VCJN and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal considered a dispute between VCJN (the Applicant) and the Commissioner of Taxation (the Commissioner) concerning income tax assessments for the year ended 30 June 2015. The core of the dispute involved loans provided by a private company to the Applicant, which the Commissioner treated as dividends under Division 7A of the *Income Tax Assessment Act 1936* (Cth) (ITAA).

The legal issues before the Tribunal were whether the Applicant had failed to make the minimum yearly repayment on a loan from a private company, and if so, whether an exception under section 109Q of the ITAA applied. Specifically, the Tribunal had to determine if the Applicant could demonstrate that the non-payment of the minimum yearly repayment was due to circumstances beyond his control and that he would suffer undue hardship if the amount were treated as a deemed dividend.

The Tribunal acknowledged that while it is not a court bound by strict rules of evidence, its inquiries are confined by the taxpayer's objection and the evidence presented. It was not disputed that the Applicant failed to make the minimum yearly repayment of $251,350 for the loan from Company #1, a private company. The Commissioner conceded that the available distributable surplus of Company #1 was $149,698. By operation of section 109Y(1) of the ITAA, the Applicant was deemed to have received a dividend equivalent to this distributable surplus. The Applicant sought to rely on section 109Q(1) of the ITAA, arguing that the Global Financial Crisis (GFC) and its continuing economic effects were the cause of his inability to pay. However, the Commissioner submitted, and the Tribunal accepted, that the GFC and its effects in 2015 were not unusual, uncommon, abnormal, or unexpected, and were too remote to be considered a real cause for the Applicant's failure to pay.

The Tribunal concluded that the Applicant had not established that the assessments were excessive or incorrect, and therefore, the Applicant's objection was allowed only to the extent that his taxable income for the year ended 30 June 2015 was reduced to $129,678.