknowledged during cross-examination that some of the identified deposits in her bank accounts could have been for BAS statement preparation.

14. Ms Chen took the Applicant to a series of deposits by way of example. The first deposit referred to was for the sum of $176 deposited into Account #0681 on 10 February 2014. The reference description was “Cafe Tian GST, Tiancafe”.[59] The Applicant acknowledged that this amount was for the preparing of a BAS statement and that she had not declared that amount as income in her ITRs. The Applicant said she “wasn’t sure” why it had not been included and that her business records were prepared by Yan Senior.

    [59]     Exhibit 1, T Documents, T66, page 900, National Australia Bank Statement, period ending 28 February 2014.

15. Yan Senior became very ill in 2012. Ms Chen put to the Applicant that it was her responsibility to keep proper records, not Yan Senior’s. The Applicant said in 2014 when her child was two years old she was paying attention to him. Yet she was able to lodge amended ITRs in 2016 and still did not include the deposit from Cafe Tian. The Applicant said she had not included that transaction “because it was too long ago”. Again, this is a comment of considerable concern given the Applicant’s position as a qualified accountant and registered tax agent. The Applicant then acknowledged that business records are required to be kept for seven years.

16. Ultimately, the Applicant acknowledged that her business records were her responsibility.

17. During the audit interview the Applicant said she just did basic ITRs and arranged some bookkeeping services and, while she had registered some companies for business clients, she would not charge them. The Applicant also admitted that she had lodged some BAS statements for “less than [a] handful” of business clients but said she had never received any income from lodging a BAS statement.[60] This was a false statement.

    [60]     Exhibit 1, T Documents, T42, pages 315 – 317, ATO Audit Interview, conducted 30 June 2016.

18. Ms Chen took the Applicant to another “Cafe Tian GST” deposit of $517 made on

    
    

    22 May 2013 into the #0681 account.[61] The Applicant agreed that this was payment for her preparing a GST report. However, at the audit interview she said she did not charge Cafe Tian but that she had lodged the BAS on its behalf and paid the GST amount. $517 was the GST amount.[62] Ms Chen put to her that several unexplained deposits were for professional services for either BAS or GST statements. The Applicant responded, “bookkeeping was really messy, I don’t really remember”.

    [61]     Exhibit 1, T Documents, T66, page 869, National Australia Bank Statement, period ending 31 May 2013.

    [62]     Exhibit 1, T Documents, T42, page 391, ATO Audit Interview, conducted 30 June 2016.

19. Ms Chen then pointed out that despite her evidence at the hearing, she had received income for lodging BAS statements, during the audit interview she had said she had not received any income for lodging BAS statements.[63] The Applicant said that she was “nervous” during the audit interview and “mistaken”.

    [63]     Exhibit 1, T Documents, T42, page 315, ATO Audit Interview, conducted 30 June 2016.

20. Ms Chen took the Applicant to a deposit of $70 into the Applicant’s #0681 account on

    
    

    30 July 2012 with the reference “Thank You, Tara Dunne”.[64] This transaction was not recorded as income in the Applicant’s ITRs. The Applicant accepted that this deposit “might be” fees earned for preparation of Ms Dunn’s ITR.[65]

    [64]     Exhibit 1, T Documents, T66, page 835, National Australia Bank Statement, period ending 31 July 2012.

    [65]     Transcript, Day 1, page 45.

21. Ms Chen took the Applicant to a deposit of $140 made into the Applicant’s bank account #0681 on 9 August 2012. The Applicant accepted that this money was for professional services.[66]

    [66]     Exhibit 1, T Documents, T66, page 836, National Australia Bank Statement, period ending 31 August 2012; Transcript, Day 1, page 45.

22. Ms Chen took the Applicant to a deposit of $210 made into the Applicant’s bank account #0681 on 20 August 2012. The Applicant said it “could be” money received for the preparation of three ITRs.

23. Ms Chen took the Applicant to a deposit of $120 made into the Applicant’s bank account #0681 on 11 September 2012 with the reference “tax fee Xiaofei Yan”.[67] The Applicant said this might have been for two services or a discount.

    [67]     Exhibit 1, T Documents, T66, page 841, National Australia Bank Statement, period ending 28 September 2012.

24. Ms Chen took the Applicant to a deposit of $627 made into the Applicant’s bank account #0681 on 8 October 2012 with the reference “family trust, DoohwanBae”.[68] The Applicant said she was not sure whether this was money for the registration of a trust or reimbursement for setting up the trust. The Applicant says she subcontracts to someone else to set up trusts on behalf of clients.

    [68]     Exhibit 1, T Documents, T66, page 845, National Australia Bank Statement, period ending 31 October 2012.

25. Ms Chen took the Applicant to a deposit of $1,275 made into the Applicant’s bank account #0681 on 27 March 2013 with the reference “accounting fee, chunhuazhu”.[69] The Applicant said she thinks it was fees for setting up a company. The Applicant says she did not consider this fee to be income as it was a payment made for the registration of a company.

    [69]     Exhibit 1, T Documents, T66, page 861, National Australia Bank Statement, period ending 28 March 2013.

26. None of the above transactions were recorded in the ITRs lodged by the Applicant.

27. No receipts or invoices were provided for the cost of setting up the clients’ family trusts from the Applicant herself or from the alleged subcontractor. When this was pointed out to the Applicant she said “I could still look for them… I don’t know where they are… My sister was…” preparing the accounts. This is despite the Applicant having had four years to find those documents.

28. The Applicant says her memory of the transactions were not clear.

29. Ms Rafter objected to Ms Chen taking the Applicant to the above transactions on the basis that the Applicant had accepted as part of the objection process that those transactions should have been included as part of her assessable income. The Tribunal pointed out that it was unclear from the documents provided which amounts have been accepted by the Applicant as undisclosed income and those transactions which she still disputed.

    
    

    Mr Ball said that when the Tribunal is taken through the evidence it will be clear which of the deposits the Applicant contends are not income. The Tribunal pointed out that the Applicant’s evidence in chief had, at that stage, closed.

30. It was pointed out to the Applicant’s representatives that they need to adduce evidence about the documents relied upon by the Applicant. The Tribunal warned Ms Rafter that although she can make submissions in order to explain to the Tribunal what a document’s contents mean, that is not evidence.

31. In the circumstances the Tribunal agreed to the Applicant being re-examined in order to ensure that all of her evidence was before the Tribunal when the hearing resumed four months later. This was not objected to by the Commissioners representative.

32. Even if the transactions that the Applicant was questioned about are now accepted by the Applicant as taxable income, the questioning goes to the Applicant’s credibility. Mr Ball said, “it’s just slur”. Clearly it is not. It goes to the Applicant’s behaviour not only in terms of what information she chose not to include in her original ITRs and Amended ITRs, but is also relevant to what information she disclosed during the audit interview. In these circumstances it is perfectly acceptable for the Commissioner’s representative to take the Applicant through individual deposits in order to ascertain whether she agrees that they constitute income and identify that she had not previously disclosed this income. Ms Chen informed the Tribunal at this point that she had not appreciated that so many of the transactions had been accepted.

33. Ms Chen’s line of questioning also goes to the imposition of the administrative penalties and whether the Applicant made false and misleading statements to the ATO. The Applicant’s answers to those questions are directly relevant as to whether she intentionally or knowingly made false statements and whether she has a negligent excuse for those statements.

34. The Applicant was asked in further cross-examination how many ITRs she had filed for her clients in 2013. The Applicant said not more than 500 but she did not remember the exact number. Ms Chen put to the Applicant that she did not check all of her records for the exact amount of money that she received for preparing the ITRs. The Applicant said, “I think I had a read of the records but not very accurate”. The Applicant acknowledged that the 30% discount she had used in the formula for calculating her income was made up of 10% discounts, 10% for bad debts and 10% for referral fees. She said it was only a rough estimation. The Applicant then acknowledged that she received significantly more than $21,700 of income in her bank account in the 2013 year.

35. The Applicant was taken to a further document which she had sent to the ATO where bad debts of 18% were declared.[70] When asked if she had just made up that amount of 18% the Applicant said it was according to the money she had collected in the first year and took into consideration referral discounts. The Applicant said she was unable to check her records because they “were very unorganised”.

    [70]     Exhibit 1, T Documents, T40, page 209, Correspondence from the Applicant to the ATO, dated 26 April 2016.

36. The Applicant acknowledges that even if her business records were “messy” she could have looked at her bank statements to identify her income. The Applicant said she “was in a predicament, before. I didn’t pay too much attention on tax matters”. The Tribunal finds this very difficult to accept, particularly given that she assisted Yan Senior with her ITRs and in addition to that prepared in excess of 400 ITRs for clients, and an unknown number of BAS and GST statements.

    Business expenses claimed in ITRs

    Professional Indemnity Insurance

37. Two of the invoices relied upon by the Applicant were purportedly issued by Aaron Bentley, an account manager at Adroit, for professional indemnity insurance. The invoices provide that:

    (a)on 14 February 2013 the Applicant incurred $768 for QBE professional indemnity insurance;[71] and

    (b)on 14 February 2014 the Applicant incurred $872.56 for QBE professional indemnity insurance.[72]

    [71]     Exhibit 1, T Documents, T43, page 419, Adriot Insurance Group invoice dated 14 February 2013.

    [72]     Exhibit 1, T Documents, T40, page 234, Adriot Insurance Group invoice dated 14 February 2014.

38. During the audit interview it was pointed out to the Applicant that the invoice numbers of both Adroit invoices were the same for both years and that the GST component on the 2013 invoice was not 10% of the premium but was a figure that matched the GST amount of the 2014 invoice. The Applicant was asked to explain. The Applicant said she had obtained the invoices from her broker that she could not find the original 2013 invoices so had to get a replacement and that “that was all mixed up”. During the audit interview the following exchange occurred:[73]

    [73]     Exhibit 1, T Documents, T42, pages 403 – 405, ATO Audit Interview, conducted 30 June 2016.

Crawford	Okay. So if I were to contact him and ask for a copy of your 2013 invoice that's what you would expect he would provide me?
Ke	Yes. I think because I paid them ..... I don't know why they're mixed up.
Crawford	…
Ke	Okay.  If you think this is not ..... I'm happy to scrap it as expense.
Crawford	You're happy to scrap it?
Ke	Yes.
Crawford	Are you happy to scrap it because you don't think it's an actual- you don't think it's an expense you incurred?
Ke	I think – I believe it’s part of my business expense, but I can’t find the receipt anymore.
Crawford	So just - you still maintain that you did actually - that that - - -
Ke	I did pay the insurance, but I don't---
Crawford	That you paid an -you paid that amount, on the date?
Ke	But I don't have the any more receipt.
Crawford	Sorry?
Ke	I did pay the insurance, but I did not pay the -I do not have all the receipts.
Crawford	But do you think that - do you still maintain that you did pay that amount in 2013, for your insurance with ---
Ke	A roughly they similar amount, yes, but I can't find any receipt anymore.
Crawford	Roughly a similar amount or that amount?
Ke	Probably that - a similar amount. Yes.
Crawford	And you can't give me any explanation as to why there's a discrepancy in the - why the GST amount matches the 2014 invoice or why the invoice number on the payment section of the 2013 invoice matches the 2014 invoice, rather than the 2013 one?
Ke	I don't know, because this is just receipt by the broker and I just take it all. I didn't even check.
Crawford	Okay. So you're saying it's the broker's error?
Ke	It could be the invoice creating error and I'm not sure that's - because he also couldn't find his, so - - -
Crawford	He also can't find?
Ke	When I asked for he said he doesn't have the 2013 receipt anymore, so he can only give me 2014.
Crawford	And then he - then how did - if he didn't have the 2013, how did you get the 2013?
Ke	He said, ''I'm going to make one for you, to replace them".
Crawford	So he said he would make one for you?
Ke	Yes.
Crawford	When was this? When did he---
Ke	When there was a request for it, later on.
Nicholls	When did you request it?
Ke	I think when I was - - -
Nicholls	How long ago?
Ke	That was - I think it was earlier.
Crawford	Okay.
Ke	April.
Crawford	To clarify, so you went to him, you asked for your invoices, he gave you the 2014?
Ke	Yes. And then he couldn't find a - - -
Crawford	And he can't find---
Ke	…..
Crawford	He said he couldn't find the 2013?
Ke	Yes. I said, "Can you just print another one for me"? That's what - how he print.
Crawford	So you asked him to print another one and that's what he did?
Ke	Yes.
Crawford	Okay. All right. All right. I'll take those back.
Ke	Well ..... let's just scrap it, all right?
Crawford	Sorry?

1. The facts regarding her children and personal life are not in issue. The Applicant acknowledged that keeping her accounts and records in order was her responsibility. This is particularly so given that she is a registered tax accountant. Further, despite personal troubles, at the relevant time as outlined above, the Applicant was a company director and involved in the purchase of over $1.7 million worth of property in Queensland. The Tribunal finds that this goes directly to whether she had the ability to properly operate her business.

2. Despite the Applicant saying that she was distracted by her son’s medical condition and her family situation, she was still able to assist Yan Senior with her ITRs in the 2013 and 2014 financial years. When Ms Chen asked the Applicant if she had helped Yan Senior prepare those ITRs her initial response was “I don’t remember”. This is implausible. The ITRs of Yan Senior were contained within the bundle of T documents and clearly indicate the Applicant prepared them as Yan Senior’s agent.

3. The Applicant acknowledged that as the tax agent she was aware that she needed to register for GST if her income was to exceed $75,000. The Applicant said in the initial stages she had not expected to receive such a large income which is why she had not registered for GST.[196] The Applicant accepted that to some extent she should be held accountable for the fact that her books were not appropriately kept and that she did not have proper records, however she said she was not capable at that time of managing those things because of her physical and mental condition. As already outlined, despite aspects of her personal life, the Applicant was still capable of preparing in excess of 400 ITRs for other clients, ITRs for Yan Senior, and investing in over $1.7 million worth of property. These facts demonstrate that the Applicant was capable of operating her business and keeping appropriate records.

   [196]    Exhibit 9, Statement of the Applicant, dated 3 August 2018, para 6.

4. Overall the Tribunal found the Applicant to be evasive and misleading. In the circumstances the Tribunal finds that the Applicant deliberately failed to report some of her assessable income in the 2013 and 2014 financial years and deliberately claimed expenses she was aware were either false or unable to be substantiated.

   Failure to disclose rental income

5. No explanation was given at the hearing regarding why she had not included the income from her rental properties in her original ITRs. The Applicant only reported this income, once it was clear that the ATO was conducting an audit.

6. It is clear that income was being derived from both the Ashwood and Box Hill Properties.

7. The Tribunal finds, on the grounds outlined above, that the Applicant has failed to discharge her burden of proving that the default assessments were excessive.

   Centrelink Deposits

8. On 14 August 2012 there are three deposits were made into the Applicant’s #22989 account by Centrelink for family payments.[197] Family payments are means tested.

   
   

   Ms Chen put to the Applicant that if she had correctly declared her income in her ITRs she would not have been eligible for the full amount of the Centrelink payments. The Applicant responded that she was not aware of how Centrelink conducted their assessments. The Tribunal finds this difficult to believe given that she would need to declare her income to Centrelink in return for receiving the payment.

   [197]    Exhibit 1, T Documents, T69, page 982, Australia and New Zealand Banking Group Statement, period ending 14 Sep 2012.

9. The Applicant was then warned that she did not have to give evidence regarding the Centrelink deposits if she felt that it would result in self-incrimination.

10. The Applicant identified that when she received the money from Centrelink it would be transferred to her other account with the description “yqkcentrelink”.[198] Other questions were put to the Applicant regarding the Centrelink payments and the Applicant claimed privilege.

    [198]    Exhibit 1, T Documents, T66, page 837, National Australia Bank Statement, period ending 31 August 2012.

    Conclusion

11. The Tribunal finds that the Applicant has not proven, on the balance of probabilities, that the assessments are excessive.

12. As a result:

    (a)the reviewable decision in relation to the 2013 financial year should be amended as follows:

    (i)the Applicant’s taxable income was $90,280; and

    (ii)the penalty imposed should be remitted to $29,025.90; and

    (b)the reviewable decision in relation to the 2014 financial year should be affirmed.

13. The Tribunal notes that the Commissioner submitted that agreed expenses in Appendix 4 of the SOAF are not claimable if the Tribunal finds that the rental income was derived by the Box Hill Property, not the Ashwood Property. The Tribunal agrees that because the Applicant has failed to prove that the rental income was derived by the Ashwood Property the Applicant is not entitled to the rental expenses set out in Appendix 4 of the SOAF.

    GST ASSESSMENT

14. The Applicant contends that she was not required to be registered for GST during the 2013 and 2014 financial years because her income was not above the GST income threshold and that therefore no GST was payable.

15. The Applicant’s annual turnover exceeded the GST turnover threshold from 1 July 2013 onwards and therefore she was required to be registered for GST.

16. It was agreed by the parties of the GST obligations, if any, and associated penalties are dependent upon the Tribunal’s assessment of the Applicant’s assessable income. The Applicant has failed to establish that the assessment of the net amounts for the relevant GST periods are excessive.

    WAS THE ADMINISTRATIVE PENALTY CORRECTLY IMPOSED?

17. The base penalties were imposed at 75%, as the tax shortfalls arose as a result of the taxpayer’s intentional disregard of a taxation law.

18. Based on the findings made above, the Tribunal finds the Applicant has acted with intentional disregard of the taxation laws, particular given her position as a registered tax agent and chartered accountant.

19. The Applicant clearly did not disclose her rental properties or details about them until they were discovered by the ATO officers. She continued to be evasive regarding the source of the deposits in dispute. She clearly was aware that some of the invoices she provided by way of expense claim substantiation were a fiction. The difference between her claimed taxable income and the assessed income is not insignificant. The Tribunal also found that the Applicant continued to develop her fictional account as the matter went on.

20. The statutory test for an increase of 20% in the base penalty is satisfied.

21. The Applicant has failed to demonstrate that the penalties assessed for the subject income years are excessive and should not be imposed.

    SHOULD THE PENALTY BE REMITTED FURTHER IN PART OR IN FULL?

22. The Tribunal is satisfied that the penalties should not be remitted in part or in full for the reasons set out below.

23. The Applicant was required, yet failed, to lodge BAS for the relevant GST periods. The BAS were necessary for the Commissioner to determine the Applicant’s liabilities for net amounts. The Commissioner was required to determine the Applicant’s liability for net amounts without the assistance of her BAS.

24. The Applicant was fully aware, particularly as a registered tax agent, that if her income was over the GST threshold she needed to register for GST and lodge BAS.

25. Pursuant to PS 2014/4:

    36.  An unjust result may occur where the culpable behaviour of the taxpayer associated with the failure to provide a document to the Commissioner is disproportionately insignificant to the amount of penalty and charges imposed.

26. The Applicant was aware of her obligations as a taxpayer.

27. In the circumstances, the Tribunal finds that the amount of the penalty imposed is not unjust and is not disproportionate to the Applicant’s behaviour, which could be assumed to demonstrate a complete disregard of her legal tax obligation.

    DECISION

28. The decision under review in relation to the 2013 financial year:

    (a)is varied as follows:

    (i)the Applicant’s taxable income was $90,280; and

    (ii)the penalty imposed should be remitted to $29,025.90; and

    (b)is remitted to the Commissioner for the purpose of recalculating the GST component based on the varied taxable income.

29. The decision under review in relation to the 2014 financial year is affirmed.

302.    I certify that the preceding 301 (three hundred and one) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg

.........................[SGD].......................................

Associate

Dated: 3 October 2019

Dates of hearing:	26-27 November 2018, 25-26 March 2019, 15 May 2019
Date reserved:	16 May 2019
Advocate for the Applicant:	Ms Lisa Rafter, Partner, BDO Australia
Applicant’s Representative:	BDO Australia
Counsel for the Commissioner:	Ms Florence Chen

6 September 2016.

27 September 2016.

13 July 2012.

13 Jul 12 to 14 Sep 12.

7 October 2018.

7 October 2018.

7 October 2018.

12 July 2013.

12 July 2013; T66, page 873, National Australia Bank Statement, period ending 28 June 2013.

12 July 2013; T66, page 873, National Australia Bank Statement, period ending 28 June 2013.