Kelly’s Office Furniture Pty Ltd and Commissioner of Taxation
[2013] AATA 9
•11 January 2013
[2013] AATA 9
Division TAXATION APPEALS DIVISION File Number(s)
2011/1161-1162
Re
Kelly’s Office Furniture Pty Ltd
FIRST APPLICANT
And
Commissioner of Taxation
RESPONDENT
File Number(s)
2011/1202-1203
Re
Kelly’s Supplies (Dee Why) Pty Ltd
SECOND APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President S E Frost
Date 11 January 2013 Place Sydney The objection decisions are affirmed.
............[sgd DP Frost]................................................
Deputy President S E Frost
CATCHWORDS
TAXATION AND REVENUE – income tax – whether amounts described as “Accrued expenses”, “Salary and wages” and “Management fee” are assessable in the relevant years – onus of proof – time at which company incurred expense or definitively committed to making payments – decisions under review affirmed
LEGISLATION
Income Tax Assessment Act 1997 s 8-1
CASES
Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614
Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492
SECONDARY MATERIALS
Taxation Ruling IT 2534 Income Tax: Taxation Treatment of Directors Fees, Bonuses, etc
REASONS FOR DECISION
Deputy President S E Frost
11 January 2013
INTRODUCTION
The applicant companies are owned by members of the Harbutt family. Their applications to the Tribunal, which concern the 2003 and 2004 income years (the “relevant years”), were heard together. At the same time the Tribunal also dealt with applications lodged by one of the members of the family, Barrie Harbutt, concerning his individual tax affairs for the 2003, 2004 and 2005 income years. The Tribunal’s decision in relation to Barrie Harbutt’s applications is separately reported: Re Harbutt and Commissioner of Taxation [2013] AATA 8.
During the relevant years both companies’ shareholders were Barrie Harbutt and his son, David Harbutt, and daughter, Michelle Stewart. David Harbutt was the director of Kelly’s Office Furniture Pty Ltd (“Kelly’s Office Furniture”, the “First Applicant” or, in Part A of these reasons, the “company”), and David Harbutt and Michelle Stewart were the directors of Kelly’s Supplies (Dee Why) Pty Ltd (“Kelly’s Supplies”, the “Second Applicant” or, in Part B of these reasons, the “company”).
As a result of a tax audit conducted by the Commissioner’s officers, the Commissioner made income tax assessments for both companies for each of the relevant years. In the assessments the Commissioner determined that the taxable income was higher than the applicants thought it should be. Objections against the assessments were disallowed. The companies want the objection decisions reviewed.
For the reasons that follow, I affirm the objection decisions.
PART A – KELLY’S OFFICE FURNITURE PTY LTD
The issue
The issue for determination is whether or not amounts described as “Accrued expenses”, “Salary and wages” and “Management fee” should have been added to the taxable income of the company in the relevant years.
The amounts in dispute are set out in the following table:
2003
$
2004
$
Accrued expenses 195,778 179,467 Salary and wages 91,604 2,446 Management fee 100,000 Accrued expenses
The Commissioner’s auditors identified the “accrued expenses” amounts in the balance sheet of the company for each of the relevant years. They asked what the amounts were made up of, and were told[1]:
·For the 2003 year, they comprised:
GST & Employee Superannuation $11,968
Accrued salary bonus $183,810
·For the 2004 year, they comprised:
GST, Employee Super & PAYE tax $69,867
Accrued salary bonus $109,600
[1] Exhibit R1-1, T8-47
Those explanations did not reconcile with the “journal lists”[2] provided by the First Applicant. The auditors determined that the accrued expenses had “not been correctly dealt with”[3]. Since the amounts were described as “expenses” (although only “accrued”, rather than “incurred”), and in the absence of an adequate explanation as to whether they had indeed been incurred, they were added back to taxable income.
[2] Exhibit R1-1, T9-48 for the 2003 year; T9-56 for the 2004 year
[3] Exhibit R1-1, T2-3
At objection, the First Applicant claimed that the accrued expenses amounts were made up as follows[4]:
·For the 2003 year:
Salary and wages $104,121
Operating expenses $7,108
Integrated client account $84,859
·For the 2004 year:
Salary and wages $106,567
Operating expenses $3,031
Integrated client account $69,869
[4] Exhibit R1-1, T2-4
It will be noted that the figures in [9] for the 2003 year total $196,088, not the $195,778 originally recorded in the balance sheet.
A third explanation of the accrued expenses amounts was provided to the Tribunal as part of the First Applicant’s Further Documents filed on 31 May 2012 (Exhibit A1-1). The explanation for the 2003 year was that the accrued expenses figure was comprised of an integrated client account balance of $109,534 and accrued bonuses of $91,604 (totalling $201,138 – not $195,778). In relation to the 2004 year, the explanation was as follows:
Accrued expenses of $179,467 were disallowed. This was comprised of integrated client account (ATO) of $69,983 and accrued bonuses of $91,604 (totalling $161,587). We have not been able to confirm the basis for the additional shortfall of $17,800.
They are both unsatisfactory explanations. For the 2003 year the figure being explained is not the figure that was first queried; for 2004 there is no explanation at all of an amount that represents 10% of the total.
To be successful in this part of its case the First Applicant must satisfy me of the following:
(a)What are the components of the “accrued expenses” amounts, and what is the quantum of each component; and
(b)In respect of each component, either:
(i)that the component (or some quantified or quantifiable part of the component) was not included in the First Applicant’s “Total Expenses” in its tax return; or
(ii)that any component (or quantified or quantifiable part) that was included in “Total Expenses” is deductible under s 8-1 of the Income Tax Assessment Act 1997 (the “1997 Act”).
The reason why the First Applicant must satisfy me as to the matter set out in [13](a) is that it is not sufficient to show that the assessments are higher than they should be; it must also be shown to what extent they exceed the correct amounts: Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614.
The First Applicant has failed at the first step. With the three quite different explanations given as to the composition of the “accrued expenses” amounts, I cannot say with any confidence how the amounts are made up.
It is true that, in his oral evidence, Mr Henderson, the First Applicant’s accountant, conceded that the first two explanations (set out in [7] and [9] above) were incorrect[5], but he could not throw any light on how those explanations were thought at the time to be correct, nor how not only the numbers, but also the descriptions of the components, changed over time. Indeed, when he was asked about the location of the contemporaneous document that would have explained all the entries that gave rise to the 2003 “accrued expenses” amount, he replied[6]:
I don’t know where it is at the moment.
[5] Transcript pp. 116 and 117
[6] Transcript p. 118
The simple point is this: the company or its advisers should have been able to explain the accounting methodology, and the source and composition of the figures, as soon as the query was raised by the auditors in 2007. The explanation at that point was inadequate. Again at the objection stage the explanation (which differed from the original one) was inadequate. Even as late as May 2012 – five years after the audit – the company’s advisers were still trying to explain figures that ought to have been able to be explained simply, and without hesitation. Instead there has been re-examination, review and reconstruction, but no more clarity than there was five years ago.
For completeness, I should add that the First Applicant has left me entirely unsatisfied, one way or the other, as to the matters in [13](b)(i) and (ii). On the evidence, it is simply not possible to determine whether any of the components of accrued expenses were or were not included in “Total Expenses” in its tax returns. And as to their deductibility under s 8-1, that is an exercise that must be undertaken by reference to particular amounts, not in a conceptual sense or by reference to broad categories of expenditure.
I cannot say with any degree of confidence that the increase in taxable income as a result of the adjustments made by the Commissioner with respect to the “accrued expenses” is excessive.
Salary and wages
The Commissioner’s officers noted a discrepancy between the amount of salary and wages claimed as a deduction in the First Applicant’s income tax returns and the amount shown as total gross payments on its PAYG summary statements. In each case the deduction claimed exceeded the total amount on the PAYG summaries. The Commissioner allowed as a deduction, under s 8-1 of the 1997 Act, only the total PAYG summary amount. This had the effect of increasing the First Applicant’s taxable income by the amount of $91,604 for 2003, and $2,446 for 2004, as set out in the table in [6] above.
The First Applicant explained in its statement of facts and contentions (“FASFC”) as follows:
3.2For the 2003/04 income year, the taxpayer’s PAYG payment summary statement showed that it paid total salary & wages of $488,853. The taxpayer’s 2003/04 income tax return claimed deductions for salary & wages of $491,299. The difference of $2,446 arises from the actual salary & wages paid during the 2003/04 income year being increased by salary & wages of $106,567 accrued at 30 June 2004 (and subsequently paid in the 2004/05 income year) and reduced by salary & wages of $104,121 accrued at 30 June 2003 (and subsequently paid in the 2003/04 income year). The salary & wages accrued at 30 June 2004 were substantially comprised of salary & wages payable to the controlling shareholder of the taxpayer, David Harbutt, and his wife, Sian Harbutt. These salary & wages payments were included as assessable income in the 2004/05 tax returns of David Harbutt and Sian Harbutt when paid to them by the taxpayer.
4. Contentions
4.1It is submitted that a deduction is available to the taxpayer for salary & wages accrued in relation to David and Sian Harbutt as directors of the taxpayer. This is supported by Taxation Ruling IT 2534 which states (at paragraph 3) that:
“to qualify for a deduction a company must, before the end of the year of income, become definitively committed to the payment of a quantified amount of directors fees, bonuses or other such payments, (eg by passing a properly authorised resolution).”
4.2It is submitted that the taxpayer was definitively committed to the payment of the accrued salary & wages to the directors in the 2003/04 income year and this is supported by the fact that the salary & wages were in fact paid to, and assessed in the hands of, David and Sian Harbutt in the income year after they were paid.
There are two points to make about those contentions. The first is that the quote from paragraph 3 of Taxation Ruling IT 2534 is incomplete. The paragraph continues:
It follows that the practice of bringing to account amounts actually determined and authorised to be paid after the close of the year of income as if those amounts had been determined and authorised during the year of income is not acceptable for income tax purposes.
The second point is that the fact (if it is a fact) that the payments were made in the following income year does not establish that the taxpayer was definitively committed, as at 30 June in the year preceding payment, to make the payments.
The reference to a company being “definitively committed” is a reference to that expression as used in cases such as Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 at 506. Along the same lines is the requirement (also referred to in James Flood, at 506) that a taxpayer be “completely subjected” to the outgoing that is claimed as a deduction. The First Applicant’s submission (FASFC at [4.8]) that it is entitled to a deduction for salary and wages on an accruals basis (suggesting that there is no need to establish a definitive commitment) is without foundation, and contrary to authority.
The larger of the amounts in issue here, namely the figure of $91,604 in respect of the 2003 year, is almost as great as the normal annual remuneration (about $94,000) of each of David Harbutt and his wife. At that level it has the appearance of a bonus. David Harbutt could not recall there being a system for awarding himself and his wife a bonus[7]. He dismissed the suggestion of Ms Hirschhorn, counsel for the Respondent, that he would have recalled having received a bonus of that size, despite its representing almost a doubling of his remuneration[8].
[7] Transcript p. 101
[8] Transcript p. 101
The First Applicant has not established that it was “definitively committed”, as at 30 June in each of the relevant years, to the payment of the respective amounts of $91,604 and $2,446. There is no evidence that a decision had been made, by the close of those days, to make the payments. Neither David Harbutt nor the accountant, George Henderson (who was closely involved in the day-to-day financial affairs of the company), was able to state that such decisions had been made, or even that conversations touching upon the issue had taken place.
A residual issue that arises is whether, in respect of the 2003 year, the figure of $91,604 has been added back twice. The First Applicant submits that this must be the case because of its claim that the “accrued expenses” amount for 2003 includes $91,604 as an accrued bonus: see [11] above. However, the answer to that submission is to be found in [15] of these reasons: I am not satisfied as to the composition of the accrued expenses amount for 2003, and so I am not satisfied that the $91,604 is a component of it. (It will be recalled that the “third explanation”, in which for the first time the figure of $91,604 appeared, dealt with a total figure that differed from the total in dispute.)
In conclusion, I am not satisfied that the increase in taxable income as a result of the adjustments made by the Commissioner with respect to salary and wages is excessive.
Management fee
Here again, the question is whether the company was definitively committed, as at 30 June 2004, to pay the “management fee”.
The brief background to this issue is this:
(a)The First Applicant operates its retail business at premises that adjoin the premises of Kelly’s Camping and Outdoor Pty Ltd (“Kelly’s Camping”);
(b)For practical purposes, the First Applicant is David Harbutt’s company and Kelly’s Camping is the company of David’s sister, Michelle Stewart;
(c)The family is very close, and there is much co-operation between members of the family;
(d)In the 2004 income year, the First Applicant’s business was more profitable than that of Kelly’s Camping;
(e)A contributing factor to that outcome was the assistance that Michelle Stewart provided to the First Applicant. At the time Sian Harbutt, David’s wife, was ill and David was not able to devote as much time to his business as usual;
(f)It was decided that a “one-off” reallocation of expenses between the companies should be undertaken. In this way the First Applicant would effectively pay for costs borne by Kelly’s Camping where the benefit had accrued in part to the First Applicant without charge. The charge was described as a “management fee”.
There are aspects of that summary, particularly the matters mentioned at (e), that were revealed only at the hearing, and then by David Harbutt, who had not previously made a written statement in these proceedings.
At the audit stage the auditors had noted that the $100,000 amount had appeared to be nothing more than a book entry. They had asked for some background to the making of the entry but noted that “the representatives for Kelly’s Camping and Outdoors [sic] Pty Ltd could not provide an explanation as to the services that Kelly’s Camping and Outdoors [sic] Pty Ltd provided Kelly’s Office Furniture Pty Ltd”[9].
[9] Exhibit R1-1, T10-79
In any event, the critical question is: when did the First Applicant decide that it would make the payment to Kelly’s Camping? If that decision was not made by 30 June 2004, then the amount is not deductible under s 8-1.
The timing of the decision was put to David Harbutt by the First Applicant’s representative, but his answer was not helpful[10]:
MR HENDRIKS: So do you remember when you decided to pay this $100,000? Because here we’re looking at a tax year issue. Was it something that was worked out during the year, at the end of the year, after the year end? Do you remember?
MR HARBUTT: She never asked. She never asked for anything. It’s something that I did. I’m the young brother that was doing always a bit better than her, so it was just a – at the end of the period when things got – and understanding that [her] husband works for me as well so it was a decent thing to do for the whole family. I mean, her business I don’t think makes a lot of money at all anymore and I don’t think it was then, so she pitched in. I didn’t see anything wrong with giving something back.
[10] Transcript p. 77.6-14
That is where the matter was left.
Mr Henderson could not assist on the timing question. Ms Stewart, who might have been able to assist, was not called.
I am not satisfied that the First Applicant “incurred” the management fee in the 2004 income year.
Summary in relation to Kelly’s Office Furniture Pty Ltd
The objection decisions are affirmed.
PART B – KELLY’S SUPPLIES (DEE WHY) PTY LTD
The issue
The issue is whether or not certain amounts described as “salary and wages expense” were losses or outgoings incurred by the company in the relevant years, such that they are deductible under s 8-1 of the 1997 Act. The amounts in question are $135,000 for the 2003 year, and $202,000 for the 2004 year.
The facts, and the case for the Second Applicant
The Second Applicant contends that the amounts in question represent accrued salary and wages payable to Barrie and Beverley Harbutt, the parents of David Harbutt and Michelle Stewart. It relies on much the same argument as the First Applicant does. In its statement of facts and contentions (“SASFC”) there is the same reference to the truncated paragraph 3 of Taxation Ruling IT 2534, the same bald assertion that the company was “definitively committed”, as at 30 June in each of the relevant years, to paying the respective amounts.
Mr Henderson explained the position by reference to Exhibit A2-2. That is a typed document that he prepared, most likely in early 2012, from hand-written notes on his files. (The exhibit, comprising only one page, appears to be an incomplete version of the document that he prepared. The hand-written notes themselves were not produced.) In any event, his explanation is as follows:
·Barrie and Beverley Harbutt had borrowed money from the company in prior years. At 30 June 2001 they owed $102,939, and then they borrowed a further $111,858 during the 2002 income year;
·Mr Henderson was concerned that the Harbutts had not been charged enough (or, in fact, any) interest on their borrowings;
·He calculated interest, for the 2002 year, at the “benchmark” Division 7A rate, calculated against the opening balance of $102,939;
·He then arrived at a closing balance of $435,514 for 2002, calculated as the sum of:
othe opening balance of $102,939
othe additional borrowings of $111,858;
othe interest, calculated as $30,157;
otwo other debit loan balances relating to the companies R M & B Investments Pty Ltd and Harbutt Holdings Pty Ltd (“predominantly owned and no longer in existence, and operated by Barrie and Beverley Harbutt”[11], but no further details were given of the companies or the loan balances), totalling $190,560;
·Mr Henderson himself[12] decided to perform a “catch-up” interest calculation, for the 2003 year, on the 2002 year end balance (adjusted for a minor credit amount in the 2003 year), producing $115,920 of income for Kelly’s Supplies for the 2003 year;
·And then finally, “This amount was distributed by way of Salary to Barrie and Beverley Harbutt and Tax fully paid in the 2004 year – $135,000”.
[11] Transcript p. 33
[12] See Transcript p. 33 – “Now, because I believed we hadn’t properly charged division 7 interest in the past, I charged a catch-up rate ...”
I asked Mr Henderson to explain that last step[13]:
THE D.PRESIDENT: What – I don’t understand where the 135,000 came from?
MR HENDERSON: It’s just an amount sufficient to cover the income created.
THE D.PRESIDENT: What’s the income created?
MR HENDERSON: The interest on the loan account of 115,920.
THE D.PRESIDENT: Right. So it could be anything as long as it was at least 115,920?
MR HENDERSON: Yes. Yes.
[13] Transcript p. 33
It seems (although, as noted earlier, Exhibit A2-2 is incomplete) that a similar methodology was undertaken for the 2004 year.
The Second Applicant’s representative explored Mr Henderson’s methodology further[14] (emphasis added):
[14] Transcript p. 33-35
MR HENDRIKS: ... Okay, so George, if – so you’ve come up with this calculation. Why did you decide to make this calculation?
MR HENDERSON: Well, I decided to pay it out to Barrie and Bev, fifty-fifty. And they paid tax on it.
MR HENDRIKS: But before that, this company had – well, so Kelly’s Supplies essentially ceased trading when you made these calculations?
MR HENDERSON: It had a major debit loan account to Barrie and Bev and I was trying – ‑ –
MR HENDRIKS: Yes, but ceased trading as such?
MR HENDERSON: Trying to strike a fair way to treat that debit loan account for Division 7 purposes so I actually created the income in which we then distributed to Barrie and Bev which were disallowed. Their wages were disallowed.
MR HENDRIKS: We’re talking about the 2003/2004 years?
MR HENDERSON: Yes.
MR HENDRIKS: Was Kelly’s Supplies trading at that time as such?
MR HENDERSON: No.
MR HENDRIKS: It wasn’t trading?
MR HENDERSON: Very little. There may have been – I just can’t recall. There may have been interest income or a small amount of rent but very – it wasn’t the kind of trading that it was doing before. It was – in that year, Kelly’s Office Furniture and Kelly’s Camping and Disposals [the former name of Kelly’s Camping and Outdoor Pty Ltd] were trading out of the business form[er]ly owned by this company.
...
MR HENDRIKS: Right. Okay. So we’ve got – sort of looking to wind down the company, Division 7A, potential problem for the past years you’re concerned about?
MR HENDERSON: That’s the way I saw it, correctly or incorrectly.
MR HENDRIKS: Okay. So your answer to this was the charging of interest as you’ve sort of calculated in some way like the document we’ve just talked about, the A2-2. So what was – so the outcome of that, disregarding what we’re talking about, salary and wage at this stage, when you say you put this interest, done these interest calculations, when were they done?
MR HENDERSON: They were done in the relevant years but then I paid these wages by way of accrued bonus which meant that it was claimed in the year of the company that I did the calculations in but credited on 1 July the following year to the loan accounts of these people and the tax paid on it. So the income was created and then distributed and tax paid.
MR HENDRIKS: Okay. So why did you choose to pay salary and wages at all or what’s labelled as a salary and wages amount at all?
MR HENDERSON: I don’t know. It just seemed the most reasonable thing to do to get rid of the income out of the company and over to them in view of the fact it was their debit loan account.
MR HENDRIKS: Right. So you had amounts of – in the respective years, you had amounts of interest in the company that were assessable income and ‑ ‑ ‑?
MR HENDERSON: Because I recreated it by putting this entry through.
MR HENDRIKS: Right. And then – so at that point we’ve got assessable income in the company of an amount and then you’ve sought to essentially have that taxed in the hands of the individuals rather than in the company?
MR HENDERSON: That’s right, yes.
MR HENDRIKS: So as – and that followed in quick succession sort of to – so you said it was accrued at 30 June but it got paid ‑ ‑ ‑?
MR HENDERSON: Paid in the following year.
MR HENDRIKS: Paid into the loan accounts immediately in the following year?
MR HENDERSON: Paid into the loan – because they were credited to the loan accounts on 1 July of the following year and then the tax was paid, fully paid by Barrie and Bev in the following year.
MR HENDRIKS: So the outcome of that is the way you’ve accounted for it and prepared and lodged tax returns, is that that interest income that was initially assessable in the company, was then ‑ ‑ ‑?
MR HENDERSON: Yes.
MR HENDRIKS: ‑ ‑ ‑ paid out ‑ ‑ ‑?
MR HENDERSON: Paid out to Barrie and Bev, yes, equally.
MR HENDRIKS: ‑ ‑ ‑ and assessed in the hands of the individuals marginal rates ‑ ‑ ‑?
MR HENDERSON: Paid out to them equally.
MR HENDRIKS: ‑ ‑ ‑ albeit in the following year?
MR HENDERSON: Yes.
...
MR HENDRIKS: What would happen if you didn’t have the salary and wages accrued deduction?
MR HENDERSON: Then the company has to pay income tax on each of the amounts of interest. As it was, it was paid by Barrie and Bev at probably a higher rate.
...
That evidence does not satisfy me that, as at 30 June in each relevant year, the company had “incurred” the disputed amounts as salary and wage deductions.
Mr Henderson was asked when the interest calculations were done. He said “[t]hey were done in the relevant years ...”, which I take to mean that the calculation of the $115,920 interest for the 2003 year was done during the 2003 year, and the calculation of the $140,000 interest for the 2004 year was done during the 2004 year. But I find it hard to accept that. One of the essential elements of the calculation was to identify the loan account transactions for the particular year. Only when that was known (and it could not be known with certainty until 30 June) could the calculation be done. And then, once the calculation was done, the company had to “definitively commit”, also by 30 June, to the payment of the alleged salary and wage amount which would, on Mr Henderson’s account, extinguish the income. His explanation was that “I paid these wages by way of accrued bonus which meant that it was claimed in the year of the company that I did the calculations in ...”. The explanation does not support the deduction claim under s 8-1.
Mr Henderson had earlier said, in answer to questions I put to him, that the hand-written notes on which he based Exhibit A2-2 were in existence at the time the tax returns were prepared. Although his answer does not exclude the possibility that they were in existence by 30 June in each relevant year, I find that they were not.
Moreover, and as the Commissioner has submitted, I find that the Second Applicant’s case that the amounts are properly to be regarded as “salary” or “wages” is not sustained, since the company was admittedly undertaking “very little” trading (see [44] above) at the time. The submission on behalf of the Second Applicant that salary and wages at the claimed level could be justified on the basis that Barrie and Beverley Harbutt had been underpaid for their services in prior years[15] is not supported by the evidence – even when asked a leading question, Mr Henderson was unable to agree[16]:
MR HENDRIKS: Okay. So in terms of paying out the amount as salary and wages, was there a – sort of had Barrie and Bev been paid in the past for their work in the company? Had they been paid fairly or had they sort of been short on wages or whatever? Is there some sort of catch-up perhaps?
MR HENDERSON: I can’t answer that. I don’t even have any notes about it in front of me. All I was concerned about was the debit loan account in those two years. That’s what I was doing.
[15] Second Applicant’s Closing Submissions at [8]
[16] Transcript p. 36
For the reasons outlined in [48] the additional ground relied upon by the Second Applicant (see SASFC at [2.8]) by leave of the Tribunal can not succeed.
Nor can I accept the alternative submission put by the Second Applicant, namely that the assessments are excessive because the interest income has been overstated. The submission is made in the absence of evidence from either of the directors of the company, David Harbutt and Michelle Stewart, as to what the correct interest amount should be; why and how the calculation that was performed is incorrect; what arrangement, if any, existed between the Second Applicant and the borrowers as to the amount of interest that should have been charged on the borrowings; or why Mr Henderson applied the “catch-up” rates of interest in 2003 and 2004 (and why the rates differed from one year to the next). There is also no explanation of major components of the calculations – the loan balances in relation to the mysterious companies R M & B Investments Pty Ltd and Harbutt Holdings Pty Ltd.
In the circumstances I must affirm the objection decisions.
I certify that the preceding 51 (fifty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost
.............[sgd]...........................................................
Associate
Dated 11 January 2013
Dates of hearing 3, 4 September 2012 Date final submissions received 24 September 2012 Advocate for the Applicants Mr M Hendriks, Bentleys Counsel for the Respondent Ms M Hirschhorn Solicitor for the Respondent Mr R Pandey, ATO Legal Services Branch
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Tax Assessment
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Deductible Expenses
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Income Tax
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Statutory Interpretation
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Onus of Proof
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4
1