Husband and wife taxpayers who conceded that a “profit-washing” arrangement they entered into was a “sham” have been unsuccessful before the AAT in arguing that amended assessments were issued out of time and that 50% shortfall penalties for recklessness should have been remitted.
The taxpayers operated a successful grain growing business in partnership and took advice from their financial adviser to “restructure” it in the 2002 to 2004 income years through what the AAT said was a “crude” scheme that involved the artificial introduction of a trading trust with apparent carried forward losses.
As a result, in the 2002 income year for example, they only returned as assessable income some $30,000 in respect of assessable trading partnership income of some $250,000. The Commissioner issued amended assessments in the 2010 income year, together with 50% shortfall penalties. The taxpayers conceded that while the scheme they entered into was a “sham”, the Commissioner could not rely on the unlimited time to issue assessments as this was not a case where the avoidance of tax was due to fraud or evasion as they “did not form an intention to omit income from their tax returns”.
However, the AAT found this was a plain case of evasion as the taxpayers had conceded that the scheme was a sham and , as a result, there could not be anything other than a blameworthy act or omission on their part.
Further, the AAT did not accept their evidence that they relied totally upon their financial adviser about the propriety of the arrangements. In any event, the AAT emphasised that the taxpayers were responsible for the acts of their adviser who was their agent. For the same reasons, the AAT found that the imposition of 50% shortfall penalties for recklessness was fully warranted and that there were no grounds for remission.
(AAT Case [2012] AATA 823, Re Lack and FCT, AAT, Ref Nos 2011/0596-0598, Hack DP, 22 November 2012.)
[LTN 228, 23/11]