The AAT has held that a taxpayer satisfied the burden of proof that certain deposits to his bank account were not assessable to him. In addition, it held that interest paid on loans for investment properties were deductible to the taxpayer. However, the AAT held that the taxpayer was liable to an administrative penalty of 75% of the shortfall amount for discrepancies in his tax returns for the 2001 to 2003 years.
The taxpayer worked as an employee in a suburban taxation and accounting practice. During the course of his employment, there were numerous deposits to his personal bank account. The taxpayer alleged that he was asked by his employer to use his personal account for client monies as there were issues with the trust account of the practice. For at least part of that period, the taxpayer also derived rental income from investment properties. The Commissioner audited the taxpayer and issued amended and default assessments for the relevant periods and imposed a 75% penalty for “intentional disregard” of the law. He contended that the monies deposited to the taxpayer’s bank account were assessable to the taxpayer unless he could establish otherwise. Further, the Commissioner contended that the taxpayer was not entitled to various interest deductions in relation to his investment properties.
The Tribunal disagreed with the Commissioner and held that the amounts deposited into the taxpayer’s account were not assessable to him as he was not beneficially entitled to the amounts. In relation to the deductions for interest payments, the Tribunal noted that the Commissioner did not address the issue in detail and therefore, in principle, the taxpayer’s summary of the interest costs for the properties was accepted. Finally, the AAT held that the 75% shortfall penalty imposed was appropriate in the circumstances as the taxpayer had knowingly lodged returns containing incorrect information and that there were no grounds for remission.
(AAT Case [2012] AATA 770, Re The Employed Accountant and FCT, AAT, Ref No 2009/2599-2603, Frost DP, 6 November 2012.)
[LTN 216, 7/11]