The AAT has held that a taxpayer had not discharged his onus of proof to demonstrate that default assessments for the 2008, 2009 and 2010 income years were excessive and the 75% penalties, for failure to lodge the returns, should not be remitted.

  1. The Taxpayer did not lodge income tax returns for the 2008, 2009 and 2010 income years. The Commissioner wrote to him twice, giving him about a month to lodge the returns: on 30 April 2012 and 20 June 2012. He sent another letter on 1 August 2012, advising that he had issued default assessments and, on the same day, the Taxpayer lodged the 3 years returns.
  2. The taxpayer conducted consultancy services through his private company, AA Consulting Services Pty Ltd. In these default assessments, the Commissioner attributed this income to the Taxpayer as personal services income, for the years in question, in the amounts of $68,127, $213,948 and $227,058, respectively.
  3. In his returns, the Taxpayer claimed PAYGw credits, and certain deductions, all of which are summarised below, in the results of the decision.
  4. The Commissioner also issued assessments of administrative penalties, equal to 75% of the assessed primary tax, for failing to lodge returns for these three years. This was under s284-75(3) of the TAA1.
  5. The Taxpayer objected to all these assessments, the Commissioner disallowed those objections and the matter came before the Tribunal.

2008, 2009 & 2010 Years – Personal exertion services income (PSI) – The Taxpayer accepted that the he was properly assessed on the consulting income, earned by his consulting company, under the PSI provisions (Divs 84 – 87 of the ITAA97). [para 28 & 61]

2008 Year – ‘PAYG contractor’ (credits claimed for PAYGw) – In the 2008 Year, the Taxpayer claimed he was engaged as a ‘PAYG contractor’ (a contradiction in terms) so that he could claim a credit, for $14,589 withheld from his income, under the PAYG withholding regime [para 28].

  1. To advance this claim, he produced the original PAYG Payment Summary (from the payer company – Adaps Pty Ltd), showing the withholding [para 28] and also a statement from Australian Super, showing a contribution by Adaps for $3,789.93 [para 30]. The Tribunal conceded that the PAYG summary appeared ‘regular’ [para 29].
  2. The Commissioner was not prepared to allow the credit and in aid of his position submitted his PAYGw records for Adaps, which showed that the Taxpayer was not listed as one of the persons for whom it withheld PAYG amounts and neither did it have any record of receiving withheld amounts for the Taxpayer. The Tribunal went on to hold that there had not been any withholding from his income [para 29 & 60]. This is not surprising if Adaps was paying his consulting company (and not him personally).
  3. The Tribunal seemed to be oddly fixated on there being no PAYGw amounts being remitted to the ATO. It found that no amounts were remitted, notwithstanding the apparently ‘regular’ PAYG Summary, and notwithstanding and the Adaps Super contributions notwithstanding [para 31]. With respect to Tribunal Member Fice, the question of whether withheld amounts were remitted to, or received by, the ATO is not relevant to whether a taxpayer is allowed credits for amounts withheld from their (salary or wage) remuneration (s18-15 of the TAA1). What matters is whether an amount of the Taxpayer’s money has been withheld under the PAYG system (even if never remitted).
  4. In any event, Mr Fice then found that the Taxpayer had failed to discharge the onus on him to show that the 2008 Assessment was excessive [para 60]

2008, 2009 & 2010 Years

Claimed rental losses – The Taxpayer claimed rental income losses in 2008 (and presumably in every year – though it is hard to see why there was only a dispute in the 2008 year). The Tribunal disallowed those losses, finding the Commissioner’s approach reasonable (namely to treat rental income as equal to rental expenses, in the absence of adequate documentary evidence) [para 35]

  1. In each year, the Commissioner included $8,504 of estimated rental income (based on the only source of information available – a spreadsheet produced by the Taxpayer or his accountant, and nothing better was produced at the hearing) [para 32].
  2. In each year the Taxpayer claimed substantial losses (presumably an excess of rental deductions over rental income) [para 33]. The Tribunal does not say anything expressly about the state of the evidence supporting the claims for rental deductions, save to say generally that there was a lack of evidence [para 33] and to then go on to quote para 155 in the Imperial Bottleshops case [1991] FCA 276, which is about the difficulties taxpayers have, in discharging their onus, if they don’t have evidence to corroborate their claims, about expenses [para 34].
  3. The Tribunal noted that the Commissioner decided to “restrict rental expenses to the amount of rental income estimated to have been received in each of the income years in question” and said that was ‘reasonable‘ [para 33], which it might have been, as a basis for assessing. Whether it remained the proper basis, on which to assess the Taxpayer, seems to have been decided, by the Tribunal, on the basis of ‘onus’ (and not much more).

Motor vehicle expense deduction claims – in the 2008 year, the Taxpayer claimed $3,500 in deductions for motor vehicle expenses. The claim seemed to be for 100% of vehicle expenses, but he did not substantiate it in the necessary way (by keeping and producing a log book) was kept or produced. There was no evidence of the alleged travel being for income earning purposes. The only evidence of him having a car was for the 2013 year. In the face of this, the Commissioner did not allow these deductions and the Tribunal agreed that this was correct. [para 37] The other years were similar [para 43].

Phone/Internet cost deductions – In the 2008 Year, the Taxpayer claimed $3,125 in deductions for these expenses, based only on a Vodaphone statement indicating that he paid $4,166 that year. The Tribunal found against the Taxpayer, on this claim, based on not discharging his onus to show that the assessment was excessive. [para 38]

Work-related travel expenses – In the 2008 Year, the Taxpayer claimed $15,804 in deductions for that much expenditure on 36 flights at a cost of $439 each (based on a frequent flyer statement, which had that many points – the Taxpayer saying that each dollar spent earns a point). The problem was there was little if any evidence about the purpose of these flights, other than ‘self-serving’ evidence of the Taxpayer (‘self-serving’ being the terminology used in the Imperial Bottleshops case). The Tribunal found against this claim on the basis that the Taxpayer had not discharged his onus of showing that the assessment was excessive [para 40]. There were similar findings for the 2009 & 2010 Years [para 45].

75% Administrative Penalties for failure to lodge returns – The Tribunal refused to remit these, also [para 59].

(MMFT and FCT [2018] AATA 772, AAT, Fice SM, AAT File Nos: 2016/6175 – 6177, 5 April 2018.)


[FJM; LTN 69, 12/4/18; Tax Month April 2018]

Study questions (answers available)

  1. Did the Taxpayer fail to lodge returns for the 2008, 2009 & 2010 Years?
  2. Was the income paid to his consulting company, assessed to him as ‘personal exertion income’?
  3. Did he accept this?
  4. Was his claim for PAYGw credits accepted, in the 2008 Year?
  5. Was his claim for rental losses allowed?
  6. Was his claim for motor vehicle expenses allowed?
  7. Was his claim for ‘phone and internet’ allowed?
  8. Was his claim for ‘work-related’ travel expenses allowed?
  9. Was the 75% administrative penalty for failure to lodge returns remitted, at all?



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