The AAT has affirmed objection decisions made by the Commissioner in relation to amended assessments issued to the taxpayer for the 2006 and 2007 income years to deny deductions of $518,000 and $416,000, respectively, concerning partnership losses in respect of a taxpayer’s investment in a Managed Investment Scheme (MIS), Great Southern Plantations 2005 Project, for which the Commissioner had issued product rulings. The AAT also confirmed the imposition of 50% shortfall penalties for recklessness (but reduced by 80% for voluntary disclosure after the Tax Office had given notice of an audit).

In contesting the objection decision, the taxpayer argued the following:

  • the original 2007 return was lodged by his agent without his authority (in that he had not signed it);
  • the Commissioner had not served upon him the amended assessments (in that they had been posted to a post office box and not the preferred address he gave to the Commissioner);
  • the amended assessments were invalid due to the operation of the doctrine of estoppel (in terms of the relevant product rulings and the taxpayer’s other prior correspondence with employees of the Tax Office) ; and
  • that the amended assessments were issued outside the 2-year time limit.

In dismissing the taxpayer’s arguments, the AAT first emphasised that the onus of proof was on the taxpayer to prove the assessments were excessive (on the balance of probabilities).

  • It then found, in relation to the claim that the 2007 return was not lodged with his authority, that the return had been purported to be signed by or on his behalf and as result, it was deemed to be duly made by him or with his authority unless he proved otherwise (which he did not).
  • The AAT then found that the amended assessments had been served upon the taxpayer as required as it was sufficient that the notice of assessment be brought to the attention of the taxpayer (as opposed to where a taxpayer had not actually seen the notice in order to respond to it accordingly).
  • In relation to the claim of estoppel, the AAT found it was established law that estoppel did not apply to the Commissioner in such circumstances and that in any event the taxpayer was not a party to any such representation (only his tax agent).
  • Finally, the AAT found the Commissioner was entitled to amend the assessments outside the 2-year limit in view of the exception in 170(1)(e) of the ITAA 1936 for schemes entered into or carried out for the sole or dominant purpose of the individual obtaining a “scheme benefit”. In this regard, the AAT found the taxpayer’s agent (if not other persons) had entered into a scheme for such purposes.

(AAT Case [2014] AATA 32, AAT, Ref Nos 2012/2753 – 2574, Forgie DP, 24 January 2014.)

[FJM Note:    the ‘scheme benefit’ point involved wording about schemes to obtain a ‘tax benefit’ very similar to the Promotor Penalty Provisions, which the Full Federal Court held, in the Ludekins’ case, did NOT involve having to construct an ‘alternative hypothesis’ or counterfactual, in a technical sense, such as is found in Part IVA of the ITAA 1936. A similar approach was taken here, and as a result, it did not matter that there was no ‘tax benefit’ actually obtained. Rather, it was objectively the purpose of parties entering this scheme, that it did achieve a ‘tax benefit’ for the taxpayer.]

[LTN 17, 28/1/14]