The AAT has upheld amended GST and income tax assessments issued to an accountant.
The taxpayer and his wife carried on an accounting practice in partnership. In late 2006, however, a deed of dissolution was executed in accordance with Family Court consent orders, declaring that the partnership was dissolved by mutual consent on 1 June 2006. The taxpayer continued to carry on the business after that date using the same trading name. The taxpayer also obtained a new ABN.
Two of the issues to be decided by the AAT were whether amended GST assessments for the accounting practice were correct:
- for the period 1 July 2010 to 30 June 2012 and the quarter ended 31 December 2013, where the business traded under the old ABN;
- for the period 1 July 2011 to 31 March 2014, where the business traded under the new ABN.
As regards the periods where the old ABN was used, the AAT said that the partnership ceased to be in existence from 1 June 2006. Accordingly, it ceased to conduct an enterprise from that date and therefore various transactions conducted from that date did not involve creditable acquisitions – thus the business was not entitled to input tax credits where the old ABN was used.
The amended GST assessments relating to periods when the new ABN was used were also upheld, as the taxpayer failed to prove they were excessive. An ATO audit had discovered understated sales income in the relevant period.
Another issue before the AAT concerned amended income tax assessments for the 2012 and 2013 income years. These were based on income of the accounting practice. Again, the taxpayer was unable to prove they were excessive. The AAT rejected assertions that certain receipts were loans and gambling winnings and that certain outgoings were loan repayments. In addition, a bank account that was primarily used for the accounting practice was “replete with unidentified deposits”, but was also used by the taxpayer for gambling activities. The financial records of the business were generally inadequate. For example, a claim for a bad debt was rejected as the debt was never entered in the business’ accounts.
Finally, the administrative penalties imposed by the ATO were largely upheld. The penalties were mostly based on recklessness, but in the case of the amended GST assessments relating to the period when the old ABN was used, they were based on a failure to take reasonable care.
(HHWT and FCT [2017] AATA 1540, AAT, File Nos: 2015/5628, 2015/6760, 2016/2316-2317, Fice SM, 25 September 2017.)
‘Catchwords’ from AAT’s decision
TAXATION – appeal against objection decision – income tax assessment – whether assessment excessive or otherwise incorrect – claimed input tax credits disallowed – accountancy practice conducted under partnership – partnership dissolved – whether goods and services acquired for a creditable purpose in winding up partnership – applicant claimed loss of records – lack of invoices for claimed input tax credits –partnership found not to be conducting an enterprise following dissolution
TAXATION – estimation of income based on billable hours – ATO refunds for clients placed into general bank account – deposits from clients of accounting practice not matched with tax invoices – claimed significant gambling winnings unable to be substantiated – claimed loan moneys unable to be substantiated – lack of evidence to provide reasonable estimation of income – applicant unable to prove deductions – applicant unable to prove assessment excessive or otherwise incorrect
TAXATION – penalties – administrative penalties – where applicant’s taxation shortfall arose due to failure of applicant to take reasonable care – failure to take reasonable care when lodging BAS returns in quarterly periods – finding that applicant was reckless in lodgement of BASs and income for income years – penalties correctly imposed – 20% uplift penalty remitted for returns following initial return – no basis for remission of other penalties
[LTN 186, 28/9/17; TM Sept 2017]