Jonshagen v CofT – No extension of time to object against a scheme assessment in the 2000 year – 2nd time round after failing previously in the 1998 and 1999 years

The AAT has affirmed the ATO’s decision, not to grant a taxpayer an extension of time, to object against amended assessments, for the 2000 income year, as the taxpayer was precluded, from objecting, by reason of having entered into a settlement deed, with the ATO.

The taxpayer claimed deductions, for management fees, incurred by his participation, in a wine investment scheme, in WA, for the 1998, 1999 and 2000 income years.

• In 2001 the ATO issued a position paper stating that that in its view the deductions claimed were ‘tax benefits’ to which the General Anti-Avoidance Provisions, in Part IVA of the ITAA36 applied.
• In 2002 the taxpayer entered into a settlement deed, with ATO, under which the ATO agreed to allow a deduction, equal to the cash payment contributed by the taxpayer, to the scheme (other than amounts for specified capital items), and to remit any tax penalty and interest to nil.
• The ATO issued amended assessments for those years, in 2003, which reflected the terms of the settlement deed.
• In 2014 the taxpayer sought an extension of time to lodge objections to the assessments issued for the 1998 and 1999 income years, and
• in 2017 the taxpayer requested an extension of time to lodge objections to the assessment for the 2000 income year.

In Jonshagen v FCT [2016] FCA 1545, the Federal Court confirmed a previous AAT decision (Re Jonshagen and FCT [2015] AATA 380) that had refused the taxpayer’s request for extension of time, to lodge objections, to the assessments, for the 1998 and 1999 income years.

1. The Federal Court essentially held that the taxpayer had no prospect of success because he had waived his rights, to object, by entering into the settlement deed.
2. It also found that the taxpayer’s proposed objections, directed as they were, to impugning the lawfulness of making the amended assessments, by reference to errors made in the ATO position paper, fell short of constituting an objection, which had a reasonable prospect of success.

In the present case the AAT considered the effect of the decision, in the Federal Court, and found that the settlement deed applied to the assessment for the 2000 income year, as well as the income tax years 1998 and 1999.

1. This was because the deed was governed by its terms, which applied across the board to the taxpayer’s participation in the scheme, irrespective of the income year in which a deduction was claimed.
2. The Tribunal also held that, even if the taxpayer was not prevented, by law, from making the proposed objection, the objection had no reasonable prospect of success, for the reasons set out in the decision of the Federal Court.
3. Further, the taxpayer failed to provide any adequate explanation, for the very substantial delay, in making the request for the extension of time.

(Jonshagen v FCT [2018] AATA 1338, AAT, File Number 2017/4608, Boyle DP, 23 May 2018.)

3.6.18, FJM.

[LTN 103, 31/5/18; Tax Month – May 2018]

Study questions (answers available)

1. Did the case involve deductions the taxpayer claimed, for management fees, in a wine investment scheme?
2. Did the Commissioner apply ‘Part IVA’?
3. Did the Commissioner allow deductions, for the cash portion of the management fees paid and remit penalties and interest to nil, as part of a settlement, for the 1998, 1999 & 2000 years?
4. Did the taxpayer attempt to object, out of time, in relation to the 1998 & 1999 years, in a first round of AAT & Federal Court litigation (in 2015 & 2016)?
5. Did he succeed, then?
6. Did he repeat, essentially the same process, for the 2000 year, in the AAT?
7. Was the result, for the 2000 year, any different than for the two previous years?