The Trustees for Bontoc Superannuation Fund and Commissioner of Taxation

[2005] AATA 900

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 900

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No QT2003/336

TAXATION APPEALS DIVISION		)
Re		THE TRUSTEES OF THE BONTOC SUPERANNUATION FUND

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Senior Member P McDermott

Date16 September 2005  

PlaceBrisbane

Decision The objection decision under review is affirmed.

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

P McDermott
  Senior Member

CATCHWORDS

INCOME TAX - Income Tax Assessment Act 1997 – claim for deductions under section 8-1 – no evidence to support claim for administration and secretarial expenses and salaries  – deductions not allowed – matter affirmed.

Income Tax Assessment Act s8-1
Taxation Administration Act 1953 s14ZZK (b)

Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1
Dalco v Federal Commissioner of Taxation 90 ATC 4088

REASONS FOR DECISION

16 September 2005 Senior Member P McDermott   

Introduction

1.      The trustees of the Bontoc Superannuation Fund (BSF) have claimed certain deductions for administrative, secretarial and other services as well as  salaries. This expenditure was made by the trustees in the income year ended 30 June 1999. The Commissioner of Taxation has disallowed these deductions. The trustees have objected against this decision of the Commissioner.

2.      The trustees have asked the Tribunal to review the amended assessment of the Commissioner in which these claimed deductions have been disallowed.  I have to decide whether these deductions should be allowed.

3.      There is no longer an issue as to the deductibility of an insurance premium of $3534 which the Commissioner has allowed as a deduction.

Reinstatement Proceedings

4.      The matter was originally listed for hearing on 15 December 2004. The application of the trustees was dismissed by reason of their non-appearance at the hearing. This matter was reinstated so it could proceed to hearing.

Trustees did not provide evidence in support of Objection

5.      At the hearing of this application Mr Howie who appeared for the trustees elected not to provide any evidence in support of their objection.

6.      The Tribunal in reinstating these proceedings has previously advised the trustees of the importance of providing evidence in support of their appeal. On that occasion the Tribunal commented: “The applicants have also exhibited a general unwillingness to provide evidence in support of their application”. The Tribunal remarked that “further evidence may be forthcoming at the hearing”.

7.      Although the trustees were not legally represented at the hearing those comments of the Tribunal would have alerted the trustees of the importance of providing evidence in support of their application.

Issues

8.      I have to decide is whether the claimed deductions are deductible under s 8-1 (1)(a) of the Income Tax Assessment Act 1997.

9.      The deductions are allowable if the deductions are incurred in gaining or producing assessable income.

10.     The trustees did not contend that the Bontoc Superannuation Fund was conducting a business so as to justify a deduction under s 8-1 (1) (b) of the Income Tax Assessment Act 1997.

Claimed Deductions

11.     The claimed deductions that the Commissioner disallowed are payments to Bontoc Enterprises Pty Ltd and Beaverson Pty Ltd as well as claimed salaries which have been paid to the trustees.

Bontoc Enterprises Pty Ltd and Beaverson Pty Ltd

12.     Bontoc Enterprises Pty Ltd and Beaverson Pty Ltd are companies that are associated with Mr and Mrs Howie. In view of this association some scrutiny of these payments is certainly warranted.

13.     The invoices that were issued by Bontoc Enterprises Pty Ltd and Beaverson Pty Ltd were placed in evidence before me [Additional Relevant Documents, fols. 94 -100].

14.     The trustees in a submission dated 7 September 2005 referred to the deduction as “contingency fees (including fees for work done) paid to associated companies for assisting BSF to achieve significant capital gain in share trading: $88,850”..

15.     There is no evidence before me of what work was performed by these companies to justify payment of these expenses of $88,850.

16.     There is also no evidence of how such work was done for the purposes of gaining assessable income. 

17.     The trustees have claimed that the deductions were in the nature of contingency fees but there was no evidence of any agreement between the companies and the trustees to warrant the payment of these expenses. No contingency fee agreement was placed in evidence.

18.     The invoices that have been placed in evidence before me [Additional Relevant Documents, fols. 94-100] do not refer to contingency fees. Rather the invoices refer to “carrying out work as directed, incl. collating figures, collating articles, admin. work, intuitive analysis, secr. work, etc”. One invoice has a similar description of work but adds the words “project mgt. [presumably, management]”. None of the invoices refers to contingency fees.

19.     I would add that an analysis of these payments reveals that various payments were made to the companies before the companies had actually invoiced the trustees for those payments. There was no evidence before me to explain such a practice.

salaries

20.     The trustees claimed salaries of $2,285 which were paid to them (Mr and Mrs Howie).  Since the hearing the Commissioner has quite properly conceded that the trustees incurred an outgoing in respect of the payment of this honorarium.

21.     There is no evidence before me of what work Mr and Mrs Howie did to justify payment of this amount.

22.      There is also no evidence before me of how this work had any connection with the production of assessable income.

23.     The trustees in a submission dated 7 September 2005 referred to the deduction as “payments to trustees for non-trustee work”.

24.     Mr Howie also stated in his submission that an honorarium could be paid for “non-trustee work”.

25.     However, there is no evidence before me of the nature of this “non-trustee work”.  

Trust Deed

26.     In this matter the trust deed of this self managed superannuation fund was not placed in evidence before me. The Commissioner did not have a copy of the trust deed.

27.     In my opinion there should be some consideration as to whether the relevant law should be amended to require trustees of self managed superannuation funds to produce a copy of the trust deed to the Commissioner.

Conclusion

28.     Section 8-1 (1)(a) of the Income Tax Assessment Act 1997 is derived from s 51 (1) of the Income Tax Assessment Act 1936.

29.     The High Court of Australia considered s 51(1) of the 1936 Act in Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1. In Fletcher, at 18, the court emphasised that to justify a deduction there must be “a genuine and no colourable relationship between the whole of the expenditure and the production of such income”.

30.     There is no evidence before me to prove that there is any such genuine relationship between the expenditure of the claimed deductions and the production of assessable income. There is no evidence of how the payment of these expenses was “incurred in gaining or producing assessable income”.

31.     There is also no evidence before me of what work was actually done to warrant the expenditure of the claimed deductions.

32.     In such circumstances the trustees have not discharged the onus of proof in showing that the assessment of the Commissioner is excessive: see Taxation Administration Act 1953, s 14ZZK (b).

33.     This is not a case where all of the material facts have been placed before me: see Federal Commissioner of Taxationv Dalco 90 ATC 4088 at 4093.

34.     I conclude that the payments to Bontoc Enterprises Pty Ltd and Beaverson Pty Ltd as well as the payment of claimed salaries are not deductible under s 8-1 (1)(a) of the Income Tax Assessment Act 1997.

Decision

35.     The objection decision under review is affirmed.

I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member P McDermott

Signed:         Jeff Mills
  Legal Research Officer

Date/s of Hearing  29 August 2005
Date of Decision  16 September 2005
For the Applicant  Mr D Howie, Trustee
For the Respondent                  Mr S Aftanas, ATO Legal Practice