Siddiqi and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/5274, 5648, 5649)
Judgment date: 31 August 2012
Date published: 15 November 2012

Summary of decision:
Outlines the ATO's response to this case which concerned whether the taxpayer could satisfy the onus of proving that various cash receipts were not income from a business activity or not consideration for GST taxable supplies.

Overview of facts:
The taxpayer was a sole trader operating an import, local purchase and export business. An audit of his business affairs revealed that there were a large number of unexplained deposits into the taxpayer's bank accounts during the 2008 and 2009 income years that were in excess of his returned business income for those years, and which did not correlate with the corresponding business activity statements lodged for those periods. | Before the Tribunal, the taxpayer did not produce any proper business records to establish the cash sales and purchases he made in the course of running his business. His largely oral testimony was that the unexplained deposits were not business income or from taxable supplies, but were personal loans from friends/family, repayments of money from returned supplies or redeposits. The taxpayer also relied on oral evidence from a few other witnesses, and some documentary evidence, including money transfer receipts and invoices. | Prior to the hearing, the Commissioner accepted that seven deposits neither evidenced assessable income nor taxable supplies. | Also at issue before the Tribunal was whether any shortfall amounts of the taxpayer for the relevant periods was due to a failure by him or his agent to take reasonable care. | Issues decided by the Administrative Appeals Tribunal | The Tribunal found that, with the exception of the amounts conceded by the Commissioner, the taxpayer had not discharged the onus of proving that the various cash deposits into the his bank accounts were not assessable income from his business and/or consideration from taxable supplies (paragraph 85). | While it is not unlawful to conduct a business in an environment where transactions are not documented, and payment is frequently made by cash, there is a high duty placed upon a taxpayer under the self-assessment system to keep business records to substantiate income and expenditure. For the purposes of the penalty provisions, a failure to keep such records speaks clearly of a failure to take reasonable care (paragraph 79). No remission of penalty was warranted.

Issues decided:
The Tribunal found that, with the exception of the amounts conceded by the Commissioner, the taxpayer had not discharged the onus of proving that the various cash deposits into the his bank accounts were not assessable income from his business and/or consideration from taxable supplies (paragraph 85). While it is not unlawful to conduct a business in an environment where transactions are not documented, and payment is frequently made by cash, there is a high duty placed upon a taxpayer under the self-assessment system to keep business records to substantiate income and expenditure. For the purposes of the penalty provisions, a failure to keep such records speaks clearly of a failure to take reasonable care (paragraph 79). No remission of penalty was warranted.

ATO view of decision:
Subject to seven amounts conceded by the Commissioner during the hearing, the taxpayer was not able to discharge the onus of proving that the various cash deposits were not income from his business activities, nor consideration from taxable supplies. The Tribunal was not prepared to accept the largely oral evidence of the taxpayer in the absence of any proper business records.

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

Legislative references: Taxation Administration Act 1953 14ZZK 284-75 of Schedule 1 284-80 of Schedule 1 284-90 of Schedule 1 298-20 of Schedule 1
Case references: Dixon v FC of T [2008] FCAFC 54 167 FCR 287 2008 ATC 20-015 69 ATR 627 FC of T v Dalco [1990] HCA 3 168 CLR 614 20 ATR 1370 90 ATC 4088 FC of T v Traviati [2012] FCA 546 2012 ATC 20-321 Gauci v FC of T [1975] HCA 54 (1975) 135 CLR 81 5 ATR 672 75 ATC 4257 Imperial Bottleshops Pty Ltd and Egerton v FC of T (1991) 22 ATR 148 91 ATC 4546 Re Optimise Group Pty Ltd and Commissioner of Taxation [2010] AATA 782 2010 ATC 10-155 79 ATR 953 R v The War Pensions Entitlement Appeals Tribunal and another ex parte Bott [1933] HCA 30 50 CLR 228
Subject references: Omitted income GST taxable supplies Onus of proof Cash transactions Lack of business records