Mary Flood and Commissioner of Taxation
[2013] AATA 96
•22 February 2013
[2013] AATA 96
Division TAXATION APPEALS DIVISION File Number(s)
2012/3737
Re
Mary Flood
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Mr John Handley, Senior Member
Date 22 February 2013 Place Melbourne The Tribunal affirms the decision under review refusing an extension of time to lodge an objection for the 2005 income year.
(sgd) John Handley
Senior Member
TAXATION – Applicant applied to extend time to object to her income tax assessment for the year ended 30 June 2005 – capital gains tax liability incurred in 2005 – objection not raised – debts forgiven by her in 2010 – a private ruling in 2012 found she had incurred a capital loss over the debts forgiven – Applicant contended the private ruling supported a finding that the 2005 assessment should be reversed – Applicant did not satisfy the onus under s14ZZK – the events of 2005 and 2012 were unrelated – Applicant did not have an arguable case – decision affirmed.
LEGISLATION
Taxation Administration Act 1953 s 14ZW, 14ZX, 14ZZK
Income TaxAssessment Act1936 s 175A
Income Tax Assessment Act 1997 s 102.20, 104.10, 104.25, 108.5
CASES
Brown v Commissioner of Taxation [1999] FCA 563
Hunter Valley Developments Pty Ltd and Othersv Minister for Home Affairs and Environment (1984) 58 ALR 305
REASONS FOR DECISION
Mr John Handley, Senior Member
On 12 May 2006 the respondent issued a notice of assessment with respect to the income year ending 30 June 2005. The respondent then found that the taxable income of the applicant in that year included $9551 as capital gains.
On 19 June 2012 the applicant, apparently dissatisfied with that assessment, lodged an objection against it pursuant to s 175A(1) of the Income Tax Assessment Act 1936 (the ITAA). That application was made having regard to the findings within a private ruling issued in favour of the applicant on 16 March 2012 in respect of the income year ending 30 June 2010.
On 18 July 2012 the respondent refused to grant an extension of time to lodge the objection with respect to the 2005 assessment, pursuant to s 14ZX(1) of the Taxation Administration Act 1953 (the TAA). The applicant has sought review of that decision by this Tribunal pursuant to s 14ZX(4) of the TAA.
The hearing
The applicant’s partner, Mr Gurvich appeared on her behalf. Mr Yiu appeared on behalf of the respondent. Each party lodged written submissions prior to the commencement of the hearing where they also made oral submissions. Mr Gurvich tendered two Debt Forgiveness Deeds dated 21 February 2009 (Exhibit A1) and 1 September 2009 (Exhibit A2).
The facts
The facts giving rise to the objection to the 2005 assessment were not in dispute and may be summarised as follows:
(a)In or about 2000 the applicant entered into a partnership with Mr Gurvich for the purposes of building, property development and property ownership.
(b)Mr Gurvich was the director and shareholder of Ascoli Developments Pty Ltd (Ascoli) and Maytime Constructions Pty Ltd (Maytime) (the companies).
(c)On 26 April 2005, the applicant sold shares that she held in the National Australia and Westpac banks (T5 p.46).
(d)The applicant used the proceeds from the sale of those shares to invest in the companies.
(e)The respondent determined, consistent with the applicant's income tax return for the 2005 income year, prepared by her accountants, that she had a net capital gain of $9551 (T5 p.32-51).
(f)The Notice of Assessment which recorded the capital gains of $9551 was issued to the applicant’s accountants on 12 May 2006 (T5 p.31). That assessment was not challenged.
(g)The companies went into liquidation in 2009.
(h)On 21 February 2009 the applicant and Mr Gurvich as Director of Maytime, executed a deed whereby the applicant forgave Maytime a debt owing to her in the sum of $93,000 plus interest (Exhibit A1).
(i)Liquidators were later appointed to Maytime and a declaration was made that there were insufficient funds to enable a dividend distribution to be paid to the company's creditors (T5 p.27).
(j)On 1 September 2009 the applicant, together with Mr Gurvich, executed a deed whereby the applicant also forgave a debt owing to her by Ascoli in the sum of $222,763.48 plus interest (Exhibit A2).
(k)Ascoli was wound up by an order of the Supreme Court of Victoria on 28 October 2009 (T5 p.27).
(l)On 23 December 2011 the applicant applied for a private ruling with respect to capital losses on investment. The private ruling issued on 16 March 2012 records that it applies to the income year ending 30 June 2010 (T5 p.26).
(m)The respondent decided in the private ruling made on 16 March 2012, that the applicant had made a capital loss on the debts forgiven pursuant to s 104.25(3) of the Income Tax Assessment Act 1997 (the ITAA 1997) because the debts were not a personal use asset within the meaning of s 108.20(2)(d) of the ITAA 1997.
(n)On 8 April 2012 the applicant wrote to the respondent requesting that the private ruling be applied to her assessment of income in the 2005 income year and refund the capital gains tax (CGT) that she paid for that year (T5 p.25).
(o)On 19 June 2012 the applicant lodged an objection with the respondent against an assessment of liability for CGT in 2005 income year (T5 p.21-23).
(p)On 18 July 2012 the respondent decided to refuse to grant an extension of time to lodge an objection against an assessment for the year ending 30 June 2005 (T1 p.4-6 and T6 p.52). This is the decision under review.
Conclusion and Reasons
Section 14ZW of the TAA allows a taxpayer to lodge an objection against an income tax assessment decision within either 2 years or 4 years after notice of the assessment is given to the person, subject to the person’s circumstances as found within that section. In this proceeding, the respondent issued a Notice of Assessment for the year ended 30 June 2005 on 12 May 2006 (T4). The applicant lodged her objection against the assessment for the 2005 income year on 25 June 2012 (T5), almost 6 years after the assessment was issued to her. There is no doubt that the applicant is out of time to lodge her objection against the assessment and needs to have time extended to permit her to do so. On 18 July 2012, the respondent refused the applicant’s request to extend time (the reviewable decision).
The respondent relied on the decision in Brown v Commissioner of Taxation [1999] FCA 563 in which Hill J discussed the principles that should be considered when deciding whether to extend the time for the making of an objection under s 14ZW(2) of the TAA. Hill J referred to the often cited decision of Wilcox J in Hunter Valley Developments Pty Ltd and Others v Minister for Home Affairs and Environment (1984) 58 ALR 305 and discussed the application of the principles distilled by Wilcox J, to applications to extend the time for lodging objections against income tax assessments.
Hill J noted that the principles distilled in Hunter Valley are non-exhaustive and serve as a guide for decision-makers when exercising the discretion to extend time (at [33]). Having regard to the different context in which Hunter Valley was decided, His Honour said that too slavish an adherence to them [the guidelines] should … be avoided (at [42]).
Having reviewed the principles distilled in Hunter Valley, Hill J concluded that when deciding whether to extend time to lodge an objection, the decision-maker should consider the explanation for and the circumstances attendant upon that delay; whether the objection is frivolous or must fail (that is whether there is an arguable case); and any other matter that is relevant (for instance prejudice to the parties) (at [59-59]).
The respondent opposed an extension of time because:
(i)there is no adequate explanation for delay; and
(ii)the applicant has failed to establish an arguable case.
Mr Gurvich contended on behalf of the applicant that despite having accountants who prepared her returns in the 2005 income year and to whom the Notice of Assessment was forwarded, she was not advised nor did she know that she could lodge an objection against that assessment.
It was contended that the application had merit because the moneys raised from the sale of the shares, which gave rise to the finding of a CGT liability, were the same moneys invested in the company's and which ultimately became a debt (and forgiven). Accordingly, Mr Gurvich submitted the 2005 finding of a CGT liability should be reversed.
The respondent contended, and I agree, that the applicant was competently advised and represented in 2005. The sum assessed as attracting a capital gains liability was declared by the applicant in her 2005 return of income (T5 p.49).The decision which gave rise to the assessment of a CGT liability was, in the circumstances of her taxation affairs at that time, unimpeachable. If there was any merit in an objection against the CGT assessment, the applicant and her accountants have had more than an adequate opportunity to have notified the respondent. Despite the time limits imposed by s 14ZW of the TAA, the applicant has, 6 years later, when she is either 2 or 4 years out of time, sought to challenge that assessment. The applicant has not demonstrated an adequate explanation for the delay.
The application will not fail, alone, by the absence of an adequate explanation for the delay. There must also be a must be balancing against other relevant considerations. Particularly relevant in this application is the merits of the case. I am satisfied that this application fails substantially because it is without legal merit. Put another way, I am not satisfied that the applicant has demonstrated that the assessment of a CGT liability in the 2005 income year, should not have been made or should have been made differently (s 14ZZK(b)(iii) of the TAA).
The Commissioner was obliged to make the assessment of a CGT liability in 2005 on the basis of the financial information properly and honestly disclosed to him. No other decision was open in the circumstances. The disposal of the shares, being a CGT asset, constituted a CGT event because there was a change of ownership in them. In those circumstances, the applicant achieved a capital gain (s 102.20 and 104.10 of the ITAA 1997).
The private ruling made on 16 March 2012 was concerned entirely with the status of moneys forgiven (and described as a debt) under the deeds of forgiveness, in favour of 2 companies, both executed in 2009.
The applicant is attempting to establish that the moneys forgiven constitute capital losses over which she should be entitled to offset a capital gain achieved 6 years earlier. In effect, the applicant seeks to achieve a benefit in retrospect.
The respondent decided in the private ruling that the debts that were forgiven constitute CGT assets, the ownership of which ends by the asset being released, discharged or satisfied. That event occurred when she entered into the contract (the deed of forgiveness) which resulted in the asset ending (s 108.5 and sub-s 104.25(1)(b) and (2) of the ITAA 1997).
Accordingly I am satisfied that the event in 2005 of a capital gain on the disposal of shares was a separate, distinct and unrelated event to the capital losses arising from the debts forgiven.
The applicant does not achieve a benefit in the 2005 income year from the private ruling made and applicable to the 2010 income year. She has not demonstrated an arguable case to permit a favourable exercise of the discretion to extend time to permit her to lodge an objection with the respondent against the assessment for the 2005 income year. She has not discharged the onus under s 14ZZK (b)(iii) of the TAA.
The applicant has not demonstrated any adequate explanation for the delay in lodging her objection nor has she demonstrated that the application has merit. Accordingly, her application requesting an extension of time to lodge an objection is refused.
Decision
The Tribunal affirms the decision under review.
I certify that the preceding 21 (twenty-one) paragraphs are a true copy of the reasons for the decision herein of
Mr John Handley, Senior Member.......................[sgd]........................................
Associate
Dated 22 February 2013
Date(s) of hearing 8 February 2013 Advocate for the Applicant Mr D. Gurvich Advocate for the Respondent Mr E. Yiu Solicitors for the Respondent ATO Legal Services Branch
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