"QX99B" and Commissioner of Taxation
[2000] AATA 844
•2 September 2000
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2000] AATA 844
ADMINISTRATIVE APPEALS TRIBUNAL ) No QT1998/111
) No QT1998/112
TAXATION APPEALS DIVISION ) No QT1998/113
No QT1998/114
No QT1998/115Re QX99B Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr K L Beddoe (Senior Member) Date22 September 2000
PlaceBrisbane
Decision The decisions under review for the years of income ended 30 June 1987, 30 June 1988 and 30 June 1989 are affirmed. The decisions under review for the years of income ended 30 June 1992 and 30 June 1993 are set aside and the objections remitted to the respondent to redetermine in accordance with the concessions noted at paragraph 10 of these reasons.
Decision No. 844/2000 (Sgd) K L Beddoe
Senior Member
CATCHWORDS
TAXATION : Whether claims for deductions are allowable – Whether expenditure incurred – Whether claims substantiated as required by law – Whether amended assessments authorised – Whether carrying on a business – Additional Tax – Unsubstantiated claims for deductions – Meaning of “reckless”
Income Tax Assessment Act 1936 – s48, s51, s53, s54, s82KT, s82KTG, s82KZAA, s170, s223, s226G, s226H, s227
Taxation Administration Act 1953 – s14ZZK
New Zealand Flax Investments Ltd v F.C.T. (1938) 61 CLR 179
Case 74/96 96 ATC 662
REASONS FOR DECISION
22 September 2000 Mr K L Beddoe (Senior Member) 1. The applicant seeks review of objection decisions in respect of the years of income ended 30 June 1987, 1988, 1989, 1992 and 1993. The essence of the dispute in each year is that the respondent amended assessments to disallow claims for deduction of losses and outgoings because the respondent was not satisfied the losses and outgoings had been incurred and/or substantiated. Whether the applicant was carrying on a business is in issue for the 1993 year only.
2. At issue is whether claims for deductions are allowable within the terms of sections 51, 53 and 54 of the Income Tax Assessment Act 1936 (“the Act”), whether those claims have been substantiated in accordance with Sub-division F of Division 3 of Part 3 of the Act. There was also an issue as to whether the respondent’s amended assessments were authorised by section 170 of the Act. It is not necessary that I set out the statutory provisions at this stage. Much of the case raises factual rather than legal issues.
3. It is necessary to understand the effect of section 82KT(6) of the Act, the general effect of it being that Sub-division F does not alter the interpretation of provisions providing for allowable deductions and does not provide for an allowable deduction for which the taxpayer would not have been entitled if the Sub-division had not been enacted.
4. On an application for review of an objection decision the applicant has the burden of proving that the assessment is excessive (s14ZZK Taxation Administration Act 1953).
5. At the hearing the applicant was represented by Mr Puryer and the respondent was represented by an officer of the Australian Taxation Office. The documents lodged in the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal as the T documents and further documents were tendered and marked as exhibits. Oral evidence was given by the applicant.
6. Subsequent to the hearing the parties made written submissions. No submission in reply was received by the Tribunal from the applicant.
7. A summary of the applicant’s claim is as follows:
1987
$1988
$1989
$1992
$1993
$Relevant Deductions Claimed
Work Related Expenses
Motor Vehicle
Other DeductionsNon primary production loss
21, 152
28,565
41,441
38,904
19,777
97678,445
21,152
28,565
41,441
59,657
78,445
8. For the year ended 30 June 1989 the respondent reduced the disallowed claim from $41,441 to $36,991 on a basis which is unexplained. The respondent allowed the claims to the extent of $4,303 for motor vehicle expenses, $62 for electricity and $85 for a real estate licence.
9. The parties identified the amounts said to be in dispute as follows:
Description 1987 1988 1989 1992 1993 Telephone 422
465
4425
4942
2980
2300Electricity 45 45 62 72 85 Rent 505 420 1120 1410 1560 Parking 828 985 1180 2040 2060 Newspapers 522 522 628 982 985 Courses/seminars 165 145 248 650 1000 Sustenance in relation to travel 1889 2450 2878 3265 2929 Accommodation 1892 1488 3455 3850 4120 Stationery 545 545 1075 1250 1450 Diary 60 45 58 120 132 Directory 18 62 82 48 50 Licence (Real Estate) 65 75 85 185 185 Motor Vehicle
- Fuel
- Insurance
- Tyres/maintenance
- Registration
- Lease – Ford
- - Holden
4244
225
3148
295
62846210
288
3630
325
108658215
292
1625
355
142188827
345
6465
395
9565
56067800
345
6420
3959636
Bullion prizes/sales incentives 985 6000 Hire Cars 455 2100 1860 Depreciation 564 452 Air Travel 981 Taxis 2520 Photo Development 216 Wages 13589 TID’s 2810 Workers Compensation 141 Loss of Income Insurance 7748 Tax Agents Fees 976 3696 Total
21,152
28,565
41,441
59,657
78,445
10. Although initially in contention the respondent’s representative conceded during the hearing that the claims for tax agent’s fees should be allowed. I agree with the concession.
11. The applicant has worked as a real estate salesman with the same organisation since 1982. The emphasis was on sale of rural residential land, the employer operating a business more in the nature of a development company than a real estate agent business per se. The employer apparently held or had access to a large stock of land suitable for rural/residential development and sale. It was part of the applicant’s case that he had developed a keen awareness of the stock of land. He was remunerated on a commission basis until 1992 when he became General Sales Manager and was remunerated by salary and commission.
12. The applicant said, and I accept, that he worked up to 6½ days per week but only attended the city office 10 days per month, when rostered to do so, while he was a salesman.
13. He took over control of a regional office in 1989 resulting in an increase in gross income. The applicant’s gross income amounts for the relevant years of income are as follows:
Y/E 30 June Gross Earnings
1987 $ 38,372
1988 $ 42,732
1989 $122,461
1992 $213,320
1993 $340,832
14. Details of sales from which the applicant derived commission are set out in Exhibit A. Based on the applicant’s oral evidence and Exhibit A in particular I am satisfied that the applicant travelled very extensively in the performance of his work. That travelling took him to locations in South East Queensland up to 200km away from Brisbane.
15. It was a common practice for the applicant, and other employees accompanying him, to leave early morning and have breakfast on the way to the particular site. Such trips also involved lunch and dinner away from base and could involve a distance of up to 1400km travelled in a day. There is no evidence, however, as to the frequency and extent of travel which goes beyond the narratival general evidence of the applicant.
16. Demands for travel changed as the applicant progressed in his employment from Salesman, to Regional Manager in 1989 to Area Manager in 1992 and General Sales Manager in 1993. While I can accept, on the basis of the applicant’s evidence that the requirements for travel changed I do not have any factual basis upon which to quantify the amount of travel undertaken in the course of the employment.
17. The applicant did however give the Tribunal estimates of the amount of travel undertaken as follows:
1987 75,000 to 120,000kms say 100,000kms
1988 100,000kms
1989 100,000kms because of land at Hervey Bay
1992 80,000kms
1993 80,000kms
18. The claim for telephone expenses is based on use of the applicant’s home telephone, costs of a mobile phone and public telephones in the course of his work. The claims for electricity relate to the use of lighting etc at home for employment purposes. Rent claimed is an apportionment of weekly rent of $110 for the applicant’s home but the basis for the apportionment has not been established before me.
19. Claims for the applicant’s motor vehicle included substantial amounts for fuel. The applicant said that for the earlier income years he leased a Ford LTD which used fuel at the rate of one litre per six kilometres. He said that he leased the motor vehicles on his own account but the lease was “guaranteed” by his employer. The LTD was replaced by a Fairlane and subsequently replaced by a Holden Berlina which was financed by the employer and then a Ford Fairmont which was financed by lease from CBFC. The lease payments were made by the employer but deducted from commissions due to the applicant by the employer.
20. It is accepted as a fact that the applicant leased motor vehicles and used those vehicles in the course of gaining his assessable income. It is also accepted as a fact that the vehicles travelled considerable distances. As to what proportion of the undetermined amount of travel was in the course of gaining assessable income is not established by the material before me. Although the applicant said all use was allowable there is no basis for such a finding.
21. The returns of income for the years ended 30 June 1987, 1988, 1989 and 1992 were lodged with the respondent in February 1993. Notice of assessment for the 1992 year notifying a refund of tax was issued to the applicant in March 1993, each notice indicating a refund of tax.
22. By letters dated 23 June 1993 the applicant, through his tax agent requested amendment of the assessments for the 1987, 1988 and 1989 years. Notices of amended assessment were issued to the applicant for those years of income in August 1993.
23. In June 1994 the applicant lodged an income tax return for the year ended 30 June 1993. Notice of assessment for this return was issued in July 1994 notifying a refund of tax instalments.
24. By letter dated 25 July 1994 the respondent made a requisition for information addressed to the applicant in relation to the applicant’s claim for work related deductions of $41,441 in the 1989 return. The essence of the information sought was substantiation of the claims made by forwarding:
“(a) Receipts and other documents to substantiate your expenses………
(b) Explanation as to how the expenses related to the earning of your income.”
25. In a letter dated 28 July 1994 the applicant’s tax agent responded to the requisition for information by making his own request which is not relevant for present purposes. Correspondence between the parties ensued and the respondent extended the time for compliance by two weeks. The applicant responded to this by seeking further time for compliance until 30 September 1994. Eventually the respondent extended the date for compliance to 14 October 1994.
26. By a letter dated 31 October 1994 the applicant’s tax agent admitted non-compliance with the request and said “urgent attention is being given to this matter and we should have a response to you in the very near future.”
27. In a letter dated 14 December 1994 the applicant’s tax agent told the respondent that the applicant had made unsuccessful attempts to locate his receipts and records for the 1989 financial year. A detailed submission was to be made in relation to the applicant’s “rights under the substantiation rules.”
28. By a letter dated 1 February 1995 the respondent recorded that the promised submission had not been received and made a further requisition for information being the receipts and other documents to substantiate deductions claimed in the 1987 and 1988 years with explanations as to how the expenses relate to the earning of income. By letter dated 9 February 1995 the applicant’s tax agent acknowledged the respondent’s request and said that a response to the “initial enquiry” would be made by the end of February.
29. On 9 May 1995 the respondent wrote to the applicant noting that the information requested in the letter of 1 February 1995 had not been received and repeated the request. The applicant’s tax agent responded by letter dated 25 May 1995 requesting an extension of time to comply to Friday 5 June 1995. That was granted by the respondent in that the respondent allowed further time to Friday 9 June 1995. By letter dated 8 June 1995 the applicant’s tax agent sought further time. By a further letter dated 13 June 1995 the tax agent sought further time due to circumstances in the tax agent’s office.
30. By letter dated 16 June 1995 the applicant’s agent advised that the applicant had moved house on or about 24 June 1993 and that he was unable to locate his financial records despite searches. The applicant submitted copies of certain records obtained from the applicant’s employer and a signed statement in the form of a statutory declaration.
31. That situation caused the respondent to decide to audit the 1988 to 1993 (inclusive) income tax returns.
32. After further correspondence and formal notices the applicant attended for interview with his tax agent at the respondent’s office on 1 November 1995. Document T58 is the respondent’s record of that interview. Following that interview the applicant supplied further material to the respondent under cover of a letter dated 1 December 1995.
33. In May 1996 the respondent notified amended assessments of income for the years ended 30 June 1987, 1988, 1992 and 1993. An amended assessment for the year ended 30 June 1989 was notified in March 1996. Relevantly the applicant’s claimed allowable deductions were disallowed in part and additional tax for incorrect returns was imposed.
34. By letters dated 27 May 1996 the applicant’s agent lodged objections against each notified assessment and submitted copies of income tax returns previously lodged with the respondent.
35. Document T59 is copies of documents submitted by the applicant to the respondent being copies obtained from third parties. Those documents are mainly relevant to the 1990 and 1991 income years. These are documents which are relevant in some aspect to the years before the Tribunal.
36. In particular the copies of bank statements relating to an account at Westpac Banking Corporation in the applicant’s name and covering the period 28 June 1988 to 30 July 1990 show that the bank account was operated as a cash account in that nearly all debit entries in the account are cash withdrawals.
37. I also note that the address on this account changed to the first Sunnybank Hills address on the March 1990 statement – a fact inconsistent with the applicant’s evidence as to when he moved to Sunnybank Hills. In that regard T59 also includes an extract of an electricity account supplied by SEQEB in relation to the first Sunnybank Hills residence for the period 19 January 1990 to 16 June 1990. The account is shown as being in the applicant’s name. At some subsequent but unexplained date the applicant moved to another house in the same street at Sunnybank Hills.
38. The documents in T59 relate to a period prior to the lodging of the relevant income tax returns in 1993 (I infer that the 1993 return was lodged in early 1994).
39. In particular the documents at folios 281-287 include copies of documents obtained by the applicant’s solicitor from Australian Guarantee Corporation Ltd (“AGC”). Included is a statement of account covering the period 15 January 1987 to 9 May 1990. There are small fluctuations in monthly payments due to late payment charges but the basic monthly charge is $519.94.
40. In his return for the 1987 year the applicant claimed a deduction of $6,284 for lease of a Ford Fairlane. The evidence is uncertain as to when this vehicle was first leased but assuming it was leased throughout the financial year and the monthly payment of $519.94 applied for the financial year the lease charge would be $6,240 plus late charges. That is a figure consistent with the claimed amount of $6,284.
41. For the 1988 year the applicant claimed a deduction of $10,865 for lease of a Ford Fairlane. In the light of the oral evidence this is the same motor vehicle as the one leased by the applicant in the 1987 year. The statement of account from AGC shows payments for lease charges and late charges totalling $6,709 for the 1988 financial year. There is no explanation as to why $10,865 was claimed.
42. In his return for the 1989 year the applicant claimed a deduction of $14,218 for “Lease on Ford Fairlane”. The statement of account from AGC shows payments totalling $6,240 during the 1989 financial year. There is no satisfactory explanation as to why the applicant claimed a deduction of $14,218.
43. The lease on the Ford Fairlane was paid out in May 1990 with the statement of account revealing a nil balance at 9 May 1990.
44. In his return for the year ended 30 June 1992 the applicant claimed $9,565 for “Lease on Ford” and $5,606 for lease on a Holden Berlina. The applicant entered into a lease agreement for a Holden Berlina to be delivered in April 1990. The lease agreement is dated 27 April 1990. The lease fee was set by the agreement at $989.03 per month. A payment of $4,595.15 is recorded by the finance company on 1 May 1990 and a further payment of $984.80 was made in June 1990 totalling $5,930. It is not apparent to me as to why the payment of $4,945.15 was made. The finance company records show that for the 1992 year 12 payments for lease of the Holden Berlina at $984.80 per month were made totalling $11,817.60. The interest component was $3,513.69. The lease on the Holden Berlina was paid out in October 1992.
45. In or about April 1992 the applicant leased a Ford Falcon car apparently on a contract requiring monthly payments of $791.45 approximately. In the return of income for the 1992 year the applicant claimed a deduction of $9,565 for “Lease on Ford”. There is no record of lease payments on the Ford before the Tribunal and no satisfactory explanation of the amount claimed.
46. For the year of income ended 30 June 1993 the applicant claimed a deduction for “Lease” of $9,636. Presumably that was made up of payments for the Holden Berlina and the Ford Falcon. Payments of $791.45 per month for twelve months is $9,498. One payment of $840.48 was made on the Holden. While the amounts claimed and assumed to have been paid are proximate I am unable to reconcile them.
47. The evidence indicates that at least until the 1990 year of income lease payments to AGC were paid by the applicant’s employer and the amounts deducted from the applicant’s commissions account. The same process appears to have been used for paying rent on the applicant’s domestic premises. I have not been able to find that the same method of payment existed for the 1992 and 1993 years.
48. Document T59 includes a copy of a motor vehicle log book covering the period 1 May 1990 to 5 November 1990. The 1990 and 1991 years are not before me. However I have carefully examined the log book for the period 1 May 1990 to 30 June 1990. Except for 3 June 1990 the log book records exclusive business use every day with no kilometres travelled for private purposes throughout the two months period. The recorded travel relates, I infer, to the Holden Berlina which was registered as a new vehicle on 1 May 1990. The recorded odometer reading at 30 June 1990 is 13,804km and at 31 October 1990 is 39,938km. That suggests an annual usage of 80,000kms approx. By 8 April 1991 the service repairer recorded the kilometres as 64,943km. A comparison of those figures reveals:
1 May 1990 to 30 June 1990 13,804 = 226 km per day
1 July 1990 to 31 October 1990 26,134 = 212 km per day
1 November 1990 to 8 April 1991 25,005 = 157 km per day
49. However, in an unsigned statement lodged with the Tribunal after the hearing the applicant disputes that the 64,654km recorded by the repairer at 8 April 1991 is inaccurate. He asserts that the mileage recorded by the repairer is the distance travelled since installation of a replacement engine in the car. He does not say when the engine was replaced. I have come to the view that the applicant’s statement about the engine being replaced prior to 8 April 1991 directly contradicts the log book which he submitted to the respondent to support his claims. The odometer recordings to November 1990 do not suggest that the odometer had been adjusted and the applicant’s evidence does not support a contention that usage for the period 5 November to 8 April would be 64,943km even if it is assumed that the claimed replacement of the engine took place in November 1990.
The Applicant’s Submissions
50. The applicant’s case depends upon my acceptance of his oral evidence. In particular it is said that he has sworn to incurring the amounts claimed as deductions and that evidence has not been seriously questioned.
51. The applicant does not dispute that he has failed to comply with the substantiation rules. He says his records were lost or destroyed. In this regard I note this excuse was first made over 4½ months after the respondent’s requisition for information dated 25 July 1994. In that regard the applicant said the records were lost or destroyed when he moved residence to Sunnybank Hills six years after moving to Browns Plains in 1987 – i.e. I infer before 1993. That is inconsistent with the documentary evidence.
52. The applicant submits that it is not seriously questioned by the respondent that the applicant incurred substantial expenses in his occupation as a land salesman. He says that the claims have been rejected only because he is unable to produce receipts and records to support the amounts of expenditure claimed.
53. The applicant asserts there are special circumstances which justify the exercise of the discretion under section 82KZAA of the Act but does not set out what those special circumstances are.
54. In relation to the 1993 year the applicant submits that his activities as General Sales Manager constituted carrying on a business. He acknowledged there were 130 to 140 sales staff reporting to him and 40 to 45 support staff. He does not assert that these people were employed by him but does assert that his wife was his employee. The applicant said he was remunerated on the basis of a $60,000 base retainer plus commissions and he asserts that because he was remunerated on a performance basis it was expeditious to employ his wife to assist him to derive more income. It was not explained however, as to the link between the wife’s administrative functions and the commissions derived by the applicant. Presumably most of the commissions received were overriding commissions resulting from selling by sales persons. Nor did the wife give evidence.
55. The applicant sought leave to rely on an unsigned statutory declaration in his name relating to inconsistencies in mileage figures and replacement engine for a motor vehicle. As the applicant points out in his submissions the details in the unsigned statement relate to a year of income not before the Tribunal.
56. The applicant did not make any submissions about additional tax assessed by the respondent.
The Respondent’s Submissions
57. Section 82KTG of the Act has the effect of requiring the keeping of a log book to substantiate motor vehicle expenses. Here the only log book kept and which is in evidence, relates to the 1990 year of income so that there is no relevant log book for the 1987, 1988 and 1989 years of income.
58. The respondent points to inconsistencies in the evidence about leases of motor vehicles but does not submit that the applicant did not lease the motor vehicles. The details of the leases are however, put in issue except that the respondent acknowledges the following lease payments to AGC in respect to a Ford Fairlane:
Year of Income Amount
1987 $2,650
1988 $6,709
1989 $6,239
59. The respondent acknowledges that the following expenses were incurred in the 1989 year:
Lease of vehicle $ 6,239
Fuel $ 4,584
Repairs $ 1,440
Insurance 292
Registration 355
$12,910
The respondent allowed 1/3 being $4,303. The fuel figure is unsupported by documentary evidence and is an arbitrary allowance of part of the total claim of $8,215 for fuel.
60. In essence the respondent says that the applicant has not established that the claimed expenses have been incurred as to the quantum claimed and therefore are not allowable deductions. Secondly much of the expenditure has not been substantiated so as to meet the requirements of the legislation so that expenses, even if incurred, should be disallowed because the substantiation requirements have not been met.
Consideration
61. Section 48 of the Act provides that in calculating the taxable income of a taxpayer, the total assessable income derived by the taxpayer during the year of income shall be taken as a basis, and all allowable deductions shall be deducted.
62. Section 51 of the Act provides for allowable deductions which are losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income. Excluded from deduction are losses and outgoings to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.
63. To satisfy the requirements of section 51 I must be satisfied on the balance of probabilities that the applicant has:
(a)incurred losses and outgoings;
(b)the extent to which those losses and outgoings are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income; and
(c)the extent to which such losses and outgoings are of capital, or of a capital, private or domestic nature or are incurred in relation to the gaining of assessable income.
64. To come within section 51(1) there must be a loss or outgoing actually incurred. In this sense “incurred” does not mean only defrayed, discharged or borne, but includes “encountered, run into, or fallen upon” (New Zealand Flax Investments Ltd v F.C.T. (1938) 61 CLR 179 at 207 (Dixon J)).
65. It is at this very fundamental point that much of the applicant’s case fails. His evidence did not satisfy me that the amount’s claimed as allowable deductions had been incurred by him. It would be reasonable to assume that the applicant did incur some losses and outgoings in the course of gaining or producing his assessable income. But I am not satisfied, subject to what follows, that the claimed amounts are correctly quantified.
66. My reason for coming to this conclusion is that I am not satisfied that:
(a)the applicant was a frank witness before the Tribunal;
(b)either the explanation about the Holden Berlina car having a replacement engine or the log book was a deliberate attempt to mislead the Tribunal;
(c)the explanation about the loss of documentation lacked credit; and
(d)the claimed amounts were an extraordinarily high proportion of assessable income derived given that a significant amount of income derived seems to have been overriding commission derived from sales effected by other employees.
67. In relation to the year ended 30 June 1993 I am not satisfied that the applicant was carrying on a business. On the applicant’s own evidence he was a senior executive of an organisation. The claim that he employed his wife to do work for him does not satisfy me that he was carrying on a business. In am satisfied, on the applicant’s evidence, that he derived his income from employment. Whether he paid his wife for work which resulted in him deriving assessable income is dubious on the evidence.
68. While I can accept, on the material, that the applicant leased motor vehicles and paid the running and other costs of the leased vehicles I am not satisfied, on the material, as to the quantum of these expenses actually incurred in gaining or producing the assessable income. No allowance has been made in the claims for private losses and outgoings in connection with the motor vehicle.
69. In the result I am left to speculate as to the quantum of losses and outgoings incurred, what proportion of those losses and outgoings were incurred in gaining or producing the assessable income and the proportion that was not allowable because it was of a capital, private or domestic nature.
70. It is a consequence of being left to speculate about the amounts allowable that I cannot be satisfied on the balance of probabilities, that the assessments are excessive.
71. I am not satisfied that a favourable exercise of discretion under section 82KZAA is available in this case because I am not satisfied that the claimed deductions were for expenses actually incurred by the applicant during the year of income. Even if I was so satisfied I am not satisfied that there are any circumstances justifying a finding of special circumstances which establish that the legislation has resulted in an unfair or inappropriate result. This is not a case justifying the exercise of the discretion in section 82KZAA.
72. There is nothing before me to suggest that the amended assessments were not authorised by section 170 of the Act.
73. Section 223 of the Act imposes additional tax where a taxpayer makes a statement to a taxation officer for a purpose in connection with the operation of the Act, (I understand this to include lodging an income tax return) that is false or misleading in a material particular, so that there is a possible or resulting underpayment of tax.
74. Section 227(1) requires the respondent to make an assessment of additional tax so payable but has a discretion to remit the additional tax in whole or in part (s227(3)).
75. The difficulty with this case is that while I am unable to be satisfied as to the extent that the applicant has incurred losses and outgoings that are allowable deductions I am also unable to be satisfied that the applicant made false or misleading statements when lodging his taxation returns. If, as he says, he was able to substantiate the claims made when the returns were lodged then the claims made were not false or misleading.
76. However I have come to the view that it was for the applicant to satisfy me on the balance of probabilities that his claims were not false or misleading. He did not do so. He did however seek to mislead the Tribunal over the recorded travel of the Holden Berlina. I am uncertain as to whether that somehow reflects on all the claims made to the respondent. I am satisfied, however, that the applicant failed to establish, on the balance of probabilities that the statements made were outside the operation of section 223.
77. The respondent has remitted either 85% or 87.5% of the additional tax imposed by section 223. That seems to me to be appropriate in the circumstances of this case and I will affirm the exercise of discretion by the respondent.
78. For the year ended 30 June 1993 the respondent decided that section 226H of the Act was the appropriate provision. That section imposes additional tax equal to 50% of the amount of a tax shortfall caused by the recklessness of the taxpayer or a tax agent.
79. In Case 74/96 96 ATC 662 I considered the additional tax provisions in some detail and need not repeat what I said there. I there referred to the respondent’s concept of the meaning of reckless as “gross carelessness” but expressed the opinion that recklessness meant something beyond carelessness. At page 676 I said:
“I think the meaning (of recklessness) goes beyond gross carelessness…there must be some disregard for the consequences before it can be said that an action is, in fact reckless”.
I adopt my reasons in Case 74/96 for the purposes of this case. That leads me to the conclusion that section 226H does not apply here, the appropriate provision being section 226G which imposes additional tax where there is a tax shortfall caused by a lack of reasonable care.
80. Although the respondent relies on section 226H half of the additional tax imposed by the section was remitted pursuant to section 227 of the Act. The effect then was to assess 25% additional tax on the tax shortfall as would be imposed by section 226G. In the circumstances I am satisfied that the respondent got the right result for the wrong reasons. I would assess the additional tax on the tax shortfall for the year ended 30 June 1993 on the basis that section 226G imposed additional tax at 25%. There is nothing in the material before me that encourages me to exercise the discretion under section 227 of the Act. The decision to assess additional tax at 25% of the tax shortfall will therefore be affirmed.
81. During the hearing the respondent conceded that the claim for tax agent fees for the years ended 30 June 1992 ($976) and 30 June 1993 ($3,696) should be allowed.
82. The decisions under review for the years of income ended 30 June 1987, 30 June 1988 and 30 June 1989 will be affirmed. The decisions under review for the years of income ended 30 June 1992 and 30 June 1993 will be set aside and the objections remitted to the respondent to redetermine in accordance with the concessions noted at paragraph 10 of these reasons.
83. I will certify that these joined proceedings have terminated in a manner favourable to the applicant.
I certify that the 83 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)
Signed:
T G Lowther
AssociateDates of Hearing 10 March 1999 & 23 November 1999
Date of Decision 22 September 2000
Representative for the Applicant Mr Puryer
Representative for the Respondent An officer of the Australian Tax Office
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