The Taxpayer and Commissioner of Taxation

[2009] AATA 776

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 776

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No AT 2005/56-

TAXATION APPEALS  DIVISION		)              57 & 102-104
Re		THE TAXPAYER

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal J.W. Constance, Senior Member

Date10 September 2009

PlaceCanberra

Decision

1.      The reviewable objection decision is varied to the extent that the taxable income for the relevant years was as follows:

·     for the year ended 30 June 1997: $31,200

·     for the year ended 30 June 1999: $40,314

·     for the year ended 30 June 2000: $20,528

·     for the year ended 30 June 2001: $20,397

·     for the year ended 30 June 2002: $25,180

2.      In all other respects, the reviewable objection decision is affirmed.

.................[sgd]........................

J.W. Constance, Senior Member

CATCHWORDS

TAXATION – penalties – late lodgement of income tax returns – non-lodgement of income tax returns – decision under review varied to reflect parties’ agreement – decision under review affirmed in respect of penalties

Taxation Administration Act 1953 – Schedule 1 – s 284-75, 298-20

REASONS FOR DECISION (in the form of an edited transcript)

10 September 2009 J.W. Constance, Senior Member

INTRODUCTION

1.        On 7 October 2005 the Taxpayer applied to the Tribunal for review of decisions of the Commissioner of Taxation in respect of default income tax assessments issued to the Taxpayer in respect of the 1997, 1999, 2000, 2001 and 2002 years of income.  The issues before the Tribunal are set out in the Respondent’s Statement of Issues of 14 December 2005.  Those issues are:

(1)Whether default income tax assessments raised pursuant to section 167 of the Income Tax Assessment Act 1936 are excessive in respect of the income years ended 1997, 1999, 2000, 2001, 2002.

(2)Whether late lodgement penalties under section 163B of the Income Tax Assessment Act 1936 should have been imposed in respect of the income years ended 1997, 1999, 2000.

(3)Whether administrative penalties for failure to lodge tax returns on time under subsection 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 should have been imposed in respect of the income years ended 2001, 2002.

(4)Whether administrative penalties imposed should be remitted pursuant to section 298-20 of Schedule 1 of the Taxation Administration Act 1953 in respect to the income years ended 2001, 2002.

2.        Shortly before the hearing the Taxpayer provided to the Commissioner copies of a number of cheques that led to an agreement being reached between the parties as to the taxable income for the years mentioned.  For the record, that agreement was as follows: for the year ended 30 June 1997, $31,200; for the year ended 30 June 1999, $40,314; for the year ended 30 June 2000, $20,528; for the year ended 30 June 2001, $20,397; and for the year ended 30 June 2002, $25,180.  This meant that the only issue remaining for determination by the Tribunal was the question of the penalties that have been imposed. 

FACTS

3. As to the facts of the matter, I make the following findings on the basis of the evidence of the Taxpayer and the documents filed pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.  These documents are exhibit T1 in the proceedings.

4.      I am satisfied that the facts are accurately set forth in the Statement of Facts and Contentions filed by the Commissioner and dated 30 March 2007, and I acknowledge that these facts are quoted from that document.

5.      During the 1997 year of income the Taxpayer and his spouse were directors and shareholders of Teseen Proprietary Limited.   Teseen carried on a business of motor vehicle dealing.  Various amounts were leant to Teseen by the Taxpayer and his spouse.  These were recorded in the company’s books as “shareholder’s loans”.

6.      During the 1997 year of income, there were at least 84 drawings from Teseen by the Taxpayer and his spouse, amounting to $89,665.51.  On the Taxpayer’s instructions, John McClean, the Taxpayer’s accountant at the time, treated $62,400 of the drawings as wages.  Half of this amount ($31,200) was attributed to the Taxpayer.  On 26 August 1997, Mr McClean sent a letter to the Taxpayer enclosing draft income tax returns he had prepared in respect of the 1997 year of income for the Taxpayer, his spouse and Teseen.  Mr McClean reminded the Taxpayer that his 1997 tax return was due to be lodged by the end of March 1998.  The draft income tax returns were then provided by the Taxpayer to Bendigo Bank for the purpose of obtaining a mortgage for himself and his spouse.  After a legal dispute with a third party in 1997 Teseen ceased to carry on its business.  Teseen was deregistered on 11 October 2000.  It has never lodged an income tax return. 

7.      During the 1998 year of income, Teseen’s trading stock was transferred to the Taxpayer, who then started trading as Buyers Market on 16 December 1998.  On 16 February 1998, a Final Notice to Lodge the 1997 income tax return was issued to the Taxpayer.

8.      On 30 March 2000, Global Prestige Imports Proprietary Limited was registered. It carried on a business of selling second-hand cars.  At all material times, the Taxpayer was shareholder, a director and the secretary of Global Prestige Imports Proprietary Limited.  During the 2001 and 2002 years of income, the Applicant transferred funds from the Global Prestige cheque account to his personal mortgage account.  The amount of funds transferred totalled $16,000 and $1,000 respectively.

9.      On 25 August 2000 the Respondent sent a letter to the Taxpayer regarding non-lodgement of 1996, 1997, 1998 and 1999 income tax returns. 

10.     The Taxpayer was required to lodge tax returns for the 1997, 1999, 2000, 2001 and 2002 years of income on 31 March 1998, 31 October 1998, 31 October 1999, 31 October 2000, 31 October 2001 and 31 October 2002 respectively. He did not do so for any of these years of income, whether by the due date or otherwise.

11.       On 25 August 2008, Global Prestige Imports Proprietary Limited was deregistered.  The company never lodged an income tax return. 

12.     On 29 November 2001 the Respondent commenced an audit of the Applicant’s taxation affairs for the 1997 to 2002 years of income, inclusive. 

13.     On 19 January 2004 the Respondent issued default assessments for the 1997 to 2002 years of income, inclusive.  Penalties were imposed on the Applicant as a result for non-lodgement of his income tax returns for the 1997 to 2002 years of income, inclusive.  The relevant penalties in this matter were the late lodgement penalties for 1997, 1999 and 2000, the failure to lodge penalties for 2001 and 2002.  On 31 August 2005 the Respondent issued an amended penalty notice for 2001 and 2002 years of income.  Non-lodgement penalties imposed for the 2001 and 2002 years of income were adjusted to reflect the reduction in taxable income. 

THE COMMISSIONER’S ARGUMENT

14.     The Commissioner contended in relation to penalties:

In respect of the 1997, 1999 and 2000 years of income the Respondent contends that there is no provision for objection against penalties imposed pursuant to section 163B of the Income Tax Assessment Act 1936. As a consequence, there is no valid objection decision on this issue before the Tribunal to review, and the Tribunal does not have the jurisdiction to consider penalties in respect of 1997, 1999 and 2000 years of income.

In respect of the 2001 and 2002 years of income, the Respondent contends that, as the Applicant failed to give his tax returns to the Respondent by the day they were required to be given and – as the Respondent determined the Applicant’s tax related liability without the assistance of such returns – the Applicant is liable to an administrative penalty under s 284-75(3) of the Taxation Administration Act 1953.

THE TAXPAYER’S ARGUMENT

15.     The Taxpayer gave evidence.  The argument can be summarised as follows: that he considered it was unfair to impose penalties upon him on the basis that both himself and his company had been involved in major litigation in the ACT Supreme Court, as a result of an attempt to take over his company and his resources.  He says that his time and resources were committed to the financial survival of his company and himself. 

STATUTORY PROVISIONS

16. The relevant statutory provisions are as follows. Section 284-75 of Schedule 1 to the Taxation Administration Act 1953 sets out the liability to a penalty, and subsection (3) provides:

You are liable to an administrative penalty if:

(a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given;  and

(b)that document is necessary for the Commissioner to determine a tax-related liability of yours accurately;  and

(c)the Commissioner determines the tax-related liability without the assistance of that document.

17. Section 298-20 of Schedule 1 to the same Act provides for remission of penalty, and that provides in subparagraph (1) that the Commissioner may remit all or part of the penalty.

18. Section 14ZZK of the Taxation Administration Act 1953 makes provision in relation to the grounds of objection and burden of proof.  That section relevantly provides:

On an application for review of a reviewable objection decision: …

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

the taxation decision concerned should not have been made, or should have been made differently.

REASONING

19.     On the evidence before me, the Taxpayer has not discharged the burden on him.  I accept that he was engaged in litigation, but that litigation was finalised by 2000.  I note also that he had the assistance of an accountant who, in fact, prepared some returns which were not lodged.  The Taxpayer received frequent reminders from the Commissioner, and also from his own accountant.  For these reasons, the decision under review, so far as it relates to penalties imposed by the Commissioner of Taxation, is affirmed.

I certify that the 19 preceding paragraphs are a true copy of the reasons for the decision herein of J.W. Constance, Senior Member.

Signed:         ......................[sgd]..........................................................
  T. Aviram, Associate

Dates of Hearing  15-16 May 2008 & 22 July 2009
Date of Decision  10 September 2009
Applicant self-represented               
Counsel for the Respondent     Mr D. Ong, Australian Taxation Office