The AAT has affirmed the Commissioner’s decision to disallow tax withheld and various work-related expenses claimed by a taxpayer. It also affirmed the 25% shortfall penalty imposed by the Commissioner for failing to take reasonable care.

The taxpayer was a computer programmer who was both an employee and a director of a company. For the year ended 30 June 2007, he lodged an income tax return claiming tax withheld of $98,640 and various work-related expenses totalling $53,262 [as allowable deductions?]. The Commissioner audited the taxpayer and disallowed the tax withheld claimed as well as all the work-related expenses. An amended assessment and a 25% shortfall penalty notice was subsequently issued to the taxpayer.

The taxpayer objected, and the Commissioner allowed a decrease of the taxpayer’s gross income and also allowed in part some of the work-related expenses totalling $3,198. The taxpayer then applied for a review of the decision with the Tribunal. Broadly, he argued that the amended assessment was excessive as the company did not deduct PAYG instalments from the payments made. He also contended he incurred the various work expenses in the course of his role as a director of the company.

The Tribunal agreed with the Commissioner’s submission that the PAYG withholding amounts do not fall within the taxpayer’s right of objection to the original amended assessment or to his right to object against the reviewable objection decision.

In relation to the work-related expenses claimed by the taxpayer, the Tribunal found there was no evidence that the taxpayer earned any income as a director or expected to earn any income from the role. Further, it stated the expenses incurred were payments made on behalf of the company rather than payments made in gaining and producing assessable income. Therefore, it agreed with the Commissioner’s submission that the taxpayer had not established that the amended assessment was excessive.

Finally, the Tribunal found the taxpayer did not take reasonable care in lodging his 2007 income tax return whilst knowing there to be deficiencies. Hence, it held the taxpayer was liable to the 25% shortfall penalty imposed and that it would not excise its discretion to remit the penalty in whole or in part.

(AAT Case [2014] AATA 106, AAT, Ref No 2011/5113, Dunne SM, 28 February 2014.)

[LTN 41, 3/3/14]