Tax & ATO News Australia

Analysing the Systemic Issues Within the ATO

Those of you who have read my rants (blog) know by now my thoughts on the systemic problems within the ATO, but in light of the recent reports by ABC News and Fairfax Media about alleged abusive practices by the ATO, I thought it might be a good time to reiterate.

The alleged abusive practices that are currently in the spot light are not a universal problem, but it is definitely cultural, not an isolated occurrence. There are many officers in the ATO who are reasonable, understanding and work tirelessly to ensure the correct amount of tax is levied and collected. Unfortunately, there are also a significant number of ATO officers who have an institutional bias against tax payers, calling them crooks and cheats, and assuming facts before they are proved.

Regrettably, over many years, I have seen that once a preliminary view is formed, the ATO do not have good systems for reversing that view. The true separation of objection officers from auditors has been successful, in my view, but regrettably debt collection is an entirely separate issue. I have had many matters, including very recent matters, where aggressive debt collection has proceeded (including departure prohibition orders, supreme court proceedings and garnishees) despite there being clear and undisputed evidence that the debt being chased was well in excess of what was genuinely owed.

Tax is a notoriously perplexing area of law. However, few things are more perplexing than the inconsistent administration of the ATO’s disputed debt recovery policies. Strictly speaking, the Commissioner is free to take whatever steps whenever he pleases, regardless of the existence of a dispute – in fact, sections 14ZZM and 14ZZR of the Taxation Administration Act 1953 are explicit that liability to pay assessed tax is not suspended because of pending reviews or appeals. This means, once assessments are issued, the Commissioner is entitled to do what is necessary to recover.

More critically, the power that the ATO has to collect money is virtually unlimited, as I have written about before. This power, coupled with a culture that oscillates between rabidly aggressive (at worst) to uncompromising (at best), means that there is always a real risk that an individual ATO officer will go too far and destroy someone’s life in the meantime. This has happened, and I have personally been involved in many such cases, including cases that are deserving of compensation, so badly has the ATO behaved.

The statement made in the Sydney Morning Herald article, that the ATO targets small businesses more than larger ones because the latter have more money to fight back, certainly has a grain of truth to it. There is no doubt that big business has a greater ability to negotiate favourable payment terms compared with small business. The ATO is open about this – they identify the risk of recovery as being a major factor in aggressively pursuing debt collection. The difficultly is that when combined with the conclusive presumption that an assessment is correct, notwithstanding there being genuine grounds to dispute it, a perceived risk of recovery of an incorrect assessment means that small business taxpayers are frequently pursued for debts that are ultimately proved to be wrong. This does not happen at the big end of town.

When analysing the systemic problems at the ATO, there seems to be two things that can be done to set things right;

  • (1) no debt should be pursued while there is a genuine challenge to the validity of the debt; and
  • (2) if a taxpayer incurs costs in setting the record straight because of ATO errors, 100% of the taxpayer’s costs must be reimbursed.

Taxpayers by and large try to do the right thing. Australians are not tax cheats. Tax laws are horrible complex and even the ATO frequently changes its position on issues. Too easily differences in opinion, or even reliance on old ATO’s views, are considered to be ‘tax avoidance’. By all means the ATO should chase those who deliberately flout tax laws with the full force of the law, but don’t call small business owners tax cheats when they are trying their best to interpret on the fly laws which are neither simple nor well explained. If a mistake occurs, or there is a difference in interpretation, give small business owners the benefit of the doubt and the opportunity to sort through the issues without the threat of aggressive debt collection and financial destruction. 

Posted in: Tax & ATO News Australia at 10 April 18

Retrospective Changes to Small Business Concessions

 My last rant measured expression of my opinion was only one small voice amongst many people criticising the Federal Opposition attach on franking credit refunds. Now it is time to show I have no political bias and turn the same criticism on the Federal Government for their proposed small business changes, which are arguably far worse, particular for individual small business owners who have just sold their business, or are about to do so.


Every so often something arises that has a less obvious impact but potentially poses far greater damage for individuals. That is currently demonstrated as the proposed changes to small business concessions which were announced in February.


The issue is that for a number of years various generous concessions for selling small businesses have been available as compensation for business owners not having been able to save for their retirement. To qualify (and this is grossly over-simplifying) they must have net assets of less than $6mil or turnover under $2mil.


In May 2017 the govt announced it would be cracking down on aggressive strategies with an integrity measure to ensure the small business concessions were appropriately applied. However, the February 2018 draft legislation proposed retrospective measures that went far beyond the scope of the previous announcement. These issues will affect future and past business sales in ways no ever realised and we sincerely hope it won’t become legislation. The restrospectivity of these changes means that they operate for businesses that were sold after 1 July 2017 – some 9 months before the legislation was drafted.


The proposed legislation includes 4 new criteria to be satisfied, the draft legislation repeals s 152-10(2) of the Income Tax Assessment Act 1997 (the ITAA 1997). In substitution, it inserts a new s 152-10(2). The conditions of the new subsection are:

 

  1. a stricter active asset test
  2. if a taxpayer relies on the CGT small business entity test to qualify for the SB concessions, they must be carrying on a business just before the relevant CGT event
  3. the company or trust in which the shares or units are being sold (the object entity) must be carrying on a business just before the CGT event, and
  4. the object entity must itself either satisfy the CGT small business entity test or a modified $6m maximum net asset value test.


Whilst some of the changes are sensible, such as preventing a person from using the small business concessions to shield a capital gain on shares or units by becoming a CGT small business entity (ie by starting a new, unrelated business) later in that income year. Others are very concerning, in particular the changes that will have retrospective application to periods prior to 1 July 2017, by virtue of the application of the modified active asset test (which looks back at the history of ownership of the relevant shares or units).


In circumstances where the ATO can, and has, applied Part IVA to the real mischief that this proposed legislation targets, it really is unclear why it was needed, and why it went so far, and why it applies retrospectively.


Both Vincees of Government must do better than this. It leads to far too much uncertainty and a serious lack of confidence.

 


 

Posted in: Tax & ATO News Australia at 20 March 18

Franking Credit Proposed Changes

Politicians just cannot help mucking around with tax laws. I am not the first person to talk about this, and right now I am obviously not the only person, as the Federal Opposition’s latest thought bubble on refunding franking credits is roundly and rightly criticised.


In the interests of fairness and balance, I want to talk about another ill-thought out and retrospective proposed change which the current Federal Government is planning to make to small business concessions. But before I do that, just one quick comment in relation to the Opposition’s franking credit problem that I have not seen anyone make. Bear with me – this is a bit mathsy:


The Opposition’s proposal is that the government will stop drawing cheques to people who receive franking credits in excess of their taxable income. Practically, as has dominated the press in recent days, this targets self funded retirees who received franked dividends from companies, but do not have large taxable incomes because they are receiving tax-free superannuation pensions. The theory apparently being, well hey, they are not going to vote ALP anyway. So far, so cynical. And to someone who doesn’t understand how franking credits work, it kind of makes sense: why should the Government be sending out cheques to all of these wealthy old people?


But here’s the rub – there is absolutely zero difference to the budget bottom line whether a rebate is represented by a payment from the government or a reduction in tax payable by a tax payer. In either case, this is money that government does not have.


To give you the example, take two people: Vince a self funded retiree with a self managed superannuation fund with $1,000,000 of Australian blue chip shares in it, and a Federal Politician with a randomly selected salary of $375,588 per annum and the same number of shares. We’ll call him Bill. Let’s ignore Bill’s perks and any other tax breaks – I have never acted for a Federal politician in a tax matter, and frankly I’m happy to keep it that way.


Vince receives fully franked dividends of $50,000 per annum. The way franking credits work is that is cash of $35,000 and franking credits of $15,000. Vince therefore has pension income of $50,000, from which he is exempt from tax. Under the current system the franking credits are refunded to him, so he gets $15,000 from the Federal Govt. This is what the Opposition wants to stop.


Bill on the otherhand is on the top marginal tax rate. He pays lots of tax – if you ignore his fully franked dividend of $50,000 (same as Vince’s) he pays $142,246.60 in tax (before medicare levy). But watch how Bill’s full franked dividend of $50,000 is treated. He gets the same amount of cash - $35,000. But as a result of the franking credit, his tax bill only increases to $149,746.60. If he didn’t get the franking credit, his tax would have been $164,746.60.


In other words, Bill gets the full use of the Franking Credit, because he pays $15,000 less tax than he otherwise would, whereas Vince misses out on the benefit completely. Put in reverse, the Federal coffers pick up $15,000 from Vince, the pensioner on $35k per annum, but don’t get the $15,000 from Bill, the politician on $275,746, after tax.

 

Not very fair is it?


My good intentions of providing balance must be sacrificed on the altar of brevity. I have already gone on too long. I will criticise the Government in Part 2.
 

Posted in: Tax & ATO News Australia at 19 March 18

Walsh and Commissioner of Taxation [2018] AATA 235

In the decision of Walsh v Commissioner of Taxation, the Administrative Appeals Tribunal examines an applicant for review by a taxpayer of a decision of the Commissioner not to revoke a Departure Prohibition Order issued. Deputy President Molloy ordered that the Departure Prohibition Order be revoked on the basis its continuation did not serve the intended purpose and intrusion imposed on the taxpayer outweighed the protection of revenue.

 

Following an audit of the taxpayer’s affairs conducted by the Australian Taxation Office, the Deputy Commissioner of Taxation (‘DCT’) issued amended assessments and notices of assessments of administrative penalties for the financial years ended 2003, 2004, 2005, 2007 and 2008, on the basis that:

 

  • a sham arrangement existed between an Australian resident company and a company registered in Vanuatu, and monies transferred were the taxpayer’s assessable income; and
  • amounts credited in the loan account of the Australian resident company were deemed dividends and thus assessable income.


On 30 November 2010, the taxpayer objected to the assessment and on 10 August 2012 the Commissioner affirmed its decision. Accordingly, the taxpayer sought review of the decision on 9 October 2012, which was subsequently withdrawn and dismissed.


On 20 August 2015, the Commissioner issued a Departure Prohibition Order (‘DPO’) on the basis the taxpayer had a tax liability of $1,692,445.73, and that he failed to make an arrangement to pay his tax liability and there was a risk to revenue.


Subsequently, the DCT initiated proceedings in the Queensland Supreme Court to recover the tax liability and obtained a default judgement against the taxpayer.


On 2 December 2015, the taxpayer applied for revocation of the DPO, but the information provided by the taxpayer was not to the satisfaction of the Commissioner of Taxation (‘Commissioner’) to allow the revocation.


On 4 January 2017, pursuant to debtor’s petition, trustees of the taxpayer’s bankrupt estate were appointed.
The taxpayer sought to have the Tribunal review the Commissioner’s decision not to revoke the DPO on the basis of three grounds.

 

The DPO was no longer lawful


It was contended by the taxpayer that pursuant to the Bankruptcy Act 1966 the taxpayer could not be subject to the DPO as a creditor cannot enforce any remedy against a bankrupt person in respect of a provable debt.


Conversely, the Commissioner contended the notion that no bankrupt who was at the time of the bankruptcy in debt to the Commissioner could ever be subject to a DPO had been rejected by the Federal Court in Edelsten v Federal Commissioner of Taxation.


Ultimately, the Tribunal was not satisfied that the DPO was rendered unlawful by virtue of the taxpayer’s bankruptcy.

 

Continuation of the DPO does not serve the purpose


The Tribunal observed that the central purpose of Part IVA of the Taxation Administration Act 1953 (‘TAA’) is the prevention of persons with tax liability leaving Australia, where in the Commissioner’s belief reasonably arrived at, the recovery would or might thereby be impaired.


It was observed that the DPO had been in place for two years, over that time no contributions to revenue were made and the taxpayer did not have assets to pay the tax debt. Additionally, even if the DPO was set aside, the trustees would still control possession of the taxpayer’s passport and his ability to depart Australia.


In all the circumstances, the Tribunal was not satisfied the departure of the taxpayer from Australia would make it less likely that his tax liability will be discharged in either whole or part, or that the Commissioner’s ability to recover the tax would be impaired. Accordingly, the Tribunal found that the purpose of the legislation would not be met by the continuation of the DPO.

 

Freedom of movement


The Tribunal referred to Poletti v Commissioner of Taxation, where the Full Federal Court commented that the ‘severe intrusion’ of a DPO upon an individual’s ‘liberty, privacy and freedom of movement’ must be balanced against the protection of the revenue.


As the taxpayer’s principal place of resident was in the United States of America with his wife and young daughter, the Tribunal accepted the DPO operated as a particularly severe intrusion on his freedom of movement.


The Commissioner in relying on Troughton v Deputy Commissioner of Taxation (‘Troughton’) submitted that the factors concerning the personal hardship on the taxpayer and his family do not justify the revocation, but a consideration relevant for a Departure Authorisation Certificate under s 14U TAA.


However, the Tribunal found the comments in Troughton were directed to the facts and circumstances of that case and not made with the intention of laying down any principle of general application.


The Tribunal noted that the discretion to under s 14T(2) TAA to revoke a DPO is wide in terms. Accordingly, the Tribunal found it unlikely that the legislative intention behind exercising that discretion would allow the decision maker to ignore the impact the continuation of the DPO would have on the taxpayer and his family.


On this basis, the Tribunal found that the taxpayer’s family circumstances would weigh heavily in favour and against the continuation of the DPO.

 

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 28 February 18

MedAid Pty Ltd and Commissioner of Taxation [2018] AATA 170

In the recent decision of MedAid and Commissioner of Taxation, the Administrative Appeals Tribunal examines a joinder application brought by an individual purporting to be a creditor and member of a taxpayer, being deregistered company.

MedAid Pty Ltd (‘MedAid’), the taxpayer, commenced two separate proceedings seeking review of objection decisions made by the Commissioner of Taxation (‘Commissioner’). MedAid was subsequently deregistered on 2 August 2015.
 

Accordingly, the Commissioner requested that the proceedings be dismissed, as the taxpayer ceased to exist. Deputy President McCabe was satisfied with the Commissioner’s request, but agreed to consider whether Mr Arnold, a purported representative of MedAid should be joined to the proceedings, on the basis his interests were affected by the decision under review within the meaning of s 30 the Administrative Appeals Tribunal Act 1975 (‘AAT Act’).
 

By operation of section 14ZZD of the Taxation Administration Act 1953, section 30(1A) AAT Act is modified to be read as:
 

If an application has been made by a person to the Tribunal for the review of a reviewable decision or an extension of time refusal decision:


(a) any other person whose interest are affected by the decision may apply, in writing, to the Tribunal to be made a party to the proceeding; and
(b) the Tribunal may, in its discretion, by order, if it is satisfied that the person making the application consents to the order, make that person a party to the proceeding.

 

The Commissioner contended that Mr Arnold’s application for joinder would fail because:


(1) his interests are not affected by the decision in the sense intended by the legislation;
(2) the applicant cannot obtain the consent from MedAid required by s30(1A)(b) AAT Act; and
(3) the Tribunal should not exercise the discretion in Mr Arnold’s favour.


Are the interest of a creditor and a member sufficient to be joined?
 

Mr Arnold sought to claim an economic interest, arising from his position as both a creditor and member of MedAid.
 

The Commissioner doubted whether the debts were real and submitted that the invoices provided by Mr Arnold were self-serving evidence that the Tribunal should disregard. McCabe DP found that even if the debts were accepted as real, the Tribunal was not satisfied the economic interest of a creditor was sufficiently distinguishable from the interests of other individuals for the purposes of section 30(1A)(a) AAT Act.
 

Further, McCabe DP found that the interest flowing from membership in a company in the present circumstances would rise to the level where an order could be made under section 30(1A).
 

Who consents to the joinder? Can a deregistered company consent?

McCabe DP found that reference to a ‘person’ in section 30(1A)(b) refers to the taxpayer and as the taxpayer no longer exists, as it is ‘legally dead’, it cannot give consent to the joinder.
 

Accordingly, the Tribunal dismissed the application made by Mr Arnold to be joined as a party to review proceedings.

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 27 February 18

WLQC and Commissioner of Taxation [2018] AATA 14

 In WLQC and Commissioner of Taxation Deputy President McCabe examines an application for review brought by a series of Applicants in relation to a number of assessments raised by the Commissioner for a nil amount follow the Commissioner’s refusal to recognise the Applicants as a consolidated group.
 

The Applicants sought to apply for review by the Administrative Appeals Tribunal (‘AAT’) of a series of objection decision made to uphold assessments of nil for the 2004, 2005 and subsequent financial years as the Commissioner refused to treat the Applicants as a consolidated group.
 

Deputy President McCabe examined whether the nil assessments issued in 2004, 2005 and subsequent years provided the Applicants with a right of review pursuant to Part IVC of the Taxation Administration Act 1953.

2004 nil assessments:

With respect to the nil assessments in the 2004 financial year, section 175A of the Income Tax Assessment Act 1936 (‘ITAA36’) at the relevant time provided that:


“A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953”

 

Further, section 6 of the ITAA36 at the relevant time defined assessment as:


(a) the ascertainment of:
      i. the amount of taxable income

 

The Commissioner contended that the language of these provisions make it tolerably clear that references to specific amounts of taxable income and a determination of the amount the taxpayer was liable to pay were essential features of an assessment at that relevant time.
 

In support of this position the Commissioner relied upon Batagol v Commissioner of Taxation [1963] HCA 51, which concluded an assessment within the means of the ITAA36 must ascertain an actual amount of tax being due and payable.
 

Conversely, the Applicants relied upon the Full Federal Court’s finding in Commissioner of Taxation v Ryan (1998) 82 FCR 345 that a nil assessment can be made under the ITAA36. However, the decision was overturned by the High Court on appeal on another point.
 

Ultimately, Deputy President McCabe found he was inclined to accept he was bound by the authorities, thus accepted that the nil assessments issued for the 2004 financial year were not valid, and that there is no right of review with respect to those decisions under Part IVC.

 

2005 and subsequent nil assessments:

 

Deputy President McCabe considered the assessments issued with respect to the 2005 and subsequent financial years separately, as the Tax Laws Amendment (Improvements to Self-Assessment) Act (No. 2) 2005 amended sections 6 and 175A of the ITAA36. Following the amendments sub-section 175A(2) was included, which reads:

 

(2) A taxpayer cannot object under sub-section 175A(1) against an assessment ascertaining that
     (a) the taxpayer has no taxable income; or
     (b) the taxpayer has an amount of taxable income and no tax is payable

Unless the taxpayer is seeking an increase in the taxpayer’s liability

 

The Applicants were unable to confirm whether any particular Applicant with a nil assessment was seeking an increase in liability as it would require further analysis of other companies in the corporate group.
 

On this basis, Deputy President McCabe found that section 175A(2) of the ITAA36 could not be satisfied by the Applicants’ merely foreshadowing the possibility of an increase.


Jurisdiction:


With respect to jurisdiction the Applicants argued that the Tribunal should not focus on whether the assessments were invalid, it should concern itself instead with whether the assessments were excessive.
 

In rejecting this argument the Deputy President McCabe found that:
 

“if there is no assessment – and I am constrained to accept there is no assessment in the 2004 year of income where the taxpayers have received a nil assessment – or if the legislation specifically limits the right of review as it has done in s175A(2), the Tribunal has no jurisdiction to review what has been decided”.

 

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 29 January 18

NZBG and Commissioner of Taxation (Taxation) [2017] AATA 2784

 The applicant, who currently lives in New Zealand, sought a review of the Commissioner’s refusal to a request for the release of a tax debt. The applicant tendered some written materials and made submissions by telephone at the hearing. The issues in review were whether the tax debt of $92,671.44 and general interest charge of $338,184.38 ought be released, in whole or in part, under s 340-10 of Schedule 1 to the Tax Administration Act 1953 (Cth).

 

The tribunal found that the applicant discharged his onus of proof. The tribunal was not satisfied that the applicant disclosed all of his assets and liabilities, asserting he had no assets other than monies in the bank, for which he failed to put current evidence. The tribunal was neither satisfied that the applicant had no other income besides his New Zealand pension. Statements by New Zealand residents that the applicant filed in relation to the Commissioner’s assertions of other possible assets and income sources were unable to be tested because those persons did not attend the hearing. For those reasons, the tribunal affirmed the Commissioner’s decision.
 

Posted in: Tax & ATO News Australia at 25 January 18

Tyl and Commissioner of Taxation (Taxation) [2017] AATA 2850

The Administrative Appeals Tribunal affirmed the Commissioner’s objection decision in relation to the taxpayer, Mr Damien Tyl. Mr Tyl was working as a truck driver in the 2012 and 2013 financial years when he claimed deduction for travel expenses, work-related expenses and car expenses. He was audited for those expenses resulting in the disallowance of the car expenses and reduction of all other deductions to nil. Mr Tyl objected to the results of the audit. In the objection decision, the Commissioner partly allowed deductions for all of the expenses. The administrative penalty was also reduced but not entirely remitted. Mr Tyl sought a review.
 

The Tribunal emphasised that the onus of proof in establishing his allowable deductions and that he has satisfied any substantiation requirements, as well as establishing that the administrative penalty should not have been made, was on Mr Tyl. Further, Mr Tyl is required to substantiate the whole claim if any expenditure exceeds the reasonable daily allowance allowed by the Commissioner which was $87 per day in the 2012 financial year and $89.60 per day in the 2013 financial year.
 

As noted by the Tribunal member throughout the review, Mr Tyl and his tax agent, Mr Fumberger, failed to provide good, if any, evidence in relation to several material assertions. They failed to present payslips, receipts, adequate bank statements or good evidence of travel allowance. A letter from Mr Tyl’s employer indicated that $50 per overnight trip was recorded on each weekly payslip. This evidence was inconsistent with Mr Tyl’s claim of actual travel expenditure and with his assertion as to the number of nights he spent away for both years, and showed that he exceeded the reasonable daily allowance in both years. He was thus required to substantiate the whole claim for each year with written evidence, which he failed to do.
 

The Tribunal thus affirmed the objection decision and found that the Commissioner was justified in issuing the administrative penalty because Mr Tyl and Mr Fumberger showed a lack of reasonable care.
 

Posted in: Tax & ATO News Australia at 24 January 18

Webb v Deputy Commissioner of Taxation [2017] FCA 1520

In this recent decision of the Federal Court, O’Callaghan J examines a self-represented taxpayers’ application for an extension of time to appeal from the Federal Circuit Court. This decision shows the importance of complying with the appropriate procedures in lodging an appeal and having an application with sufficient merits. With the greatest respect to Mr Webb this case demonstrates the difficulty of representing yourself in the Federal Court.

Following a sequestration order made on 30 May 2017 by the Federal Circuit Court, the taxpayer filed a notice of appeal on 19 September 2017, outside of the 21 day period provided under Rule 36.03 of the Federal Court Rules.

O’Callaghan J in his decision reiterated the well-established principles for allowing an extension of time, which include:

  • whether the applicant has an acceptable explanation for the delay;
  • whether the respondent would suffer prejudice in light of the delay should an extension be granted; and
  • the merits of the substantial application.

In the present case, O’Callaghan J found the taxpayer’s argument that the incorrect form was filed did not demonstrate an acceptable explanation for the delay.

Furthermore, O’Callaghan J found that there was no reasonable prospect of success of the appeal as the contentions outlined in the taxpayer’s affidavit were “self-evidently misconceived”. In the taxpayer’s affidavit, he contended that:

  • the Registrar of the Federal Circuit Court did not have authority to adjudicate the matter;
  • the Deputy Commissioner of Taxation did not have the authority to prosecute the matter;
  • the Registrar had given undue weight to the Income Tax Assessment Act 1936 as it has not been lawfully enacted, as it does not have a proclamation certificate prescribed by the Constitution;
  • the Australian Taxation Office was not a legal entity;
  • the Deputy Commissioner of Taxation did not have standing;
  • the Federal Court did not have jurisdiction to proceed without a trial by jury;
  • the “Voice of the Australian Constitution” is relevant.

 

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 08 January 18

VPRX and Commissioner of Taxation (Taxation) [2017] AATA 2156

The Applicant sold a website to a US buyer and received payment in instalments throughout the 2010 financial year, and further payments in the 2012 financial year. As the Applicant did not lodge a tax return for either year, the Commissioner issued default assessments with a 75% shortfall penalty based on amounts documented by AUSTRAC. The tax payable and penalties were reduced after the Applicant objected to the decision, and one payment was treated as capital.

The Applicant submitted that all of the documentation relating to the sale had been lost except for some emails. For the 2010 financial year payments, he contended that it was difficult to secure a fixed price during the GFC so the amounts received were ‘revenue payments’, consideration from the buyer based on their calculated profit, and were not income. He claims he was entitled to deductions for expenses in earning his ordinary income. With regard to the 2012 financial year payments, he contended that the penalty was unjust in circumstances where he was unable to locate the sale agreement. Indeed, the applicant was inefficient in producing evidence and failed to do so on several occasions.

The tribunal accepted the emails as evidence of a sale agreement but in the absence of its details, particularly the basis on which payments were calculated, treated the payments as income rather than capital. Regarding the penalty, the tribunal found that the Applicant’s inability to produce documents was no justification for concession and that, although he was not grossly careless, there was no justification for reducing the penalty in the circumstances. The tribunal reiterated that the onus is on the Applicant to establish that the assessments are excessive, and concluded that the Applicant was unable to discharge this burden. There were no submissions on the matter of capital gains tax.


 

Posted in: Tax & ATO News Australia at 28 November 17

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Author: David Hughes

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