A company has been successful before the AAT in discharging the burden of proof that GST and income tax assessments issued to it following an audit by the Commissioner were “excessive”.
The company was the trustee of the Raschta Coatings Trust and its business was involved buying and selling protective coatings used on steel and concrete in the mining and energy industries.
The ATO audited the business and requested certain documents. These were not supplied and [the taxpayer] claimed that all financial records of the Trust, including source documents pertaining to the audit period, “were destroyed in the 2010/2011 Brisbane Floods”. In the absence of documents, the Commissioner undertook an analysis of deposits and payments shown on the company’s bank statement and ultimately issued GST assessments and assessments of the Trust’s taxable income. The taxpayer objected.
In relation to GST, the company reported total taxable supplies of some id=”mce_marker”.4m for the 2009 and 2010 income years. The Commissioner increased that amount by $2.1m on the basis of treating most of the deposits to the company’s bank account as the proceeds of taxable supplies, while at the same time imposing shortfall penalties for lack of reasonable care and failing to provide documents.
However, the AAT was satisfied that over id=”mce_marker”.8m of the deposits were not the proceeds of taxable supplies but were either loans, repayments of loans or other deposits that were non-taxable deposits or were not sales income. Further, despite the difference of about $273,000 from the Commissioner’s adjustments, the AAT found that the company had “proved sufficient” to satisfy its burden of proof.
Likewise, the AAT found that the company had shown that the income tax assessments issued to it were excessive on the same basis – namely, that they had as their wrongful foundation the proposition that the company sales were reflected in the deposits made into the company’s bank account in the years in question. Accordingly, having rejected the mechanism by which the Commissioner determined his assessments, the AAT accept that the returns as lodged reflected the company’s true position and ordered that the Commissioner’s objection decisions be set aside and the objections be allowed in full.
(Re Raschta Coatings Pty Ltd as trustee for the Raschta Coatings Trust and FCT [2015] AATA 34, AAT, File Nos 2013/3338-3341, Hack SC, 23 January 2015.)
[LTN 17, 28/1/15]
Extract from ‘All about GST’
The Tribunal has found that the applicant discharged its onus of showing that default GST assessments were excessive.
During the audit, the Commissioner treated all deposits into the applicant’s bank accounts as taxable supplies unless it was plain that they were not. After some adjustments at the objection stage, the Commissioner concluded that the applicant’s taxable supplies totalled an additional $2,151,231 over the amounts returned in the BAS.
The decision illustrates the difficulties that are faced by taxpayers in discharging their onus of showing that an assessment is excessive. This is reflected in the following observation of the Tribunal (at [16]):
The Company presented a case which, at first blush, appears unpromising. It does not produce original documents and advances its case by relying on the evidence of Mr Thomas, a person whose reliability was the subject of considerable challenge by the Commissioner. The essence of that challenge was that Mr Thomas had failed to produce relevant documents and that he could not, and should not, be believed when he asserted that all the documents of the Company had been lost in the floods in 2010/2011. Additionally, the Commissioner points to unrelated historical matters that he says cast doubt on Mr Thomas’ credibility.
The Tribunal observed that there was considerable force in the Commissioner’s submissions, but nevertheless found for the applicant principally it appears because the applicant was able to produce a complete printout of its general ledger plus some bank statements. Using those documents, the applicant produced a document that sought to demonstrate that none of the amounts recorded as credits on the bank accounts (and included by the Commissioner) were not taxable supplies. The Tribunal was satisfied that this evidence showed that the amounts were not taxable supplies, but were payments such as loans, transfers from related entities, non-taxable deposits, reversal entries. This decision illustrates the value of contemporaneous documents.
The Tribunal found that the applicant had substantiated exclusions of id=”mce_marker”,878,462, leaving a difference of about $273,000. The Tribunal then considered the question whether the applicant had done enough to entitle it to the setting aside of the assessments and replace them with the amounts in the BAS originally lodged. The Tribunal found that it had, noting that it was a pity that the Commissioner did not use the general ledger to reconstruct the accounts, preferring to require the applicant to produce source documents.