THE APPLICANT and COMMISSIONER OF TAXATION - [2012] AATA 174

[2012] AATA 174

Division TAXATION APPEALS DIVISION

File Number(s)

2011/2025

Re

THE APPLICANT

APPLICANT

And

COMMISSIONER OF TAXATION

RESPONDENT

DECISION

Tribunal
Ms G Ettinger, Senior Member

Date 21 March 2012

Place Sydney
The Tribunal varies the Commissioner’s Decision on Objection dated 2 March 2011 and finds that further items which can be held to be deductible are $100 for lawn mowing, $245 for insurance, $100 for electricity, and $102.20 for advertising. In doing so, the Tribunal accepts that the Commissioner allowed $4,170 for interest and $2,500 for other deductible items in the Applicant’s 2007 tax return, and affirms that part of the decision.
...................[sgd].....................................................
Ms G Ettinger, Senior Member
CATCHWORDS
TAXATION AND REVENUE – assessment of income – Applicant seeks review of decision of Commissioner to disallow deductions for rental property – decision under review varied
LEGISLATION
Income Tax Assessment Act 1997 (Cth) s 8-1

CASES
Case R118 84 ATC 773

Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1
Re Inglis and Federal Commissioner of Taxation 87 ATC 2037

Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47

REASONS FOR DECISION
Ms G Ettinger, Senior Member
21 March 2012
SUMMARY

The Applicant owns various rental properties in regional areas of New South Wales. In the 2007 financial year the Applicant originally claimed a deduction for interest deductions of $4,170 and other rental deductions of $2,500, a total of $6,670. Subsequently, the Applicant made a request for the rental expenses to be increased by an additional $5,208.47. She seeks review of the decision of the Commissioner of Taxation (the Commissioner) to disallow various deductions which she has claimed in relation to a particular rental property for the financial year 2007 in regard to the additional $5,208.47. The Commissioner held that the Applicant did not earn income from the rental property which I shall call ANSW, and that ANSW was not available for rental at the relevant time. I noted that it has now been vacant for five years, and that the Applicant has not substantiated many of her claims adequately.
The Applicant was self represented, the Commissioner represented by Ms A Rogers of the Legal Services Branch, ATO.
My findings are that the decision under review is to be varied. My reasons follow.
THE ISSUES IN DISPUTE
The issues in dispute before me were:
·Whether the property at ANSW was available for rent in the financial year 2007;
·If it was available for rent, whether the Applicant incurred rental expenses of $11,878.47 or $11,936.41 (T12-72) or a similar figure, and whether the Applicant is entitled to claim rental expenses in excess of $6,670.
LEGISLATION
The relevant legislation in this matter is the Income Tax Assessment Act 1997 (ITAA), in particular section 8-1(1) which follows:
(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
(b) it is necessarily incurred in carrying on a * business for the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: THE APPLICANT and COMMISSIONER OF TAXATION [2012] AATA 174
Case: [2012] AATA 174
Decision Date: 21 March 2012

CaseChat Overview and Summary

The Applicant sought review of a decision by the Commissioner of Taxation to disallow certain deductions related to a rental property for the 2007 income year. The decision was reviewed by the Tribunal, which varied the Commissioner’s decision. The Tribunal found that the Applicant was entitled to deductions for certain expenses, including $100 for lawn mowing, $245 for insurance, $100 for electricity, and $102.20 for advertising. The Tribunal also affirmed the Commissioner’s allowance of $4,170 for interest and $2,500 for other deductible items.

The primary legal issues before the Tribunal were whether the Applicant was entitled to the claimed deductions and whether the Commissioner was correct in disallowing them. The Applicant argued that she was entitled to the deductions because they represented genuine outgoings associated with maintaining the property and preparing it for rental. The Commissioner argued that the Applicant had failed to provide sufficient evidence to substantiate the claimed deductions. The Tribunal was required to consider the evidence presented by both parties and determine whether the Applicant had satisfied the burden of proof.

In determining the issues, the Tribunal found that the Applicant had failed to provide sufficient evidence to substantiate the majority of the claimed deductions. However, the Tribunal accepted that the Applicant was entitled to certain deductions, including $100 for lawn mowing, $245 for insurance, $100 for electricity, and $102.20 for advertising. The Tribunal also affirmed the Commissioner’s allowance of $4,170 for interest and $2,500 for other deductible items. The Tribunal concluded that the Applicant had not provided sufficient evidence to support the majority of the claimed deductions, and therefore varied the Commissioner’s decision accordingly.

The Tribunal varied the Commissioner’s Decision on Objection dated 2 March 2011, and found that the Applicant was entitled to deductions for $100 for lawn mowing, $245 for insurance, $100 for electricity, and $102.20 for advertising. The Tribunal affirmed the Commissioner’s allowance of $4,170 for interest and $2,500 for other deductible items. The Tribunal’s decision was based on its finding that the Applicant had failed to provide sufficient evidence to substantiate the majority of the claimed deductions.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

The Tribunal varies the Commissioner’s Decision on Objection dated 2 March 2011, and relies on its findings above. DECISION51. The Tribunal varies the Commissioner’s Decision on Objection dated 2 March 2011 and finds that further items which can be held to be deductible are $100 for lawn mowing, $245 for insurance, $100 for electricity, and $102.20 for advertising. In doing so, the Tribunal accepts that the Commissioner allowed $4,170 for interest and $2,500 for other deductible items in the Applicant’s 2007 tax return, and affirms that part of the decision.

Ratio Decidendi

Legal Principle Established

The Applicant told me at the hearing that she has recently negotiated with an authority which is making improvements to the railway line in the vicinity of the house, and that its workers may be renting the house in the near future. Although it has taken some five years to lease the house, (provided the railways workers take it), that somewhat vindicates her submissions that word of mouth is more effective given the location of ANSW. Consideration of the deductions claimed by the Applicant As I am prepared to accept that the house at ANSW was available for rent at the relevant time, I moved to consider the deductions claimed by the Applicant, noting that the only income from the house for the relevant period, was $450 (from the rental bond of the previous tenants). According to the Applicant’s letter dated 14 March 2006 to the Department of Fair Trading requesting bond moneys, (Exhibit A4), there were numerous problems following the tenancy. According to her letter at Exhibit A4, $432 was to be spent on replacement of an insect screen door, replacement of a damaged laundry door, and repair/repainting in a bedroom and the kitchen. I have considered all the documents produced by the Applicant in substantiation of her claims for deductions in regard to the house at ANSW, and in particular the Applicant’s schedule at T12-72, and the Respondent’s schedule at Exhibit R2. Unfortunately, as the Applicant admits, the records have not been in good order, and are not easy to decipher. The most contentious items were the amounts claimed for inspections, $500 on each of two occasions, and the interest payments. Inspection costs The Applicant claimed that during the relevant period, she and her son had attended the property and stayed there a few days in December 2006, February 2007, and April 2007. She said she was claiming $500 a time for two of the three occasions. The $500 was a conservative figure for the time spent, she submitted, mowing, disposing of trees which had fallen down, and for the repairs done during those periods. The Applicant was asked by Ms Rogers about an invoice for lawn mowing by a Mr Thompson, for the amount of $100 in December 2006. Her reply was that he was not a relative, and that he did not do a satisfactory job. The Applicant and her son accordingly did the work themselves, she said. I accepted that explanation, but that of course does not amount to expenditure of $1,000. Ms Rogers also suggested to the Applicant that the maintenance may have been for the adjoining lots, 7 and 8, which she also owns. The Applicant denied that stating that cattle and horses were agisted on Lots 7 and 8, and that they did not require any maintenance. Ultimately the Applicant was unable to substantiate the outgoings as claimed which were $1,000, being $500 a time for two of the three inspection periods. For my part, I cannot accept a general estimate of the worth of the inspections. I allow the sum of $100 for lawn mowing. Interest payments The most difficult figure and largest amount to discern was the claim for interest payment of $7,800. In considering the additional claim, I am mindful that the Respondent had already accepted interest deductions in the 2007 tax return to the value of $4,170. Ms Rogers helpfully provided a folder with documents, certain of which were tendered. At Tab 4, were documents from summons issued to AMS Mortgage Services Pty Ltd, a company owned by the GE group of companies. GE Capital Finance Australia informed the Tribunal that the loans relating to AMS Mortgage Services were sold to Pepper Australia Pty Ltd, (Pepper). The documents tendered, (pages 6, 20, and 26, Exhibit R4), were on Pepper letterhead. ·Page 6 related to 2004; the Applicant told me that the $15,000 drawdown in 2004 from the line of credit of $50,000, was for work carried out before a tenant was found. I am satisfied it was outside the relevant period, and cannot be considered.·Page 20 related to a drawdown of $30,000 in December 2005, also before the relevant period. I find similarly.·Page 26 related to a drawdown of $3,000 on 5 June 2006, also before the relevant period. I find similarly.

Division	TAXATION APPEALS DIVISION
File Number(s)	2011/2025
Re	THE APPLICANT
APPLICANT
And	COMMISSIONER OF TAXATION
RESPONDENT

Tribunal	Ms G Ettinger, Senior Member
Date	21 March 2012
Place	Sydney