Palmer v Commissioner of Taxation

[1999] FCA 654

FEDERAL COURT OF AUSTRALIA

Palmer v Commissioner of Taxation [1999] FCA 654

FRANK FREDERICK PALMER v COMMISSIONER OF TAXATION
QG 161 OF 1998

DOWSETT  J
10 MAY 1999
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 161 OF 1998

BETWEEN:	FRANK FREDERICK PALMER Applicant
AND:	COMMISSIONER OF TAXATION Respondent
JUDGE:	DOWSETT J
DATE OF ORDER:	10 MAY 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.The appeal be allowed and the order of the Administrative Appeals Tribunal be varied by adding para (bb) as follows:

“As an arbitrary adjustment, referral fees in the amount of $43,680 in each year of income under review.”

2.The penalty tax provision be varied by deleting the words “paragraphs (a) and (b), and inserting in lieu thereof the words “paragraphs (a), (b) and (bb)”.

3.The appeal be otherwise dismissed with no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 161 OF 1998

BETWEEN:	FRANK FREDERICK PALMER Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE:	DOWSETT J
DATE:	10 MAY 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. This is an appeal from a decision of the Administrative Appeals Tribunal.  The applicant taxpayer, Frank Palmer, has not appeared and in the usual course this would have led to his application being dismissed.  However, counsel for the Commissioner of Taxation has, appropriately and helpfully, drawn my attention to certain errors in the proceedings before the Tribunal which relate to the matters of complaint by the applicant.  The Commissioner is satisfied that appropriate amendments should be made to the order made in the Tribunal.  That seems to be the proper way to proceed.

2. The applicant was carrying on the business of an escort agency and failed to disclose certain amounts of income.  The proceedings in the Tribunal involved a process of imputation designed to form an estimate of the relevant income in the absence of appropriate records.  The member relied upon figures available to him for the month of August 1995 as a basis for estimating income for the tax years in question.  It was necessary to calculate both gross income and expenses.  The member recognised a range of expenses as being appropriate, including receptionists’ wages, drivers’ fees, referrals and credit card charges.  He identified these amounts in his reasons, but when he reached the point of final calculation, he omitted to make allowance for drivers’ fees and referrals, giving no reason for the omissions.  It appears to have been an oversight. 

3. The Commissioner agrees that upon the basis of the relevant findings, an additional deduction ought to be allowed in the amount of $43,680 for referrals.  As to drivers’ fees, it appears that there was a “compensating error” made in the member's calculations.  The raw figures upon which he based his calculations did not include the amounts collected by the taxpayer for drivers’ fees.  Thus, although that item was notionally an allowable deduction, it was not appropriate to allow it in this case simply because amounts actually received for that item had not been included in the gross income.  In those circumstances, no adjustment is required in respect of drivers’ fees.  There is also a necessary compensating adjustment with respect to penalty.  The penalty is calculated by reference to the amount of the understatement of the taxable income.  It will be necessary to make a relatively simple, additional adjustment. 

4. I allow the appeal and vary the order of the Tribunal by adding paragraph (bb) as follows:-

   “As an arbitrary adjustment, referral fees in the amount of $43,680 in each year of income under review.”

5. The penalty tax provision should be varied by deleting the words "paragraphs (a) and (b)", and inserting in lieu thereof the words, "paragraphs (a), (b) and (bb)." 

6. The appeal should otherwise be dismissed, with no order as to costs.

I certify that the preceding six (6) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Associate:

Dated:             10 May 1999

Counsel for the Respondent:	Mr J A Logan
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	10 May 1999
Date of Judgment:	10 May 1999