In a decision handed down on Thur 14.3.2013, the Full Federal Court has found that asset betterment assessments issued to husband and wife taxpayers should stand. The matter concerned the 2000 to 2006 income tax years inclusive and default assessments (including 75% penalty with a 20% uplift for most years) issued to the taxpayers following an audit in March 2010.
A number of returns had not been lodged and most of the returns lodged declared only “modest” amounts. The Commissioner assessed each taxpayer’s tax liability at id=”mce_marker”.6m and calculated penalties amounting to id=”mce_marker”.4m for the years in question. The Commissioner utilised the “asset betterment” method to estimate the combined incomes of the taxpayers and assessed them equally on the basis that they were in a partnership.
At first instance, in Gashi & Anor v FCT [2012] FCA 638, the Federal Court found that the husband had failed to show that the default assessments concerning unaccounted income were excessive. The Court also found the taxpayers were not carrying on a business as partners and were not in receipt of income jointly. However, the Court accepted new evidence of the wife’s assessable income and ordered that her assessments be amended to reflect the new amounts. The husband appealed, and the Commissioner appealed (and the wife cross-appealed) against the Federal Court decision.
The Full Federal Court said both appeals raised questions about the Commissioner’s use of the asset betterment method of assessment. The Court dismissed Mr Gashi’s grounds of appeal as “misconceived”. The Court said that even if Mr Gashi was able to prove that one or more of the items listed in the Asset Betterment Statement was wrong or should not have been included, that of itself would not have been sufficient to discharge the onus of proof he bore under s 14ZZO of the TAA. In the Court’s view, Mr Gashi was required to demonstrate the unexplained accumulated wealth in each of the relevant years was from non-income sources, however he did not show the source or sources of funds from which he acquired the increase in assets in each of the relevant years.
However, the Court allowed the Commissioner’s appeal in relation to Mrs Gashi, but dismissed her cross-appeal on the basis she had not proved the assessments were excessive.
(Gashi v FCT [2013] FCAFC 30, Full Federal Court, Bennett, Edmonds and Gordon JJ, 14 March 2013.)
[LTN 50, 14/3/13]