Steele and Commissioner of Taxation

[2008] AATA 1143

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 1143

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/3186-3188

TAXATION APPEALS DIVISION		)
Re		NARRELLE STEELE

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Ms Robin Hunt, Senior Member

Date19 December 2008

PlaceSydney

Decision The reviewable decision is affirmed.

....................[Sgd]...................

Ms Robin Hunt
  Senior Member

CATCHWORDS

TAXATION – review of objection decision – objection to assessments of income tax – Commissioner’s assessments based on information in returns – self-assessment system – partnership income declared in returns for 1997/1998/1999 – objection to assessments including partnership income – taxpayer denies partnership – decision under review affirmed.

Income Tax Assessment Act 1936 s 169A(1)

Taxation Administration Act 1953 s 14ZZK

Taxation Laws Amendment Act 1986

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614

Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81

REASONS FOR DECISION

19 December 2008 Ms Robin Hunt, Senior Member   

introduction

1.      When Narrelle Steele received income tax assessments for the financial years ending 30 June 1997, 1998 and 1999, they showed she owed income tax for those years.  Mrs Steele, however, disputes that she had any income tax outstanding. The Commissioner assessed tax for those years according to information in Mrs Steele’s annual returns lodged in 2001. Mrs Steele lodged these late returns through a tax agent. Upon making enquiries, Mrs Steele learned that partnership income had been included in her returns for those years. She denied having received income from any partnership or knowledge of the inclusion of any partnership income in her returns. Mrs Steele lodged a formal objection to the assessments but the Commissioner disallowed her objections.

issue

2.      I must decide if the decision, which rejected Mrs Steele’s objection to assessments of income tax for the financial years ending 30 June 1997, 1998 and 1999, is wrong. This involves consideration of whether the assessments are excessive or should have been made differently.

the reviewable decision

3.      The decision under review is that of the Commissioner made in respect to Mrs Steele’s objection to the three disputed assessments of income tax. The Commissioner’s delegate, on 20 May 2008, decided that Mrs Steele should be permitted to lodge her objection out of time but disallowed her objections to the assessments for the three years in question.  Reasons for decision before me bear the same date as the notice of decision on objection, 20 May 2008.  These written reasons point out that the assessments were issued in reliance on Mrs Steele’s returns and were taken as true and correct. In addition, the delegate states that Mrs Steele signed the taxpayer declaration that all details provided were true and correct.

consideration and findings

4.      According to the Commissioner’s records, the income tax assessments were issued on 27 September 2001, after receipt of returns from Mrs Steele’s tax agent dated 21 September 2001. Mrs Steele did not object to the assessments until around 29 April 2008. According to the delegate’s reasons for decision, an Australian Taxation Office (‘ATO’) officer contacted Mrs Steele when the ATO received her objection and asked her for documentation to assist determination of her claims. Mrs Steele, however, advised she had no documents and that the tax agent also had no documents. The delegate’s reasons on the objection also set out that the ATO informed Mrs Steele it held no partnership records or returns related to her affairs.

5.      Mrs Steele gave oral evidence at the tribunal hearing that she was married during the years covered by the disputed assessments but had since divorced. Mrs Steele was unable to explain why she lodged an income tax return for the financial year 1996/1997 during which she claimed she was unemployed and was supported by her former husband.

6.      During the following two tax years, Mrs Steele said she had been employed part-time and had received group certificates from her employers. Nevertheless, she lodged late returns for these years. She gave oral evidence that she did not lodge income tax returns for the years ending 30 June 1998 and 1999, until 2001, because her ex-husband prevented her. Mrs Steele gave evidence that her ex-husband owed tax and postponed preparing his tax returns so as to postpone payment of tax. He required her to wait to lodge her returns until he lodged his.

7.      In further evidence, Mrs Steele said her ex-husband had told her they were partners in a business sense but she had always replied that they were not. She did not ever consider herself in partnership with her ex-husband. She explained that he was a roofing contractor who was employed by a company and that she had nothing to do with this arrangement or with his work. The company which employed her ex-husband had since gone out of business. Her ex-husband had then formed a partnership with another roofing contractor. The other roofing contractor was available to give evidence by telephone but was not called, as Mrs Steele acknowledged at the hearing that his partnership with her ex-husband occurred after the years of income in dispute.

8.      According to Mrs Steele, in 2001, she and her ex-husband attended the office of a tax agent together. In order for the agent to prepare and lodge her tax returns, she had handed over her group certificates. She had not realised that the returns the agent prepared for her declared partnership income. She did not recall any discussion about partnership at the tax agent’s office. Until she received the assessment notices, Mrs Steele said she had assumed that she owed no tax as her employers had deducted tax from her earnings as per her group certificates. When she received the assessment notices, however, she did not argue with the ATO and accepted that she must have owed tax. She told the tribunal it was only after the ATO rejected her offer to pay the tax owing by instalments that she decided to look into the matter further.

9.      Among the Commissioner’s records are copies of Mrs Steele’s income tax returns for the disputed years. These copies do not appear to be complete copies and are not signed. They bear a running head that says “STAC CAPTURE”. Mrs Steele gave evidence that she could not recall signing her returns, but conceded she may have signed incomplete return forms or signed completed returns without reading the contents. She gave evidence to the effect that she tended not to read documents prepared by professionals on whose advice she was relying. Mrs Steele did not suggest that the Commissioner’s copies of the returns were not genuine records apart from querying inclusion of partnership income.

10.     While Mrs Steele denied knowing of any partnership or of any partnership income which should have been declared in her returns, she suspected some of her husband’s earnings had been attributed to her as partnership earnings.

11.     Mrs Steele’s efforts to obtain information about the supposed partnership have been unsuccessful. She said she contacted the tax agent’s office but they had no copy of her income tax returns and could not recall details that might assist her. She applied to the Commissioner for disclosure under the Freedom of Information Act 1982. The Commissioner, however, did not furnish copies of her ex-husband’s returns under freedom of information laws, as her ex-husband’s returns were private to him and the Commissioner’s delegate took the view that they could not be released to her.

12.     There are no copies before the tribunal of any partnership returns in which Mrs Steele is named as a partner. The Commissioner’s advocate advised the tribunal his instructions were that no tax returns were lodged for any partnership between Mrs Steele and her ex-husband and none were lodged in connection with the partnership income disclosed in Mrs Steele’s returns. The Commissioner is unaware of the source of the partnership income declared in Mrs Steele’s returns. 

13.     Mrs Steele said she has no idea whether the amounts declared in her returns are appropriate even if she were her ex-husband’s partner. She saw no correlation between her ex-husband’s earnings and the amounts of partnership income in her returns. She gave evidence to the effect that her ex-husband would have earned more than twice the amount disclosed in her returns. Even if he attributed half his earnings to her, she said he never gave her that much money because he gambled heavily. She further told the tribunal that his gambling losses caused her to find work in the financial years ending 30 June 1998 and 1999 as she could not live on the money her ex-husband had contributed to the household.

14.     Mrs Steele advised the tribunal that since she and her ex-husband divorced, she believed he had declared himself bankrupt. She cannot therefore recover any contribution to her tax debt from him. Mrs Steele does not wish to apply for bankruptcy herself although this would relieve her of her tax debt. She said bankruptcy would have adverse consequences for her as she is a security officer with a casino and she fears she would lose her job. She gave evidence that the casino is wary about employing people with debts or who are in bankruptcy. If bankrupt, she also would jeopardise her interest in the house she co-owns with her present husband.

15.     The Commissioner’s records confirm that Mrs Steele tried to make arrangements with the ATO to repay her tax debt by instalments before contesting the assessments. Her offer was rejected as she was able to pay only very small instalments. She also had not applied for tax relief. Mrs Steele said she did not know she could object to the assessments until 2005 when she saw her present accountant who helped her lodge objections.

16.     On balance, I accept Mrs Steele’s evidence that she did not receive any partnership income from her husband and was not a partner in any business for the years ending 30 June 1997, 1998 and 1999. Mrs Steele gave every appearance of being a witness of truth and provided an honest account of how her returns came to be prepared. I accept that Mrs Steele may not have known that her returns contained so-called “partnership income” that was additional to the income covered by her group certificates. This ignorance does not, however, excuse her from any responsibility for the information furnished in the returns lodged in her name. Mrs Steele does not deny that the copies furnished by the Commissioner were lodged by her tax agent.

17. Subsection 169A(1) of the Income Tax Assessment Act 1936 (‘the ITAA 1936’) means the Commissioner is entitled to rely on the information furnished in Mrs Steele’s tax returns. This provision was enacted by Parliament as part of a scheme for self-assessment of income tax. The Taxation Laws Amendment Act 1986 (‘the Taxation Laws Amendment Act’) introduced a self-assessment system of which the section forms a part. Under this system, the Commissioner may “issue an assessment solely in reliance on the information in the taxpayer’s return of income”. The Commissioner’s assessments for 1997 to 1999 were so issued in reliance on the information set out in Mrs Steele’s tax returns.

18.     Despite the concept of self-assessment and protection of the Commissioner when making an assessment based on the self-assessment process, the Commissioner did seek further information when Mrs Steele lodged her objection in 2008. As the Explanatory Memorandum to the Taxation Laws Amendment Act explained, the Commissioner “may decide not to accept statements made in an amendment request and may make enquiries as to whether the amendment is necessary”. The Commissioner’s delegate was open to the possibility of amending the assessments if Mrs Steele could provide more information. Unfortunately, despite the delegate’s requests, Mrs Steele had no further information. Mrs Steele has not called upon her ex-husband or the tax agent to give evidence. She has suggested that her ex-husband would not tell the truth even if she could locate him, but this theory has not been tested as he has not been called.

19.     In considering Mrs Steele’s position, I note that there is no evidence of a partnership involving Mrs Steele except for Mrs Steele’s own returns. The factual basis for establishing any partnership income on which to base assessment is shallow. I accept that Mrs Steele did not agree to any partnership with her ex-husband, and without consent there can be no partnership. As a roofer making personal exertion income, the Commissioner may have been justified in querying claims by her ex-husband of partnership with Mrs Steele. However, this is not at issue for the tribunal’s review.

20.     In my view, Mrs Steele’s claims that she acted under dictation in lodging her returns and that she did not receive any partnership income do not discharge the onus of proof that she bears. It is difficult to understand why Mrs Steele allowed a return to be lodged in her name for 1997 when she was not actually working. As well, her failure to object to the assessments in 2001 and delaying until 2008 puts some doubt in my mind about her protestation that she was unaware that her husband might have instructed the tax agent to put some of his income in her name. Mrs Steele was reckless to sign a tax return without reading the contents as she admitted she may have done.

21. Although I am concerned that no copies of signed returns for Mrs Steele are in evidence and there are no copies of partnership returns naming her as a partner, these deficiencies do not justify a finding that Mrs Steele is not liable for income tax calculated on the amounts declared in her furnished tax returns. The taxpayer bears the onus of proving that the reviewable decision concerns an assessment which is excessive or should have been made differently. This onus is placed on the taxpayer under section 14ZZK of the Taxation Administration Act 1953 (‘the TAA 1953’). I find that Mrs Steele has not discharged this onus but has only cast doubt on whether the information in her returns is accurate.

22.     In making this finding I have support from a number of cases decided by the High Court. For example, in Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, Mason J, as he then was, said of former subsection 190(b) of the ITAA 1936 that the Act did not place any onus on the Commissioner to show that the assessments were correctly made. Brennan J (with whom Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreed) approved that view in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (‘Dalco’). The more recent provisions contained in section 14ZZK of the TAA 1953 make certain that the taxpayer carries the burden of proof and not the Commissioner.

23. The starting point for my decision is set out in subsection 14ZZK(b)(i) of the TAA 1953:

14ZZKOn an application for review of a reviewable objection decision:

(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)the applicant has the burden of proving that:

(i)if the taxation decision concerned is an assessment – the assessment is excessive;  …

24. The court in Dalco further pointed out that the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment. Even if I accept, on balance, that Mrs Steele did not receive the partnership income which has led to her tax debt, she has not explained adequately why the income declared should not be used as the basis for assessments issued for the relevant years. I am not satisfied that Mrs Steele has proved the assessments are excessive or should have been made differently as is required under section 14ZZK. This means that Mrs Steele does have the tax debt as assessed.

25.     It may be that Mrs Steele would be assisted by seeking tax relief in view of the circumstances in which her tax debt arose, but this is a matter for Mrs Steele and is beyond my jurisdiction as she has made no such application and the objection decision before me does not canvass this option. 

decision

26.     The reviewable decision is affirmed.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Ms Robin Hunt, Senior Member

Signed: ...........................[Sgd]...........................
  Jennifer Wong, Associate

Date/s of Hearing  28 November 2008
Date of Decision                   19 December 2008
Solicitor for the Applicant  Mr D S Bainbridge
Representative for the Respondent          Mr B Upex, ATO Legal Services