The AAT has held that an arrangement between husband and wife taxpayers and a bank re a loan to purchase a property was a sham.
The taxpayers financed the purchase for id=”mce_marker”.1m of an apartment on the Queensland Sunshine Coast in part by a loan of $600,000 from the St George Bank. The AAT said the dispute centered on the remainder of the purchase money, and specifically, where it came from and under what circumstances.
The taxpayers argued that a further $600,000 came to them by way of loan from a bank, incorporated in Samoa in 1994 and known as Hua Wang Bank Berhad (HWBB). The Tribunal said they relied principally on a “Loan Facility Agreement” between them and HWBB, but also on other letters to them in which the bank offered to extend to them a loan facility of $750,000 for a period of 5 [years] and to roll-over the existing loan for a further 5 years. A condition of the loan was that the taxpayers had to deposit an equivalent $600,000 with the bank. On advice, they transferred $600,000 from their super fund. The taxpayers claimed relevant interest deductions.
The Commissioner claimed the arrangement between the taxpayers and HWBB was a sham, and that the documents did not represent the true relationship or the true dealings between them.
The taxpayers contested amended income tax assessments made by the Commissioner in respect of the income years 2001 to 2008 inclusive.
The amended assessments followed an audit of their affairs by the Commissioner which satisfied him that:
- both taxpayers had entered into a sham transaction in October 2000;
- that an avoidance of tax because of fraud or evasion had occurred;
- that both taxpayers were liable to pay an administrative penalty for intentional disregard of the tax law; and
- that the penalty should not be remitted to any extent.
The taxpayers applied to the Tribunal for review of the Commissioner’s objection decisions, but:
- The Tribunal concluded that the taxpayers had improperly accessed their superannuation funds to purchase the apartment.
- It also said the taxpayers had not disproved that the whole arrangement was a sham.
- The Tribunal also said the taxpayers had failed to prove that the avoidance of tax was not due to evasion. Re the 2005 to 2008 years, the AAT said the Commissioner formed the opinion that “there has been … evasion” and the taxpayers had failed to prove otherwise.
For each taxpayer, the Tribunal set aside the objection decision relating to the 2008 income year and instead decided in each case to allow the objection in part, so as to exclude a id=”mce_marker”22,000 payment ($61,000 each). As a consequence, the quantum of the administrative penalty, but not the rate, was reduced for that year.
In all other respects, the objection decisions were affirmed.
(Re Morrison and FCT [2015] AATA 114, AAT, File Nos: 2013/1600-1607, Frost DP, 27 February 2015.)
[LTN 43, 5/3/15] [IT 5/3/15]