The AAT has made decisions concerning amended assessments issued to 2 taxpayers which it said were connected in some way with one or more companies in a company group.
The first taxpayer was an employee of the company group. The second taxpayer was married to the director of the company group. (They are now separated.)
Following tax audits that commenced in 2007, the Commissioner formed the view that the taxpayers had understated their income and issued amended assessments to each taxpayer for the 2003 to 2006 income years. The Commissioner had also imposed administrative penalty at 50% for “recklessness”. In each case, the Commissioner had allowed the taxpayers’ objections in part, although the amended assessments were largely upheld.
The Commissioner maintained there was evasion (but not fraud) per s170 of the ITAA 1936 in relation to the first taxpayer for the 2003 to 2005 years and the second taxpayer for the 2003 to 2006 years.
First taxpayer
The total further tax sought from the first taxpayer on the basis of the amended assessments was almost $400,000. The taxpayer claimed the amended assessments issued in April 2009 were excessive. Broadly, the taxpayer argued that deposits in his bank accounts represented: transfers between his accounts; reimbursements of company expenses; and repayment of loans to his employer.
The AAT noted there were almost 150 deposits for which the taxpayer provided explanations to all except for 11 of them. In making its decision that there had been no evasion in the taxpayer’s case, the Tribunal accepted the taxpayer’s explanations and evidence in relation to 3 representative deposits – that is:
- the taxpayer had accepted a deposit from a group company into his bank account so that an overseas transfer could proceed smoothly;
- the taxpayer did pay a “union representative” and then had it reimbursed by one of the group companies; and
- the taxpayer had lent money to the director and his brother which was later repaid to him.
Accordingly, the AAT held the amended assessments for the 2003 to 2005 years were excessive as there was no evasion per s 170. In doing so, the Tribunal allowed the taxpayer’s objections in full in relation to those assessments.
However, in relation to the 2006 year, the Tribunal said the taxpayer was required to establish not only that the assessment was wrong, but also how it can be made right. In allowing the taxpayer’s objection in part, the Tribunal accepted the taxpayer’s explanations for most of the disputed deposits, but held that 3 “relatively small amounts”, which were not accounted for, should be included in the taxpayer’s assessable income.
Accordingly, the first taxpayer was able in the main to discharge the burden of proof that the assessments were excessive.
In relation to administrative penalties, the AAT was satisfied there was no recklessness involved and held that the penalty should be remitted in full.
Second taxpayer
The total further tax sought from the second taxpayer on the basis of the amended assessments was over id=”mce_marker”.5m (however, before the proceedings, the Commissioner conceded the taxpayer’s objections in relation to over half of the 128 originally disputed deposits – leaving 63 deposits in dispute). The taxpayer argued the amended assessments issued in June 2009 were excessive and that disputed deposits were either: amounts transferred to her bank accounts from other accounts that she controlled; government payments eg education allowance payments; repayments of loans; reimbursements of expenses paid on behalf of one of the group companies (or one of her own companies); or gifts from her husband.
The Tribunal accepted the taxpayer’s explanation that 3 “big-ticket” deposits in relation to the 2006 year (totalling $839,000) represented “examples of what appears to me to have been a regular flow of funds – which occurred in both directions – between [the taxpayer] and various companies in the [company] group”. However, the Tribunal did not accept the taxpayer’s explanations that 3 other large deposits in relation to the 2005 year (totalling just over id=”mce_marker”m) did not have the character of income.
The Tribunal examined the remaining 57 smaller deposits (noting the Commissioner had conceded in part 11 of the deposits). The AAT did not accept the taxpayer’s explanation for most of the deposits that they were either reimbursements of company expenses or monies from her husband to pay for family expenses. However, the AAT found that a small number of other deposits should not be included in the amended assessments.
Overall, the Tribunal was not satisfied that evasion was not present in each of the relevant years and therefore held the amended assessments were not made out of time. The AAT specified which deposits should not be included in the taxpayer’s amended assessments. In respect of all other disputed deposits, the AAT held the taxpayer had not discharged the burden of proving that the assessments were excessive. Therefore, it concluded the taxpayer’s objections should be allowed in part.
In relation to administrative penalties, the Tribunal held there was no basis for remission in the circumstance.
(AAT Case [2013] AATA 611, Re Chang and FCT; AAT Case [2013] AATA 612, Re Bai and FCT, AAT, Ref Nos: 2010/4195; 2010/4197-4198; 2011/0902; 2010/4191-4194, Frost DP, 29 August 2013.)
[LTN 169, 2/9/13]