Buzadzic v CofT – AAT upholds amendments to husbands assessments (unexplained deposits, Div 7A dividends etc.) but allowed the appeal of the wife (deposits belonged to husband)

In late December 2021, the AAT upheld amendments made out of time on the basis of ‘fraud or evasion’ against a husband, but allowed the appeal of the wife, on the evidence that she was a ‘stay at home mother’ and the unexplained deposits in her accounts beloved to her husband. It upheld penalties of 75%, 50% & 25%, in respect of the husband.

The facts were these.

1. During the 2007 to 2013 income years, the taxpayers (Mr and Mrs Buzadzic) were associated with at least 16 companies and 3 trusts (the Buzadzic Group) that carried on various business or investment holding activities (“related entities”).
2. The income declared by the taxpayers for those years consisted almost entirely of trust distributions totalling just over $1.21m in Mr Buzadzic’s case and just over $1.23m in Mrs Buzadzic’s case.
3. Following an audit, the ATO issued amended assessments for 2007 to 2013, increasing Mr Buzadzic’s taxable income by almost $3.94m in total and Mrs Buzadzic’s taxable income by just over $1.04m.
4. Tax shortfall penalties were also imposed (just over $1.6m in Mr Buzadzic’s case and just over $294,000 in Mrs Buzadzic’s case).
5. The additional income assessed to Mr Buzadzic included:
   1. unexplained deposits in his bank accounts,
   2. unverified sums credited to his loan accounts as recorded in the books of entities associated with him; and
   3. deemed dividends, under Div 7A of the ITAA 1936, on account of balances owing to related companies that were not paid within the prescribed time.

The AAT – in relation to Mr Buzadzic:

• held that he had failed to show his amended assessments were excessive, because he failed to explain the sources of the moneys (including set-offs, payments by direction and other forms of fund transfers).
• held that the penalties (just over $1.6m) were correctly imposed.This comprised a blend of 75% penalties for deliberate disregard for the law; 50% for reckless items and 25% for other income types.
• said that Mr Buzadzic was not helped by failing to produce contemporaneous records and call third party witnesses.
• said it could not accord any weight to “inconsistent vague recollections that amounted to no more than speculation”.

The AAT – in relation to Mrs Buzadzic:

• held that her assessments were excessive and should be set aside.
• it was satisfied that the additional income on which she was assessed – unexplained deposits in her bank accounts – belonged to her husband.
• accepted the evidence showed that she was a “stay-at-home mother” whose involvement in the Buzadzic Group was limited to acting at the direction of Mr Buzadzic and his employees.

The AAT also concluded that the ATO had the power to issue the amended assessments out of time, as there was insufficient evidence for it to conclude that there had not been fraud or evasion.

(Buzadzic and FCT [2021] AATA 4820, AAT, O’Loughlin DP and Hespe SM, 24 December 2021.) [LTN 4, 10/1/22]

[Tax Month – January 2022 – Previous 2021] 11.1.22