Two taxpayers, a husband and the wife of his deceased estate, have been partly successful before the AAT in arguing that amended assessments issued to them
were excessive on the basis that some of the payments made into their bank account from a business operated by a family company was not their income, but that of their 3 children and a nephew, who worked in the business and for whom they held the moneys on trust. Alternatively, they argued that the amounts were assessable to the children and nephew as deemed dividends under Div 7A of Pt III of the ITAA 1936.
In the case of the nephew, the AAT found that all the amounts paid into the account were income from working for the company and which was held on trust for him (although the AAT did question why the payments could not have been made directly from the company to the nephew). However, in relation to the 3 children, the AAT accepted that they worked in the business but not to the extent claimed in poorly kept records, and that there was no evidence that the money was being held on trust for the children.
As a result, the AAT found the taxpayers had not established that the balance of the payments paid into their account had not been beneficially derived by them as ordinary income under s 6-5 of the ITAA 1997. It also affirmed 50% penalties imposed for “recklessness” in respect of these amounts. However the AAT found that Div 7A did not apply to the payments because in terms of s 109L(1) of the ITAA 1936, the payments were assessable under another provision of the tax law.
(AAT Case [2012] AATA 47, Re Ma and FCT, AAT, Ref Nos 2010/2657-62 & 2010/2663-65, Redfern SM, 31 January 2012.)
[LTN 21, 2/2]