MARK HORROCKS and COMMISSIONER OF TAXATION

[2010] AATA 307

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 307

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          Nos      2009/2865,
  )  2009/4347-4355

TAXATION      APPEALS         DIVISION		)
Re		MARK HORROCKS

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Mr B H Pascoe, Senior Member  

Date29 April 2010  

PlaceMelbourne

Decision

The Tribunal varies the decisions under review to the extent of reducing taxable income of the year ended 30 June 1997 by $54,000 to $6,000 and reducing additional tax by way of penalty in respect of the years ended 30 June 1993 and 30 June 1994 to 50 per cent of the tax payable and, in respect of the year ended 30 June 1997 by 50 per cent of the additional tax calculated pursuant to s 163B of the Income Tax Assessment Act 1936.

The Tribunal certifies that the matter has terminated in a manner favourable to the applicant.

(sgd) B H Pascoe

Senior Member

income tax – default assessments – income tax returns not lodged – whether non‑resident of Australia during relevant period – onus of proof

Income Tax Assessment Act 1936

Taxation Administration Act 1953

REASONS FOR DECISION

29 April 2010   Mr B H Pascoe, Senior Member  

1.      These applications are to review decisions of the respondent to disallow in full objections lodged by the applicant against assessments of income tax for the years ended 30 June 1993, 1994, 1997, 1999 and 2000.

2.      At the hearing the applicant, Mr M Horrocks, was unrepresented.  The respondent was represented by Ms A Lemish, an officer of the respondent.

3.      The assessments in dispute had their origins in an audit of Mr Horrocks’ affairs by the respondent in April 2005.  No income tax returns had been lodged in respect of any of the relevant years nor for the years ended 30 June 2001 to 2005 inclusively.  In September 2006, default assessments were issued. In response to objections lodged by Mr Horrocks in October 2006 the respondent disallowed the objections to assessments in respect of years prior to 2001 and allowed in part the objections to the 2001 to 2005 years.  At the hearing, Mr Horrocks confirmed that he was seeking to dispute the decisions in relation to the 1993, 1994, 1997, 1999 and 2000 only. 

4.      Mr Horrocks said that he moved to New Zealand in 1990 to be with a girlfriend and with the intention of staying in that country indefinitely.  Initially, he worked in Auckland in a book warehouse of a company where his girlfriend worked.  He said he stayed at the YMCA in Auckland for some eighteen months after which he moved to Greymouth to work for a company which operated a prototype gold dredge in the Grey River.  After some three years of such employment he went with two other friends to commence prospecting for alluvial gold.  He said that this was a somewhat lifestyle choice to include hunting and fishing.  In 1999 he returned to Australia as a result of health problems which required a gall bladder operation.  He commenced to receive social security benefits being unable to work.

5.      Mr Horrocks said that, between 1990 and 1999 he returned to Australia on some three occasions on short visits to see his parents.  During one visit in 1993 he purchased a block of land in Inverloch, Victoria for $32,000.  A deposit of $20,000 was paid at the time of which his father provided $10,000.  The balance of $12,000 was paid in 1994 although Mr Horrocks cold not recall whether he was in Australia at the time or remitted the funds from New Zealand.  He said that on a visit to Australia in 1997 he was advised of a pending change to building codes, so he applied for a building permit and arranged for a builder friend to pour the concrete slab for a house which he intended to complete over a period for use in his eventual retirement.  He said that it was not until he recovered from his illness that he proceeded with the construction of the house as an owner builder.  He moved into residence in the house in 2002 or 2003 although the work was not completed then and, today, is still not fully completed.

6.      The argument of Mr Horrocks was that, between 1990 and 1999, he was a resident of New Zealand and a non-resident of Australia deriving income solely from sources in New Zealand.  He was unable to produce any substantive evidence of New Zealand residency.  He was unable to recall or provide evidence of precise dates of departure to New Zealand, visits to Australia or ultimate return to Australia.  He maintained that, between 1992 and 1999 he resided at 167 Grey Street, Greymouth, New Zealand in rented accommodation.  Enquiries by the respondent of the Grey District Council resulted in being advised that as such address existed.  On being shown a map of Greymouth at the hearing, Mr Horrocks was unable to locate a Grey Street but then suggested that he must have confused the address with the Grey River and his accommodation would have been in Gresson Street which follows the banks of the river.  Mr Horrocks said that he had attempted to obtain confirmation of his occupation of the residence in Greymouth but, as this was not until 2005, the property had since been sold and the daughter of his landlord said the she was unable to locate any relevant records of her father. 

7.      Mr Horrocks provided a statutory declaration from a Mr J Peterson of New Zealand.  This declared that Mr Peterson was a friend of Mr Horrocks wo visited him on occasions which he was prospecting for gold between 1993 and 1997 and to help with installation of pumping equipment.  Mr Horrocks said that he had been unable to recontact Mr Peterson to arrange for direct evidence and cross examination.  As a consequence, the statutory declaration is of little weight without the ability to cross examine Mr Peterson and, in addition, recognising that it refers solely to occasions where I would help him out.  Mr Horrocks acknowledged that Mr Peterson came down to Greymouth from Auckland on some seven to eight occasions.  This is of very limited value in assisting the argument of Mr Horrocks that he lived for some seven years solely in Greymouth.

8.      While it is recognised that it was not until 2006 that Mr Horrocks was required to provide evidence of his alleged residency in New Zealand commencing some 16 years prior and concluding some six years prior it is of concern that he has been unable to provide any such evidence other than his oral evidence at the hearing where he was somewhat vague as to dates.  The only documentary evidence provided was the abovementioned statutory declaration of Mr Peterson and a copy of a New Zealand Inland Revenue Department 1998 Income Tax Assessment showing a taxable income of $7317.45 and a refund of $760.36. Mr Horrocks said that this related to income earned in that period when he returned to work for some three to four months at the book warehouse in Auckland.  He was unable to produce any other evidence of New Zealand income or taxation.  He said that the dredge operator deducted tax from his wages but did not remit such tax to the Inland Revenue Department and subsequently disappeared.  He said that money from alluvial gold is not taxable in New Zealand.

9.      There are several difficulties with the evidence of Mr Horrocks’ in relation to dates.  He said that the sole New Zealand income tax assessment related to part‑time job in the last few months of my time in New Zealand.  However, he said, also, that he returned to Australia in 1999, some twelve months later than any income period to which the 1998 year assessment related.  The statutory declaration of Mr Peterson referred to his gold prospecting between 1993 and 1997.  Mr Horrocks said that after his arrival in New Zealand he worked for some 18 months in Auckland, then three years employment on the gold dredge in Greymouth, then gold prospecting until shortly before he returned permanently to Australia.  The objection lodged by his tax agent stated that:

… The taxpayer left Australia on the 29^th of August 1987 for New Zealand and did not permanently return to Australia until after September 2000, over 13 years later.  For this entire time period in New Zealand the taxpayer worked as an employee for an American based private company named Grey River Gold (based in Spokane, Washington, USA).  The taxpayer did not have an employment contract with Grey River Gold, but maintained steady employment as a labourer with the company for the entire duration.  The taxpayer lodged income tax returns in New Zealand as a tax resident of New Zealand, and paid New Zealand tax on his employment income.

It is reasonable to assume that this information was provided by Mr Horrocks which varies considerably from his oral evidence.

10. There is little doubt that if the evidence of Mr Horrocks’ was accepted then such evidence would demonstrate that he was a non-resident of Australia during the relevant period. However, pursuant to s 14ZZK(b) of the Taxation Administration Act 1953, an applicant to this Tribunal has the burden of proving that the relevant assessments are excessive.  This burden cannot be discharged by simply making assertions.  It is necessary for a taxpayer in circumstances such as these to support such assertions with objective evidence to demonstrate that on the balance of probabilities such assessments are excessive and by how much they are so excessive.  Here, while it is not appropriate to take the view that Mr Horrocks has provided false evidence, it is difficult to accept, notwithstanding the period of time which has elapsed, that he is unable to provide any objective evidence of an alleged ten year stay in New Zealand.  When coupled with difficulties as to dates, the Tribunal cannot be satisfied that Mr Horrocks has discharged the required onus of proof.

11.     However, there is in my view, a further issue in relation to the assessments in dispute.  The assessments showed a taxable income calculated by the respondent as follows:

Year ended 30 June 1993

$20,000

Being deposit paid on purchase of land at Inverloch in May 1993

Year ended 30 June 1994

$12,000

Being balances of purchase price of land paid in May 1994

Year ended 30 June 1997

$60,000

Being increase in council valuation of land, said to be as a result of improvements to the land

Year ended 30 June 1999

$23,699

Being deposits to his Australian Bank account from 11 November 1998 to 30 June 1999

Year ended 30 June 2000

$53,406

Being deposits to Australian Bank account from 6 July 1999 to 30 June 2000

The deposits to the bank account were regular throughout the period from 11 November 1998 to 30 June 2000 varying from two to six deposits per month and in amounts ranging from $36 to $5973.38 noted as being primarily cheque or cash and cheque deposits.  There were regular withdrawals from the bank account.  Mr Horrocks was unable to explain these regular deposits and withdrawals during a period when he stated that he was in New Zealand.  He said that while in Auckland he had a bank account in New Zealand but no New Zealand bank account after moving to Greymouth being paid in cash and incurring expenses in cash.

12.     In relation to the assessments for the years ended 30 June 1999 and 2000 it is clear that there has been regular deposits to Mr Horrocks’ bank accounts which have not been explained by him.  It is possible that, given his evidence of working back in Auckland for the last few months prior to his return to Australia and the New Zealand income tax assessment in 1998 for this source of income.  Mr Horrocks was back in Australia in 1998 not 2000 as he declared.  Consequently these bank deposits may well have had an Australian income source.  In any event, Mr Horrocks has not satisfied the required onus of proof that these assessments were excessive.

13.     The assessments for the 1993, 1994 and 1997 are of some concern.  In the first two of these years, the amount included as income represented amounts paid for the purchase of a vacant block of land.  No other records were provided to indicate the source of these two isolated payments one year apart.  However, while this may be of some concern, Mr Horrocks has not been able to satisfy the onus of proof that he was a non-resident of Australia with his only income derived from sources in New Zealand.  Although it may be difficult to accept that one-off amounts in three out of six years was likely to have constituted his only income for that whole period, It is reasonable to assume that income was derived to provide the funds for such expenditure so that it is appropriate to affirm the decision to include these  amounts as income in the absence of any evidence to the contrary.

14.     In cross examination, the respondent asked Mr Horrocks about entries in the Warragul and Districts Yellow and White pages telephone directories listing his name under electrical contractors from 1995 to 2001.  His response was that this arose from his purchase of a mobile phone which he thought he would use in New Zealand but, being unable to do so, gave the phone to his brother whose address was the one shown in the directories.  In relation to a question relating to his registration as an electrical contractor in July 1993 which was renewed annually from July 1999 to July 2005 and the issue by him of a certificate in March 2005, Mr Horrocks maintained that this related solely to the proposed new house in Inverloch for which he intended to be an owner builder.  On being asked about the purchase of a 1979 Ford sedan in August 1995.  Mr Horrocks said that this was an old car which he purchased for his brother who was in trouble.  These matters were considered by the respondent to throw further doubt on the evidence of Mr Horrocks of his residing in New Zealand.

15.     As stated earlier, the income of $60,000 included in the 1997 assessment represented an increase in council valuation of the Inverloch land from $30,000 at October 1995 to $90,000 as at October 1996.  The respondent maintained that this increase of $60,000 was likely to have been attributable to expenditure on building works for which a permit was issued in March 1996.  Mr Horrocks was vehement in his denial that any work on construction of the home other than the pouring of a concrete slab at a cost of $6,000.  He produced an album of photographs showing the home at different stages of construction with dates written next to the photographs.  Whilst, again, this is unsupported evidence of Mr Horrocks’, in relation to this issue I am prepared to accept his evidence as being truthful.  As a consequence, and in line with the 1993 and 1994 assessment, it is appropriate to reduce the taxable income of the year ended 30 June 1999 from $60,000 to $6,000, a reduction of $54,000.  This also means that I accept that further expenditure on the house was not incurred until after that year end and likely from the funds deposited to his bank account.

16. The remaining issue is that of penalties. In relation to the 1993 and 1994 assessments, penalties at the rate of 200 per cent pursuant to former subsection 222(1) of the Income Tax Assessment Act 1936 (the 1936 Act) for failure to lodge a return. In relation to the1997, 1999 and 2000 assessments penalties at the rate of 8 per cent per annum were imposed pursuant to s 163B of the 1936 Act plus an interest charge pursuant to s 163C. The respondent has discretion, and, on review this Tribunal has discretion, to remit the whole or any part of the penalties. The Tribunal has no jurisdiction to remit any part of the interest charge.

17.     Given the concerns in relation to the basis of arriving at a taxable income in the 1993, 1994 and 1997 years of income, the lengthy period which elapsed from those years until assessments issued in 2006 with consequent problems of obtaining evidence and the consequent effect on the ability of Mr Horrocks to satisfy the burden of proof, it is appropriate that there be some revision of the penalties for those years.  In relation to the 1993 and 1994, the penalties should be remitted to 50 per cent of the tax payable.  In relation to the 1997 year, penalties should be remitted by 50 per cent.  Given concerns at the date of return to Australia and the basis of assessing income based on numerous bank deposits in the 1999 and 2000 years it is not appropriate to remit penalties imposed in relation to those years.

18. Having regard to the foregoing, the decisions under review should be varied to the extent of reducing taxable income for the year ended 30 June 1997 by $54,000 and reducing additional tax by way of penalty in respect of assessment for the year ended 30 June 1993 and 30 June 1994 to 50 per cent of the tax payable and, in respect of the year ended 30 June 1997 by 50 per cent of the additional tax calculated pursuant to s 163B of the 1936 Act.

I certify that the eighteen [18] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B H Pascoe, Senior Member

Signed:   Dianne Eva
  Clerk

Date of Hearing  13 April 2010
Date of Decision  29 April 2010
Advocate for the Applicant            Self Represented

Advocate for the Respondent       Ms A Lemish, Legal Services,

Australian Taxation Office