On 10 December 2021, a company operating a brothel, in Canberra, has failed to show that amended assessments were excessive. The assessments were based on a claim the company made to its insurer, after an arson attack.
The facts were these.
- The taxpayer operated a brothel in Canberra from about April 2010 to January 2012 when the premises were badly damaged in an arson attack.
- The company was controlled by 2 brothers but only one of them (FT) was actively involved in running the business.
- Following an audit of the taxpayer’s affairs, the ATO issued amended assessments for the 2010, 2011 and 2012 income years resulting in total tax liabilities of almost $750,000 (including shortfall interest and penalties).
- The amended assessments were substantially based on the contents of a report, to the taxpayer’s insurer, investigating the January 2012 fire, which resulted in the ATO assuming an average gross weekly (GST inclusive) income of $40,000 (ie, 200 sessions per week at an average session cost of $200).
The AAT concluded that taxpayer has failed to discharge its burden of proving that the amended assessments were excessive.
- In particular, the AAT rejected the taxpayer’s contention that the overall ratio of Electronic Funds Transfer (EFT) to cash payments by customers was 60/40, preferring FT’s statements in his interview with the insurance investigators and in an affidavit that most clients paid in cash.
- The AAT also concluded that the taxpayer’s own estimation of its cash receipts shortfall was too low and that FT’s evidence disputing the character of some deposits and about the extent of trade at the brothel was unpersuasive.
(Stealth Enterprises Australia Pty Ltd and FCT [2021] AATA 4600, AAT, Taylor SM and Gaudion M, 10 December 2021) [LTN 241, 14/12/21]
[Tax Month – December 2021 – Previous 2021] 5.1.22