The Federal Court has dismissed the taxpayers’ appeal from the decision in AAT Case [2013] AATA 112 in which the AAT found the taxpayers had failed to discharge the burden of proving that assessments raised by the Commissioner were excessive.

The assessments were in respect of $20m deposited into the personal bank account of the taxpayers over a 4-year period from a private company of which they were directors and employees, and treated the deposits as assessable to them as ordinary income or as unfranked dividends or deemed dividends.

In dismissing the taxpayers’ appeal, the Court found their appeal was “incompetent” as it did not raise relevant questions of law and that it only, in effect, related to concerns the AAT had denied the taxpayers “procedural fairness”. And while the Federal Court acknowledged that a properly formulated question of breach of procedural fairness could raise a question of law, it generally found that the taxpayers’ appeal was an attempt to re-agitate relevant issues that had been properly decided by the AAT on their merits and that, furthermore, the taxpayers had been afforded procedural fairness in doing so.

In any event, after examining all the grounds of the lack of procedural fairness raised by the taxpayers, the Court concluded that each question failed to identify a question of law but, rather, sought a merits review and that therefore the questions did not identify any error of principle. Moreover, the Court concluded that the critical issue was that the taxpayers had failed to prove the assessments to be excessive as the AAT was not satisfied that the evidence relied upon by the taxpayers was sufficient to establish their claim, and that its lack of satisfaction was not because it failed to accord procedural fairness to the taxpayers but because, having accorded them procedural fairness, it had duly decided against them.

(Haritos v FCT [2014] FCA 96, Federal Court, Pagone J, 20 February 2014.)

[LTN 39, 27/2/14]