Reid and Commissioner of Taxation (Taxation)
[2019] AATA 4624
•12 November 2019
Reid and Commissioner of Taxation (Taxation) [2019] AATA 4624 (12 November 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2018/1756, 2018/3352, 2018/3353, 2018/3354
Re:Christopher Reid
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Mrs J C Kelly, Senior Member
Date:12 November 2019
Place:Sydney
The reviewable decision, being the objection decision dated 8 February 2018, is affirmed.
................................[SGD]........................................
Mrs J C Kelly, Senior Member
CATCHWORDS
TAXATION AND REVENUE – income tax – deductions – whether Applicant is entitled to claim deductions for work-related car expenses for the income years 30 June 2012, 30 June 2014, 30 June 2015 - whether Applicant is entitled to deductions for other work-related expenses for the income years ended 30 June 2012, 30 June 2014, 30 June 2015 and 30 June 2016 – log book not kept in accordance with s 28-125(2) of the ITAA 1997 - work-related car expenses allowed at audit is the appropriate deduction - other work-related expenses related to home office running costs, telephone and internet costs - stationery/printer cartridges/consumables - purchase of newspapers/journals - Applicant not required to work in home office – home office claim not sufficiently substantiated - telephone costs not incurred in the course of employment - claim for internet costs not sufficiently substantiated - stationery cost not incurred in the course of employment in income years 30 June 2012, 30 June 2014, 30 June 2015 – partly allowed stationery expenses in income year ended 30 June 2016 is appropriate - claim for newspaper, journals and magazine expenses not sufficiently substantiated – whether the Applicant is liable to administrative penalties – whether there are any proper grounds for remission of administrative penalties – Applicant or agent made a false or misleading statement – Applicant liable for administrative penalties – no grounds for remission – reviewable decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth) ss 8-1, 28-70, 28-75, 28-125(2), 900-B
Taxation Administration Act 1953 (Cth) ss 14ZZK(b)(i), sch 1 ss 284-75(1), 284-80, 284-90, 298-20(1)
SECONDARY MATERIALS
Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
Practice Statement Law Administration 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount
Taxation Ruling 93/30 Income tax: deductions for home office expenses
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
12 November 2019
The reviewable decision
This is a review of the decision made by the Commissioner of Taxation (the Commissioner) on 8 February 2018 to disallow Mr Reid’s (the Applicant) objections to assessments concerning work-related deductions for the income years ended 30 June 2012, 30 June 2014, 30 June 2015, to allow in part the objection in respect of the income year ended 30 June 2016, and to not allow any reduction in administrative penalties imposed for those income years, except adjustments made in relation to administrative penalty imposed for income year ended 30 June 2016 as a result of the partly allowed objection (the reviewable decision).
Background to the review
Mr Reid was employed as a channel manager by Amcom Pty Ltd (now Vocus Group) (Amcom), from 17 October 2011 to July 2015, and by Metronode/Nextgen Group Holdings Pty Ltd (Nextgen) from 7 December 2015 to 30 June 2016.
Mr Reid’s tax agent/accountant lodged the income tax returns for the income year ending 30 June 2016 on 8 February 2017 and the income tax returns for income years ending 30 June 2012, 30 June 2014 and 30 June 2015 on 26 April 2017. Thereafter an audit commenced in May 2017.
At audit, Mr Reid’s tax agent provided information to the Commissioner in June 2017, including detailed claims for work-related car expenses and other work-related expenses in respect of each income year in dispute. He provided copies of various documents, including leases and some receipts in support of the claims.
On 1 August 2017, the Commissioner completed its review and made the consequential adjustments to the claimed deductions.
On 10 August 2017, the Commissioner issued notices of assessment and notices of assessment of shortfall penalty for the income years ended 30 June 2012 and 30 June 2014.
On 11 August 2017, the Commissioner issued a notice of assessment and notice of assessment of shortfall penalty for the income year ended 30 June 2016.
On 14 August 2017, the Commissioner issued notice of assessment and a notice of assessment of shortfall penalty for the income year ended 30 June 2015.
The objection application was dated 27 September 2017.
On 29 November 2017, Mr Reid was requested to provide materials and documents to substantiate his claim for deductions. He swore a statutory declaration dated 6 December 2017 to explain why he had not been able to provide some documentation that had been requested.
On 7 December 2017, Amcom responded to the Commissioner’s request for information about Mr Reid’s employment.
On 8 February 2018, the Commissioner issued the reviewable decision. The application for review filed in this tribunal was dated 5 April 2018.
At the hearing, Mr Reid provided a further statutory declaration dated 12 August 2018, two emails from former work colleagues at Amcom, and one from a client. He was also cross-examined.
The issues
The issues are:
(a)Is the Applicant entitled to deductions for work-related car expenses pursuant to s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) in the amounts of:
(i)$22,165 for the income year ended 30 June 2012;
(ii)$25,568 for the income year ended 30 June 2014; and
(iii)$24,158 for the income year ended 30 June 2015?
(b)Is the Applicant entitled to deductions for other work-related expenses pursuant to s 8-1 of the ITAA 1997 in the mounts of:
(i)$16,997 for the income year ended 30 June 2012;
(ii)$7,780 for the income year ended 30 June 2014;
(iii)$7,670 for the income year ended 30 June 2015; and
(iv)$1,815 (taking into account the amount allowed on objection) for the income year ended 30 June 2016?
(c)Is the Applicant liable to administrative penalties under s 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA 1953) for the relevant periods at 25% of the shortfall amount for failure to take reasonable care?
(d)Are there any proper grounds for remission of administrative penalties under s 298-20 of Schedule 1 to the TAA 1953?
Mr Reid has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been, pursuant to s 14ZZK(b)(i) of the TAA 1953.
Relevantly, s 8-1 of the ITAA 1997 provides:
(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a)it is incurred in gaining or producing your assessable income; or
…
(2) However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) It is a loss or outgoing of capital, or of a capital nature; or
(b)It is a loss or outgoing of a private or domestic nature …
Work-related car expenses
During the relevant periods, Mr Reid owned a Mercedes Benz motor vehicle which he claimed he used predominantly as a work vehicle. He claimed that he always had two motor vehicles, the other being used for personal travel.
Amcom advised that Mr Reid was required to use his private motor vehicle for work purposes. He received a car allowance of $15,000 per annum and no other payment in respect of that use.
Mr Reid elected to use the log book method and claimed 91.21% of business usage for car expenses.[1] He claimed the following deductions:
[1] Subdivision 28-F of the ITAA 1997.
Item 2011-12
Total Claimed
2013-2014
Total Claimed
2014-15
Total Claimed
2015-16
Total Claimed
D1 Work-related car expenses $22,165 $25,568 $24,158 $14,902
On 1 August 2017, the Commissioner reduced the deductions for work-related car expenses claimed by Mr Reid:
(i)To allow a maximum of 5,000 kilometres using the cents per kilometre method for the income years ended 30 June 2012, 30 June 2014 and 30 June 2015[2]; and
(ii)To nil, for the income year ended 30 June 2016, at the request of Mr Reid.
[2] Subdivision 28-C of the ITAA 1997.
Mr Reid was cross-examined about various entries in the log book he had kept. He accepted that there are mistakes in it. He said that it was constructed from multiple Excel spreadsheets which he cut and pasted and he is not a master of Excel spread sheets. He said that the kilometres are fairly accurate. His admission that there were mistakes in the log book confirms that his statement in his statutory declaration dated 12 August 2018 that the log book was “true and correct” was not correct.
The Commissioner contended that the purported log book does not comply with subsection 28-125(2) of the ITAA 1997 because it contains:
(a)Multiple inconsistencies which indicates the entries were not made contemporaneously;
(b)Entries that are not contemporaneous as they were not made at or as soon as possible after the end of the journey;
(c)Entries that are inconsistent with other documents and information provided to the Commissioner; and
(d)Contains journeys that are not sufficiently descriptive to enable the entries to be classified as a business journey.
The first three criticisms are well-founded. Mr Reid’s evidence that he filled out the log book every week is not accepted. The last criticism was not pressed but for certainty, it is not accepted. Given Mr Reid’s role, “customer visit” is sufficient to identify the journey as a business journey. Examples of the mistakes in the log are:
·Inconsistencies between the day of the week and the date;
·The same odometer readings on different dates.
·Dates stating “customer visit” when the employer’s records show that he was sick and on personal leave.
·Dates repeated.
Mr Reid is not entitled to use the log book method to calculate work-related car expenses because the purported log book was not kept in accordance with s 28-125(2) of the ITAA 1997.
The amount of work-related car expenses allowed at audit and affirmed on objection is the appropriate deduction.
Other work-related expenses
Mr Reid claimed the following D5 other work-related expenses incurred in the relevant periods:
i.For the income year ended 30 June 2012
Home office running costs - being 30% of rent of $22,018 for 37 weeks from 17/10/11 to 30/06/2012 $6,605 Telephone and internet costs being 80% applicable to work $1,882 Stationery/printer cartridges/consumables –Paper for printing cost $30 Per year.
Printer Cartridges cost $22.95 per cartridge – the printer takes 5 cartridges so a set of 5 cartridges for my Canon BJ Printer would cost
$114.75 which I would purchase 2 sets a year = $229.50
$260 Purchase of newspapers/ journals & magazines Paper Cost Per Day -
$3.00 x 5 Days a Week = $15.00 Per Week x 52 Weeks = $780.00 plus estimated BRW and IT News Per Month = $15.00 x 12 Weeks =
$180.00 Per Year
$960 Total claim (excluding depreciation) $9,707 Amount claimed in return is $5,200 plus depreciation in the amount of
$11,797 (i.e. $19,732 claimed at 20% prime cost of total cost $58,983).
$5,200
+
$11,797
Total $16,997
ii.For the income year ended 30 June 2014
Home office running costs- being 25% of annual rent of $32,760 and electricity & gas $4,035 $9,198 Telephone and internet costs being 80% applicable to work $960 Stationery/printer cartridges/consumables Paper for printing cost $30 Per year.
Printer Cartridges cost $22.95 per cartridge – the printer takes 5 cartridges so a Set of 5 cartridges for my Canon BJ Printer would cost
$114.75 which I would purchase 2 sets a year = $ 229.50
$260 Purchase of newspapers/ journals & magazines Paper Cost Per Day -
$3.50 x 5 Days a Week = $17.50 Per Week x 52 Weeks = $875.00 plus Estimated BRW and IT News Per Month = $15.00 x 12 Weeks =
$180.00 Per Year
$1,055 Total claim $11,473 Amount claimed in return $7,780 iii.For the income year ended 30 June 2015
Home office running costs- being 25% of annual rent of $37,836 and electricity & gas $456 $9,573 Telephone and internet costs being 80% applicable to work $960 Stationery/printer cartridges/consumables Paper for printing cost $30 Per year.
Printer Cartridges cost $22.95 per cartridge – the printer takes 5 cartridges so a set of 5 cartridges for my Canon BJ Printer would cost
$114.75 which I would purchase 2 sets a year = $ 229.50
$260 Purchase of newspapers/ journals & magazines Paper Cost Per Day -
$3.80 x 5 Days a Week = $19.00 Per Week x 52 Weeks = $988.00 plus Estimated BRW and IT News Per Month = $15 .00 x 12 Weeks =
$180.00 Per Year
$1,168 Total claim $11,961 Amount claimed in return $7,670 iv.For the income year ended 30 June 2016
Home office running costs- being 25% of rent for 29 weeks of $17,400 and electricity & gas $462 $4,466 Telephone and internet costs being 80% applicable to work for 29 weeks $1,050 Stationery/printer cartridges/consumables Paper for printing cost approx. $30 Per year. Printer Cartridges cost $22.95 per cartridge – the printer takes 5 cartridges so a set of 5 cartridges for my Canon BJ Printer would cost
$114.75 which I would purchase 2 sets a year = $229.50
$260 Purchase of newspapers/ journals & magazines Paper Cost Per Day -
$4.00 x 5 Days a Week = $20.00 Per Week x 52 Weeks = $1,040.00 plus Estimated BRW and IT News Per Month = $15 .00 x 12 Weeks = $180.00 Per Year
$1,220 Total claim $6,996 Amount claimed in return $4,120
The objection in respect to other work-related expenses was disallowed in full for the income years ended 30 June 2012, 30 June 2014 and 30 June 2015.
The objection in respect to other work-related expenses was allowed in part for the income year ended 30 June 2016 as follows:
Item Originally claimed Allowed at audit Allowed at objection D5 Other work- related expenses $4,120 $0 $2,305
In a document provided on 7 December 2017 to the Commissioner in response to a request for information, Amcom provided the following information about other work deductions (the Amcom letter). Mr Reid was provided with a mobile phone. He was also required to use his own mobile phone to carry out his duties. Amcom paid the full cost of mobile phone expenses. Amcom provided Mr Reid with a computer/laptop. He could work from home but was expected to spend the majority of his time in the office in North Sydney. On occasions employees worked from home, they would use their own internet. Employees were expected to work a reasonable amount of additional hours but were not paid overtime. Employees would have incurred general expenses, such as client entertainment and travel expenses, which were reimbursed on a monthly basis.
The Managing Director of Metronode/Nextgen Group Holdings Pty Ltd wrote to Mr Reid on 5 December 2017 to confirm that Mr Reid’s primary office was at his place of residence as his employer was unable to provide a desk in Sydney and he was not reimbursed for any costs incurred while working at home.
Mr Reid provided diagrams of each of the premises where he resided during the income years in dispute.
Income years ended 30 June 2012, 2014 and 2015
Mr Reid contends that he is entitled to claim deductions for home office expenses for the income years ended 30 June 2012, 2014 and 2015 as set out in the tables above.
Mr Reid’s statutory declaration dated 6 December 2017 explained the following:
·why he was unable to obtain a letter from Amcom stating that he worked from a home office;
·why he was unable to provide diaries which were kept in MS office that was provided by his employers;
·that he was not reimbursed for expenses at his residence;
·Amcom’s head office was in Perth and Nextgen’s was in Melbourne;
·Expenses such as stationery, printer, cartridges/consumables, newspapers/journals and magazines were paid for in cash and he has lost most of the receipts because he has moved a number of times and has provided all he could find.
One of Mr Reid’s clients confirmed that he had a number of business meetings at Mr Reid’s residence between 2012 and 2016 because it was convenient to do so. A former colleague who worked for Amcom from March 2013 to September 2015 wrote that that staff had remote access to be able to work from home when required; she worked from home one day a week, and Mr Reid “worked from home on various other days, or partial days, whenever it fitted around his meeting schedule”. A former colleague at Amcom, to whom Mr Reid had reported, wrote that as part of his job at Amcom Mr Reid was allowed “from time to time” to work from home.
The evidence of Mr Reid’s former colleagues and from Amcom does not support his claim in his 6 December 2017 statutory declaration that his work for Amcom was “done from a satellite office which was my place of residency”. It does not support his claim for home office running costs of 30% of rent in the income year ending 30 June 2012, and 25% of rent, electricity and gas for the income years ended 30 June 2014 and 30 June 2015.
Amcom provided Mr Reid with an office in which to work. He has not substantiated his claims for home office expenses pursuant to subdivision 900-B of the ITAA 1997.
He is not entitled to claim the purported deductions pursuant to s 8-1 of the ITAA 1997 in relation to home office expenses during the income years ended 30 June 2012, 30 June 2014 and 30 June 2015.
In relation to the income years ended 30 June 2012, 2014 and 2015, it is convenient to consider the claimed deductions together for mobile and internet expenses and stationery/printer cartridges/consumables (stationery expenses).
The evidence from Amcom is that Mr Reid was provided with a mobile telephone, and reimbursed for mobile phone expenses and general expenses, as set out above. The Amcom letter does not say that he was reimbursed for internet expenses when working from home.
The mobile telephone and stationery expenses Mr Reid claimed as other work-related expenses were not incurred in the course of his employment at Amcom and were not incurred in the course of gaining or producing his assessable income but were of a private or domestic nature.
Mr Reid incurred some expense for use of the internet when he was employed by Amcom during the relevant income years. However, he has not provided sufficient substantiation to claim the purported expense.
Newspaper, journals and magazine expenses may have been useful to Mr Reid for the purpose of his employment. The evidence does not address the extent to which they were useful. There are no receipts. Mr Reid has not provided sufficient substantiation to claim the purported expense.
Income year ended 30 June 2016
Mr Reid worked for Amcom for approximately one month in the income year ended 30 June 2016. To the extent he was employed by Amcom during this period, the findings set out above at paragraphs [32] to [42] apply and the purported other work-related expenses claimed are not allowable.
Mr Reid was required to work from home when he was employed by Nextgen and was not reimbursed for his work-related expenses.
Taxation Ruling 93/30 sets out the Commissioner’s view of what expenses may be claimed as income tax deductions for home-office expenses, occupancy expenses and heating/cooling and lighting expenses. Mr Reid has provided a floor plan of his residence at that time without dimensions. It shows that he used a room for an office and another room for office storage. Those rooms occupy roughly one-third of the residence. He has not provided a diary for four weeks showing his pattern of usage. He has not provided evidence corroborating the rent he paid or the payment of heating/cooling and lighting expenses.
Mr Reid has not sufficiently substantiated his claims for those expenses. He is not entitled to any deductions for occupancy expenses in addition to the deduction of $2,175 allowed at objection.
His evidence about being unable to access diary entries for the relevant period is taken into account but does not resolve the problem.
It is convenient to consider together the expenses claimed for mobile, internet and stationery, accepting the $130 allowed for stationery expenses on objection. It is accepted that Mr Reid incurred those expenses in the course of gaining or producing his assessable income from Nextgen. He has not provided sufficient substantiation relating the expenditure to his employment. He is not entitled to any deductions for stationery expenses in addition to the deduction of $130 allowed at objection. That conclusion is reinforced by his similar claims for the income years ended 30 June 2012, 2014 and 2015 which have been found not to be allowable deductions.
Newspapers, journals and magazines may have been useful to Mr Reid for the purpose of his employment. The evidence does not address the extent to which they were useful. There are no receipts. Mr Reid has not provided sufficient substantiation for the claimed expenses for newspaper, journal and magazines for the income year ended 30 June 2016. The claimed deduction is not allowable.
Administrative Penalties
The only conclusion open on the findings set out above is that Mr Reid or his agent has made a false or misleading statement to the Commissioner in a material particular contrary to s 284-75(1) to Schedule 1 of the TAA 1953. He is therefore liable to an administrative penalty.
Base penalty rates are calculated as a percentage of the shortfall amount, depending on the behaviour of the taxpayer at the time the shortfall occurred.[3] In this case, the shortfall amount is a result of a failure by the taxpayer or their agent to take reasonable care to comply with the tax law.[4] In that case, the base penalty amount is 25% of the shortfall amount. The reasonable care standard requires a person to exercise the care that a reasonable person would exercise in the circumstances, to fulfil their tax obligations, which depends on the person’s level of knowledge, experience, education and skill.[5]
[3] Section 284-90 of the TAA 1953; “shortfall amounts” are defined in s 284-80 of Schedule 1 of the TAA 1953.
[4] Item 3 in the Table in s 284-90 of Schedule 1 of the TAA 1953.
[5] Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.
Remission of Tax Shortfall Penalty
The Commissioner may remit all or a part of the penalty.[6]
[6] Section 298-20(1) of Schedule 1 to the TAA 1953.
Guidelines for the exercise of the Commissioner’s discretion to remit a tax shortfall penalty for making a false or misleading statement that results in a shortfall amount are considered in Practice Statement Law Administration 2012/5. They are stringent.
The fundamental guideline is that if imposition of the penalty provides an unintended or unjust result, the penalty may be remitted in whole or in part.
Mr Reid has had health, personal and business challenges from about 2009. He moved several times. His tax agent/accounts wrote that Mr Reid was only in a position to address his outstanding tax obligations in 2017. He became aware of a default assessment that had been raised in respect of the 2013 income year after approaching his tax agent/ accountant in March 2017.
Mr Reid and his tax agent/accountant are aggrieved because all the expenses claimed in that objection were allowed, which have not been allowed in the income years the subject of this decision. As the representative of the Commissioner made clear, that decision may be reviewed.
While acknowledging the challenges Mr Reid has faced, he had an obligation not to provide false or misleading statements to the Commissioner. Uncertainty requires caution. There are no grounds for remission.
Decision
The reviewable decision, being the objection decision dated 8 February 2018, is affirmed.
I certify that the preceding 58 (fifty-eight) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member.
..................................[SGD]......................................
Associate
Dated: 12 November 2019
Date(s) of hearing: 5 April 2019 Applicant: In person Advocate for the Applicant: Mr CR Merlino Solicitors for the Respondent: Mr N Bitar, Australian Taxation Office
Key Legal Topics
Areas of Law
-
Tax Law
-
Administrative Law
Legal Concepts
-
Statutory Construction
-
Remedies
-
Procedural Fairness
-
Appeal
0
0
0