In a very lengthy decision (over 400 pages), the AAT has affirmed that over $20m deposited into the private bank account of 2 taxpayers in the 2005 to 2008 income years (inclusive) from a private company, of which they were directors, comprised assessable income of the taxpayers in the form of either unfranked dividends, deemed dividends or ordinary income under the relevant provisions of the tax law .
Much of these amounts had been expended on various outgoings including the purchase of real property and other private expenses.
The taxpayers argued, among other things,
- that the amounts were received as loans or fringe benefits from the company, and
- that they also represented the receipt of contract payments received by the company, which were on-paid to subcontractors.
- They also claimed that the real estate was purchased in various other names in order to protect the assets of the company.
However, in confirming the decision under review, the AAT essentially found that the taxpayers had not discharged the relevant onus of proof as it said they could not rely on records kept that were reconstructed records and unsupported by primary documentary material (eg invoices), especially as those records were not contemporaneous records in relation to the company account from which the taxpayers withdrew the relevant moneys.
The taxpayers also unsuccessfully contested the objection decision and the review process on a number of procedural grounds including that the AAT Deputy President who heard the case should have disqualified herself for apprehended bias, that an authorised resolution of meeting of creditors to destroy previous company records lessened the burden of proof on the taxpayers, that the Commissioner should produce relevant notices issued under s 264 of the ITAA 1936 used by Australian Federal Police, and that the evidence of the Commissioner’s expert witness should not be accepted.
Finally, the AAT upheld relevant 75% shortfall penalties for intentional disregard of the law and found there were no grounds for remission.
(AAT Case [2013] AATA 112, Ref Nos 2010/4417- 4420, 2010/4425-4428, 2011/1983-1986 and 2011/2000-2001, Forgie DP, 1 March 2013.)
[LTN 38, 26/2/13]