Hamed and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/2286-2290)
Judgment date: 8 September 2010
Date published: 1 March 2010

Summary of decision:
Whether deposits made to bank accounts owned by the taxpayer, individually or jointly, were correctly characterised as income, and whether the 50% administrative penalty imposed for recklessness was appropriate.

Overview of facts:
The taxpayer's tax returns for the 2001 to 2004 income years disclosed modest amounts of income derived from his various employment, rental properties and Centrelink benefits. In the course of a review of his financial affairs by the Commissioner, the taxpayer was discovered to have purchased several properties during the relevant years, had borrowings of about $1.2 million and had significant monthly payments in respect of those borrowings. | The Commissioner issued amended assessments for the 2001 to 2004 income years and a default assessment for the 2005 income year, with taxable income totalling $538,802. The assessments were made on the basis of 147 deposits made to bank accounts that the taxpayer owned individually or jointly. The Commissioner imposed a 50% administrative penalty for recklessness. Objections to the assessments were disallowed. | Issues decided by the court or tribunal | 1. Whether the bank deposits constituted assessable income of the taxpayer | The Tribunal confirmed that the taxpayer needs to prove, on the balance of probabilities, his 'actual taxable income' and, from that, his 'true tax liability' for the relevant years. If these amounts were less than the corresponding amounts assessed to him, he will have discharged the burden placed upon him by s14ZZK(b)(i) of the TAA 1953. | The Tribunal considered whether each deposit represented income of the taxpayer on the basis of documents and an analysis of banking transactions. The Tribunal accepted that some of the deposits did not represent amounts of income derived by the taxpayer as there was acceptable evidence otherwise. Accordingly, the taxpayer had discharged the burden of proving that the assessments were excessive, and the appropriate course was to set aside the objection decision in relation to primary tax, and to remit the matter to the Commissioner to allow assessments to be amended or further amended. | 2. Whether the administrative penalties assessed by the Commissioner were appropriate | The Tribunal found that the taxpayer's attitude towards his obligation to report accurate details of his income was 'palpably cavalier', and the 50% penalty level imposed on the basis that the taxpayer had been reckless was correct. However, the amount of the penalty imposed had to be reduced as a consequence of the reduction in primary tax.

Issues decided:
1. Whether the bank deposits constituted assessable income of the taxpayer: The Tribunal confirmed that the taxpayer needs to prove, on the balance of probabilities, his 'actual taxable income' and, from that, his 'true tax liability' for the relevant years. If these amounts were less than the corresponding amounts assessed to him, he will have discharged the burden placed upon him by s14ZZK(b)(i) of the TAA 1953. The Tribunal considered whether each deposit represented income of the taxpayer on the basis of documents and an analysis of banking transactions. The Tribunal accepted that some of the deposits did not represent amounts of income derived by the taxpayer as there was acceptable evidence otherwise. Accordingly, the taxpayer had discharged the burden of proving that the assessments were excessive, and the appropriate course was to set aside the objection decision in relation to primary tax, and to remit the matter to the Commissioner to allow assessments to be amended or further amended. | 2. Whether the administrative penalties assessed by the Commissioner were appropriate: The Tribunal found that the taxpayer's attitude towards his obligation to report accurate details of his income was 'palpably cavalier', and the 50% penalty level imposed on the basis that the taxpayer had been reckless was correct. However, the amount of the penalty imposed had to be reduced as a consequence of the reduction in primary tax.

ATO view of decision:
The decision in relation to the character of the bank deposits was open to the Tribunal on the evidence. It followed from the Tribunal's acceptance that some of the bank deposits were not income, and that the burden on the taxpayer of proving the assessments were excessive had been discharged. The case was decided on its own particular facts.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Taxation Administration Act 1953 14ZZK
Case references: BRK (Bris) Pty Limited v Federal Commissioner of Taxation 2001 ATC 4111 [2001] FCA 164 (2001) 46 ATR 347 Commissioner of Taxation v Australia and New Zealand Savings Bank Limited (1994) 181 CLR 466 [1994] HCA 58 (1994) 94 ATC 4844 (1994) 29 ATR 11 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 (1990) 90 ATC 4088 (1990) 20 ATR 1370 George v Federal Commissioner of Taxation (1952) 86 CLR 183 [1952] HCA 21 Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92 (1994) 94 ATC 4587 (1994) 29 ATR 207 Re Barakat and Commissioner of Taxation [2007] AATA 1564 (2007) 2007 ATC 2363 (2007) 68 ATR 283 Re Sharkey and Commissioner of Taxation (2007) 95 ALD 509 2007 ATC 2218 (2007) 66 ATR 878
Subject references: Income tax Bank deposit Assessable income Burden of proof Penalty Recklessness Objection decision