Vadesz v Commissioner of Taxation
[2006] AATA 682
•4 August 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 682
ADMINISTRATIVE APPEALS TRIBUNAL )
) No ST2005/55-57
TAXATION APPEALS DIVISION ) Re MICHAEL CHRISTOPHER VADASZ Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Senior Member R W Dunne Date4 August 2006
PlaceAdelaide
Decision The Tribunal affirms the objection decision under review.
..............................................
R W DUNNE
(Senior Member)
CATCHWORDS
TAXATION – goods and services tax – assessments of GST net amount – whether applicant entitled to decreasing adjustments – burden of proof – whether applicant has discharged burden – objection decision affirmed.
Taxation Administration Act 1953 ss 14ZL(2), 14ZQ, 14ZZK(b), 22(1)
A New Tax System (Goods and Services Tax) Act 1999 ss 19-55, 21-5, 29-75(1)
Eldridge v FC of T 90 ATC 4907
FC of T v Dalco 90 ATC 4088
Gauci and Others v FC of T 75 ATC 4257
McCauley v FC of T 88 ATC 4605
Trautwein v FC of T (1936) 56 CLR 63REASONS FOR DECISION
4 August 2006 Senior Member R W Dunne 1. This is an application for review of a decision by the respondent to allow in part a taxation objection lodged by the applicant against assessments of the applicant’s goods and services tax (“GST”) net amount, raised by the Tribunal pursuant to s 22(1) of the Taxation Administration Act 1953 (“TA Act”), for the quarterly periods from 1 April 2001 to 31 December 2002. The assessments that resulted gave rise to a GST shortfall notified as $297,212.
2. The applicant, Mr Michael Vadasz, carries on business as a sole trader trading under the name, Australasian Piling Company (“APC”). He is registered for GST purposes and accounts for GST on an accruals basis and has a quarterly tax period. The respondent had conducted a review of the applicant’s business activity statements (“BAS”) for the quarterly periods from 1 July 2000 to 31 December 2002. In doing so, the respondent found that the applicant had not kept proper records to reflect his taxable supplies and creditable acquisitions for GST purposes.
3. The applicant was represented by his external accountant, Mr Johannes Venter, and his internal accountant, Mr David Bryant. The respondent was represented by Mr Stuart Cole, of counsel. Prior to the hearing, the Tribunal was informed that the applicant would not be appearing to give evidence. He would be in Sydney on business and would not be returning for the hearing. Mr Venter was advised of the importance of the applicant’s availability for the hearing, either in person or by telephone hook-up, especially in light of the burden of proof that was imposed upon him under the TA Act. At the commencement of the hearing, Mr Venter advised the Tribunal that the applicant would not be present, but that he would be available by telephone, if needed. When asked how he intended to present the applicant’s case before the Tribunal, Mr Venter said that the matter was largely factual and that he and Mr Bryant would be able to present the applicant’s case for him. He said the applicant would not be able to add anything to what he and Mr Bryant would present before the Tribunal. When reminded again, Mr Venter indicated to the Tribunal that he understood Mr Vadasz was the applicant and, as such, he must discharge the onus of proving that the assessments involved were excessive.
4. The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) were admitted in evidence (as exhibit R1). In addition, the Tribunal admitted the following documents in evidence:
·Statement of issues of the applicant (exhibit A1);
·Reconciliation of Belmadar Constructions (exhibit A2);
·Reconciliation of income amounts in dispute (exhibit A3);
·Statement of facts, issues and contentions of the respondent dated 9 December 2005 (exhibit R2).
background
5. In a letter to the applicant dated 17 April 2003, the respondent advised that the review of the applicant’s BAS for the period 1 July 2000 to 31 December 2002 had been completed. The applicant was advised of the amount of the GST shortfall resulting from the review and that notices of assessment would issue shortly. Enclosed with the respondent’s letter was an outline of the reasons for the respondent’s decision to raise the assessments. In summary, the respondent’s reasons to the applicant were:
“MYOB report totals provided by you do not match the BAS lodged.
We have decided not to revise 3 BAS periods from 1/7/00 to 31/3/01 as these appear to be basically correct from the information we had at the time of the review.
BAS revisions have been made to 7 BAS periods from 1/4/01 to 31/12/02.
BAS revisions were calculated using the MYOB reports you provided to the ATO.
Many errors were found in the MYOB reports both in supplies and acquisitions. These incorrect transactions were used to revise the MYOB report totals for each BAS period and then this corrected amount was used on each BAS.
A full account of all transactions that appear to be incorrect is detailed in the attached spreadsheet.
There is also a detailed report on how the revised totals were calculated.
…”
6. On 28 April 2003, the applicant’s external accountants, Bentleys MRI Adelaide (“Bentleys”), wrote to the respondent to say that, in the applicant’s opinion, the revisions to the BAS were substantially incorrect for the following reasons:
“Explanations of sundry significant transactions have been either ignored or totally misunderstood.
Assumptions have been made with no reference to staff at all.”
7. On 6 May 2003, the respondent wrote to Bentleys and the letter included the following comments:
“Unfortunately, we require valid adjustment notes to be provided before we can consider amending the assessments. These adjustment notes must also have been issued to the customer to allow them to adjust their own Business Activity Statement (BAS).
…
Although some tax invoices were provided for verification, many were not and despite Mr Bryant advising that they would be found, no such invoices have been supplied to the ATO to date.
During an interview with … , Mr Bryant agreed that there were numerous errors in the MYOB reports and that some transactions should not be included.
Mr Bryant did supply copies of twenty adjustment notes but these were not valid.
·They did not relate to any particular tax invoice,
·They did not detail the amount of the adjustment and the reason for the adjustment,
·Were only issued on the day that the copies were requested and therefore were not a valid adjustment note for the BAS period when the adjustment was claimed, and
·The adjustment notes were not issued to the customers at the time the adjustment was made.
Adjustments to the BAS reports were made based on information provided by Mr Bryant including the detailed MYOB reports and the BAS reports that were lodged. As the review was conducted over many months and numerous requests were made for information, it is considered that the client had ample opportunity to provide the documents if they were available.”
8. On 18 June 2003, Bentleys forwarded copies of 20 “credit notes” relating to adjustments that had purportedly been made during September 2002 in respect of supplies previously made to the applicant’s customers. On 21 August 2003, the respondent advised Bentleys that the adjustment notes that had been provided were deemed to be invalid under s 29-75 of the A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”). In explaining why the adjustment notes were deemed to be invalid, the respondent said:
“…
·They did not relate to any particular tax invoice, nor
·The amount of the original tax invoice
·They did not detail the reason for the adjustment
·The information on the adjustment note gives insufficient information to enable a customer to adjust their records
·There is no evidence that there was an ‘adjustment event’ to result in an adjustment note being issued.
·None of the adjustment notes appear to relate to any of the amendments previously made by this office to the clients [sic] BAS
…”
9. Following the applicant’s taxation objection dated 26 February 2004 and on the basis of further documents provided to the respondent, the applicant’s objection was allowed in part. Notices of amended assessment for the relevant tax periods were issued by the respondent on 1 March 2005. The applicant applied to this Tribunal for a review of the objection decision on 22 April 2005 and, on 16 June 2005 at a preliminary conference in the Tribunal, the respondent agreed to assist the applicant in verifying his claims by making independent inquiries with the recipients of the applicant’s supplies. The applicant provided details of the recipients and the records to be verified and the respondent contacted a number of the recipients. The requests for third party checks, prepared by Mr Bryant, and the responses to the checks (where received) appear in the supplementary T documents.
10. During the initial stage of the hearing, it was agreed that the amount of the applicant’s GST shortfall in dispute was $105,319. However, Mr Venter flagged to the Tribunal that the amount had changed and was likely to be in the range of $100,000 to $115,000.
issues
11. The issues before the Tribunal are as follows:
(a) whether the applicant had or is entitled to decreasing adjustments for supplies pursuant to s 19-55 of the GST Act in respect of or during the 1 April 2001 to 31 December 2002 quarterly tax periods;
(b) whether the applicant had or is entitled to decreasing adjustments for bad debts pursuant to s 21-5 of the GST Act during or in respect of the 1 April 2001 to 31 December 2002 quarterly tax periods; and
(c) whether the applicant has discharged the burden of proof, imposed upon him under s 14ZZK(b) of the TA Act, in respect of the assessments of the GST net amount issued on 28 April 2003.
legislation
12. The legislation that is relevant to the consideration of this matter is as follows:
GST Act
13. Sections 19-10(1) and (2) of the GST Act provide:
“19-10 Adjustment events
(1) An adjustment event is any event which has the effect of:
(a) cancelling a supply or acquisition; or
(b) changing the *consideration for a supply or acquisition; or
(c)causing a supply or acquisition to become, or stop being, a *taxable supply or *creditable acquisition.
Example: If goods that are supplied for export are not exported within the time provided in section 38-185, the supply is likely to become a taxable supply after originally being a supply that was GST-free.
(2) Without limiting subsection (1), these are *adjustment events:
(a)the return to a supplier of a thing, or part of a thing, supplied (whether or not the return involves a change of ownership of the thing);
(b)a change to the previously agreed *consideration for a supply or acquisition, whether due to the offer of a discount or otherwise;
(c)a change in the extent to which an entity that makes an acquisition provides, or is liable to provide, consideration for the acquisition (unless the entity *accounts on a cash basis).”
Section 19-40 of the GST Act provides:
“19-40 Where adjustments for supplies arise
You have an adjustment for a supply for which you are liable to pay GST (or would be liable to pay GST if it were a *taxable supply) if:
(a)in relation to the supply, one or more *adjustment events occur during a tax period; and
(b)GST on the supply was attributable to an earlier tax period (or, if the supply was not a taxable supply, would have been attributable to an earlier tax period had the supply been a taxable supply); and
(c)as a result of those adjustment events, the *previously attributed GST amount for the supply (if any) no longer correctly reflects the amount of GST (if any) on the supply (the corrected GST amount), taking into account any change of circumstances that has given rise to an adjustment for the supply under this Subdivision or Division 21.”
Section 19-55 of the GST Act provides:
“19-55 Decreasing adjustments for supplies
If the *corrected GST amount is less than the *previously attributed GST amount, you have a decreasing adjustment equal to the difference between the previously attributed GST amount and the corrected GST amount.”
Section 21-5 of the GST Act provides:
“21-5 Writing off bad debts (taxable supplies)
(1) You have a decreasing adjustment if:
(a) you made a *taxable supply; and
(b)the whole or part of the *consideration for the supply has not been received; and
(c)you write off as bad the whole or a part of the debt, or the whole or a part of the debt has been *overdue for 12 months or more.
The amount of the decreasing adjustment is 1/11 of the amount written off, or 1/11 of the amount that has been overdue for 12 months or more, as the case requires.
(2)However, you cannot have an *adjustment under this section if you *account on a cash basis.”
Sections 29-20(1) and (3) of the GST Act provide:
“29-20 Attributing your adjustments
(1)An *adjustment that you have is attributable to the tax period in which you become aware of the adjustment.
…
(3)If:
(a)you have a *decreasing adjustment arising from an *adjustment event; and
(b)you do not hold an *adjustment note for the adjustment when you give to the Commissioner a *GST return for the tax period to which the adjustment (or any part of the adjustment) would otherwise be attributable;
then:
(c)the adjustment (including any part of the adjustment) is not attributable to that tax period; and
(d)the adjustment (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that adjustment note.
However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for an adjustment note does not apply.”
Section 29-75(1) of the GST Act provides:
“29-75 Adjustment notes
(1)An adjustment note for an *adjustment that arises from an *adjustment event relating to a *taxable supply:
(a)must be issued by the supplier of the *taxable supply in the circumstances set out in subsection (2); and
(b) must set out the *ABN of the entity that issues it; and
(c)must contain such other information as the Commissioner determines in writing; and
(d) must be in the *approved form.
However, the Commissioner may treat as an adjustment note a particular document that is not an adjustment note.”
TA Act
14. Sections 14ZL(1) and (2) of the TA Act provide:
“14ZL PART APPLIES TO TAXATION OBJECTIONS
(1)This Part applies if a provision of an Act or of regulations (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part.
(2) Such an objection is in this Part called a taxation objection.”
Section 14ZQ of the TA Act, where relevant, provides:
“…
‘objection decision’ has the meaning given by subsection 14ZY(2)
…
‘reviewable objection decision’ means an objection decision that is not:
(a) an ineligible income tax remission decision; or
(b) an ineligible sales tax remission decision.
…
‘taxation decision’ means the assessment, determination, notice or decision against which a taxation objection may be, or has been, made.
‘taxation objection’ has the meaning given by section 14ZL.”
Section 14ZY(1) of the TA Act provides:
“14ZYCOMMISSIONER TO DECIDE TAXATION OBJECTIONS
(1)Subject to subsection (1A), if the taxation objection has been lodged with the Commissioner within the required period, the Commissioner must decide whether to:
(a) allow it, wholly or in part; or
(b) disallow it.”
Section 14ZZK of the TA Act provides:
14ZZKGROUNDS OF OBJECTION AND BURDEN OF PROOF
“On an application for review of a reviewable objection decision:
(a) …
(b) the applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii)if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii)in any other case—the taxation decision concerned should not have been made or should have been made differently.”
Section 22(1) of the TA Act provides:
“22 COMMISSIONER MAY MAKE ASSESSMENT OF INDIRECT TAX
(1)The Commissioner may at any time make an assessment of your net amount, or any part of your net amount, for a tax period.
(2)…
(3)...
Note: An assessment made under this section is a reviewable indirect tax decision (see Division 7).”
the evidence
15. Mr Venter began by summarising the applicant’s position. He said the applicant was not disputing the facts arising from the documents before the Tribunal. He agreed that the documents may be confusing and may not be fully compliant with the GST Act. However, he said that what he was asking the Tribunal to do was to go to those facts and to “understand what the applicant’s staff members at that stage were trying to achieve”. He said the applicant believed that, if the Tribunal looked at the outcome of the various transactions, a certain amount of GST had not been correctly declared in the applicant’s BAS, but not to the extent indicated by the respondent. Mr Venter referred to the adjustment note provisions in s 29-75(1) of the GST Act and to the discretion available to the respondent to treat, as an adjustment note, a document that was not an adjustment note. He said that, despite the documents involved and the deficiencies, the Tribunal should exercise the discretion to accept certain of the documents as adjustment notes under s 29-75(1). In the event that it was not able to exercise the discretion, he submitted the Tribunal should allow the adjustments as bad debts under s 21-5 of the GST Act.
16. Mr Venter referred to the applicant’s statement of issues (accepted in evidence as exhibit A1) and agreed that the amount of the adjustments in dispute at the time of the statement was $105,319. This amount had been arrived at by the respondent after enquiries had been made of the applicant’s customers, first by his accountants (Bentleys) and then by the respondent. Annexed to the applicant’s statement of issues was a document entitled “Fees Received – Not Through Debtors System” (“Fees Received Document”) which Mr Venter suggested to the Tribunal contained particulars of amounts deposited into the applicant’s bank account and which came from unknown sources or from transactions with customers that could not be specifically identified. The source of the Fees Received Document was unclear and Mr Cole, for the respondent, indicated that it was helpful by way of explanation, but he did not accept it as evidence. In examining some of the entries in the Fees Received Document, Mr Venter said it was unclear what the entries related to and he could not explain why some of the amounts in it included GST, while others did not. He put to the Tribunal that, as a result of the entries appearing in the Fees Received Document, fees and GST had been declared twice, once when the invoice was raised and again when the money was received into the bank account.
17. Mr Venter took the Tribunal to Mr Bryant’s requests for third party checks and to the customer transactions that had given rise to the disputed GST adjustments totalling $105,319. The adjustments were referred to in a schedule annexed to the applicant’s statement of issues and comprised the following.
Wattyl Australia Pty Ltd
18. According to the third party check request for this customer (exhibit R1, T59 at pages 653-654), invoices totalling $80,654 were rendered and payments of $68,909 were received. Invoiced amounts totalling $11,745 were written-off by the applicant as bad debts, resulting in GST adjustments totalling $1,068. However, correspondence received from accountants acting on behalf of the customer (exhibit R1, T 63 at page 665) indicated that the invoice payments of $68,909 made to APC between February 2001 and May 2001 represented the sum needed to satisfy the amounts owing to APC.
Barclay Mowlem
19. According to the third party check request, the response from Barclay Mowlem and the schedule of amounts in dispute, invoice amounts totalling $215,669 were either reversed or written-off as bad debts. Based on these documents and the amounts contained in them, Mr Venter submitted that the applicant was entitled to GST adjustments totalling $19,606. He said he had shown, through the applicant’s records before the Tribunal, that the amounts either reversed or written off were 90 per cent correct. However, when asked by the Tribunal to explain the basis upon which the invoice reversals and bad debt write-offs should be accepted, Mr Venter said:
“It is actually quite hard. We can only ascertain that if the money wasn’t received and the third party confirmed that it wasn’t paid, it should be written-off and it should be allowed as a bad debt. The documentation at this stage from the third party confirms the facts. Barclay Mowlem states that they have not received the invoices, neither have they paid them. Why they were issued to them, I don’t know. I know they were issued and I know they were written back or written-off. I accept that because the third party now has confirmed it.”
Belmadar Constructions
20. In the case of this customer, Mr Venter sought to tender a new spreadsheet of adjustments. The spreadsheet was accepted in evidence as exhibit A2. Mr Venter attempted to explain to the Tribunal the adjustments contained in the spreadsheet and how the various amounts were arrived at. When asked by the Tribunal for particulars of the invoices and other documents to enable the accuracy of the adjustments to be determined, Mr Venter said:
“Yes, if I can take you to a holistic view. During this financial year, a certain amount of money was received by the client. It goes to the bank account. That [sic] funds received, it is either allocated to debtors or to sales. The accounting system now tells me that a certain amount went through the bank and I can trace that money back either to fees or to debtors, then I have no other conclusion than to say that we have not received the money and therefore, we have not ever received it, I can just as well write that debt off.”
Bovis Lend Lease
21. In the third party check request for this customer (exhibit R1, T31 at pages 523-524), an invoice of $13,860 (including GST of $1,260) was raised. According to Mr Venter, payment of the amount was never received. However, the customer maintained that payment in full was made and it was Mr Venter’s assertion that the amount of the invoice was included twice in the applicant’s accounts and the respondent should allow the applicant an appropriate decreasing adjustment.
Contract Control Construction
22. In this case, Mr Venter explained that various invoices had been raised. However, he said that, despite invoices being raised and despite monies being received, Contract Control Construction had never heard of the applicant and had never paid the applicant any monies. The Tribunal noted from the T documents (exhibit R1, T34 at pages 542-543) that there were numerous invoice transactions for large amounts involving this customer. However, the Financial Controller for the customer had advised the respondent that no invoices had been issued to APC, no payments had been received from APC and no payments had been made to APC (exhibit R1, T36 at page 550).
Forrester Kurts/FKP Ltd
23. In this case, Mr Venter said that, although there were two customers, they were the same company. He said that the customer had not been able to locate any dealings with APC and Mr Venter was at a loss to understand why. Certain amounts had been invoiced, certain amounts had been received and certain amounts had not been received. However, the customer simply had no record of the applicant.
Hopeshore Pty Ltd
24. With this customer, Mr Venter said an invoice for $204,545.45 (including GST of $20,454.55) was rendered and payments totalling $133,700 were received. Then, because the applicant caused damage in carrying out the work for the customer, he was back-charged an amount of $91,300 (including GST of $8,300). However, Mr Venter said that, as the amount of $91,300 in back-charge had not been received and an amount of $95,700 had been incorrectly included in the Fees Received Document, decreasing adjustments totalling $187,000 should be made by the respondent.
Reed Constructions
25. On their face, the transactions involving this customer appeared complicated. However, as events transpired, three invoices were rendered and eventually three different payments were received which totalled the sum of the three invoices. In the end result, an amount of $71,271 was not received and Mr Venter argued that a GST adjustment of $6,479 was due to the applicant.
Richard Crookes Constructions
26. In this case, a number of invoices were raised and various payments were received. Mr Venter explained to the Tribunal, as best he could, the way in which the adjustments were made up. In looking at the material in the T documents, it appeared invoices were rendered to the customer by the applicant, reversals were made and recipient-created invoices were also created. In the end result, decreasing adjustments totalling $33,060 were referred to, but the respondent was apparently only prepared to accept $3,000 (including a GST adjustment of $272). It was Mr Venter’s submission that:
“A total of $33,060 being invoiced, not reversed, were not received. $3,000 was accepted, but $30,060 was not accepted. But what we are saying is that the third party has once again confirmed 100 per cent the amounts that were taken from the system were not paid.”
Tohspil Pty Ltd (also known as River Districts Investments)
27. In this case, Mr Venter said that, because Tohspil Pty Ltd and River Districts Investments were the same customer a duplication of invoices had occurred. A decreasing adjustment of $54,609.50 (including GST of $4,974.50) had been refused by the respondent (in the case of Tohspil Pty Ltd) and adjustments totalling $51,879 (including $4,716 GST) had been added back in the case of River Districts Investments. Mr Venter submitted that one of these adjusted amounts (together with the GST adjustment) should be allowed by the respondent.
28. In further submissions, Mr Venter referred again to the spreadsheet of income amounts in dispute (exhibit A3) and to various additional adjustments that appeared on page 7 of the spreadsheet. Various increasing adjustments were included in the additional items, together with a decreasing adjustment of $275,000 (and a GST adjustment of $25,000), resulting in an amended GST adjustments figure in dispute, which Mr Venter submitted now totalled $119,560.
consideration
29. Under the TA Act, a person who is dissatisfied with an objection decision, that is a reviewable objection decision, may apply to the Tribunal for a review of the decision (s 14ZZK(b)). The TA Act modifies the operation of the Administrative Appeals Tribunal Act 1975 in certain respects. One of the modifications relates to the burden of proof. Generally, neither party carries a burden of proof in proceedings in a Tribunal. However, under s 14ZZK(b) when the Tribunal reviews an objection decision the person applying for review:
“… has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive….”
(Section 14ZZK(b)(i))
30. There have been no modifications to the Tribunal’s essential task. As observed by Foster J in Eldridge v FC of T 90 ATC 4907 at 4921:
“It is abundantly clear, of course, that even though the Tribunal does over again the work of the Commissioner, it does it in a significantly different way. Although it could be said to be part of an administrative hierarchy, its functions partake far more of the court than of the office desk.
It is clearly not cast in the role of the inquisitor. Although it does not act within the confines of formal pleadings, it is constrained in its inquiries and deliberations by the ambit of the taxpayer’s objections. Although it is not bound by the rules of evidence (sec. 33(1)(c)) in reaching its decision it must act upon the evidence which is placed before it …”
31. The Tribunal’s task was explained more fully in the decision of the Full High Court in FC of T v Dalco 90 ATC 4088. There, speaking of the Income Tax Assessment Act 1936 (but the principles apply equally to the GST Act) and also in speaking of an appeal (but the same principles apply to a review in this Tribunal), Brennan J observed (at 4091):
“… It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed (sec. 199) unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer. Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.
…”
32. As Brennan J also said in Dalco (at page 4093), the manner in which a taxpayer can discharge the burden of proof varies with the circumstances. In some cases, the burden maybe discharged by pointing to some error of computation. The burden can also be discharged by the taxpayer proving that the Commissioner erroneously included in the assessment an amount that should not have been included. On the other hand, as Mason J pointed out in Gauci and Others v FC of T 75 ATC 4257 at 4261 (when considering the application of the predecessor to s 14ZZK(b)):
“Section 190(b) of the Act imposed on the appellants the burden of proving that the assessments were excessive. The appellants relied on their evidence and that of Graham in order to show that the assessments were excessive. Once that evidence was rejected, the appellant’s case necessarily failed.”
33. Section 14ZZK(b) effectively creates a rebuttable presumption that an assessment is not excessive. As was further said by Mason J in Gauci (at page 4261):
“The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with sec. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.”
34. Finally, in commenting on the taxpayers absence of records, Lockhart J in McCauley v FC of T 88 ATC 4605 at 4612 referred to the judgment of Latham CJ in Trautwein v FC of T (1936) 56 CLR 63 and said:
“I have already made some observations about the effect of the absence of records on the taxpayer’s case and it is pertinent to recite the observation on this matter by Latham CJ in Trautwein’s case (supra) at p 87:
‘In the absence of some record in the mind or in the books of the taxpayer, it would often be impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.’
…”
35. The case for the applicant was ably put by Mr Venter and Mr Bryant. However, the applicant was conspicuous by his absence, and this after Mr Venter had been advised, prior to the hearing, that the applicant should be present in person or available by telephone hook-up. Nevertheless, Mr Venter indicated to the Tribunal that Mr Vadasz would not be called to give evidence, that he would not be able to add to anything that he and Mr Bryant would be putting to the Tribunal, and that the presence of Mr Venter and Mr Bryant was sufficient for the conduct of the applicant’s case.
36. The applicant had been put on notice by the respondent of the details and documents needed to support his claims. However, it was abundantly clear from the evidence that the applicant had not kept proper records to reflect his taxable supplies and the receipts from those supplies, which separately identified the sales consideration and the GST component. Sales records were maintained using both MYOB generated tax invoices and APC generated invoices. Mr Venter referred to the MYOB tax invoices on numerous occasions. However, the Tribunal was not shown or referred to MYOB invoices for all transactions. MYOB invoices existed for some transactions, but not others, as were invoices generated by APC. However, on many occasions there were simply no tax invoices at all. Notwithstanding Mr Venter’s explanation, it was not clear to the Tribunal why MYOB generated tax invoices were not used in all sales or supply transactions, and why APC invoices appeared in some transactions and not others. Moreover, in instances where both MYOB invoices and APC invoices existed for the same transaction, often the details contained in the invoices were not the same.
37. Mr Venter referred at various times to the documents described as APC “Card Transactions” in the T documents. He submitted that these were relevant in demonstrating the existence of certain sales or receipts of the applicant. The Tribunal found the records difficult to follow and there were obvious inconsistencies in the manner in which the entries comprised in the Card Transactions were treated. Often, it appeared that transactions were recorded first as “debits” and then reversed as “credits”, and then re-introduced as “debits”. In other instances, entries that appeared in the credit column were described as “credit”, whereas others appearing in the same column were described as “sales”. If it was intended to show some consistency in the nature and description of these transactions, the records were sadly lacking.
38. Mr Venter also referred at various times to the Fees Received Document (annexed to exhibit A1). Mr Venter said that the Document included receipts that could not be identified. As indicated earlier in these reasons, its source was unclear. If the amounts contained in the Document were receipts, it should have been possible to match them with the relevant tax invoices. And it was not clear why some receipt entries had client descriptions, whereas others were described as “unknown”. Moreover, if the amounts referred to in the Document were receipts from sales or supplies, why did some include a GST component and others not?
39. With a number of customers, particularly Barclay Mowlem, amounts were written-off as unpaid, when it became clear that client retentions were involved which were later received in full from the client. The relationship that appeared to exist between the applicant (or APC) and a number of customers was intriguing. With Contract Control Constructions, for example, invoices for very large amounts were debited and credited in the applicant’s records. However, when approached, the customer said that it had no record of invoices being received or payments made. If the customer’s response is accepted, and there is nothing to suggest that it should not be, the question must be asked how these customer transactions came about in the first place.
40. In addition to the difficulty in identifying and properly evidencing the write-off of bad debts for GST purposes, problems existed with documents which the applicant put forward as adjustment notes, and they were not accepted by the respondent. They did not comply with the requirements of s 29-75(1) of the GST Act. They did not relate to the original invoices by description or identification and they did not show the actual adjustment in relation to the original invoiced amount. Given the unreliability of the applicant’s records, it would not seem appropriate for the respondent (or the Tribunal) to exercise the discretion contained in s 29-75(1) in favour of the applicant. In any event, although it is not relevant to the decision ultimately reached by it, as presently advised, the Tribunal questions whether the decision by the respondent to not accept the documents put forward by the applicant as adjustment notes is a reviewable GST decision under s 62(1) of the TA Act.
41. Mr Venter asserted that information had been withheld from the applicant and that insufficient time had been allowed for him to properly prepare his case. When the applicant experienced difficulty in obtaining information from his customers in relation to the various transactions, the respondent approached those customers and obtained further information. The information provided to the respondent was made available to the applicant. None of the information that was furnished by the customers to the respondent was withheld from the applicant. Mr Venter suggested that there were occasions when the respondent decided to stop the process of requesting information from third parties. Although this was a matter that was not before the Tribunal, there was nothing in the evidence before it to suggest that the respondent had ceased requesting information from customers of the applicant in circumstances where inaction would have been detrimental to the applicant’s case. In any event, such an assertion suffers from a fundamental misconception. It is for the applicant to prove that the assessments raised by the respondent are excessive and the onus lies upon the applicant to disprove the disputed GST adjustments. Ultimately, there are matters that require explanation and evidence, not explanation from the applicant’s representatives, but evidence from the applicant himself, as best he can, in relation to the relevant transactions and records.
42. Mr Venter repeatedly submitted to the Tribunal that there was evidence before it which demonstrated that the GST adjustments were wrong. His submission was that the applicant had or was entitled to decreasing adjustments for supplies and/or for bad debts pursuant to s 19-55 and/or s 21-5 of the GST Act and that the decreasing adjustments should be (or should be increased to) $119,560. The Tribunal is unable to accept these submissions. At the risk of repeating itself, the applicant’s records were unreliable and were deficient in many respects. Numerous errors were identified during the course of the evidence and the Tribunal cannot agree with the submissions that Mr Venter forcefully put.
43. In summary, the issue before the Tribunal is whether the applicant is entitled to the decreasing adjustments referred to in paragraph 42 of these reasons and whether he has discharged the onus under s 14ZZK(b) of the TA Act. The Tribunal finds that the applicant has failed to discharge the onus. Accordingly, the objection decision under review is affirmed.
I certify that the 43 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne
Signed: .....................................................................................
AssociateDates of Hearing 22/23/24 March 2006
Date of Decision 4 August 2006
Advocate for the Applicant Mr J Venter
Counsel for the Respondent Mr S Cole
Solicitor for the Respondent ATO Legal Practice
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