On 10 August 2021, the AAT upheld assessments based on surplus cash deposits, of a local seafood business was income, allowed amendments beyond 4 years based on ‘fraud or evasion’, upheld 50% ‘reckless’ shortfall penalties and did not remit interest penalties.
See below for further details.
The facts were these.
- The taxpayer had a business selling local seafood, operating firstly as a sole trader and then through 2 companies.
- The only employees in the business were the taxpayer, his wife who helped with the bookkeeping and a part time employee who helped deliver frozen seafood.
- The taxpayer also effectively controlled 2 property investment trusts.
- A tax audit for the 2008 to 2016 income years identified an overall surplus of funds from cash deposits to the taxpayer’s bank accounts.
- The ATO subsequently issued amended assessments for those years, which included the surpluses ($820,000 in total) in the taxpayer’s assessable income.
The AAT concluded, based on the evidence before it, that the taxpayer had not shown that the amended assessments were excessive.
- Although the taxpayer had a good level of business acumen and was aware of the importance of keeping business records, he had no records of his cash deposits into his bank accounts or cash withdrawals and how they may have corresponded to the payment of business expenses or receipt of business income.
- The taxpayer was unable to establish “what the true purpose of the withdrawals and deposits among his bank accounts were or what the source or sources of those deposits were”.
The AAT also concluded that:
- there was fraud or evasion and therefore the amended assessments for 2008 to 2014 were not issued out of time;
- the administrative penalties were correctly applied at the base rate of 50% (automatically increased by 20% for each year after 2008);
- and there was no evidence to support the remission of the penalties and the SIC.
TAXATION – income tax – default amended assessments – whether evasion – unexplained bank deposits – onus to prove assessment was excessive and what taxable income should have been – administrative penalty – whether reckless – whether administrative penalty should be remitted – whether shortfall interest charge should be remitted – decision under review affirmed
(Kong v CofT  AATA 2775, AAT, Mitchell M, 10 August 2021.)
[LTN 155, 13/8/21]