Day and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/2955)
Judgment date: 28 April 2010
Date published: 30 June 2010
Decision outcome: Partially adverse

Summary of decision:
Outlines the Tax Office's response to this case which concerned whether GST and income tax assessments issued as a result of applying an asset betterment methodology are excessive and whether administrative penalties were correctly imposed.

Overview of facts:
The taxpayer carried on a re-upholstery business and was registered for GST with effect from 1 July 2004. As a result of an audit, it was determined, through an asset betterment methodology, that the taxpayer was required to be registered for GST with effect from 1 July 2002, that he had failed to account for GST between that date and 1 July 2004, and that he had not declared business income for that same period. Both GST and income tax assessments were issued and administrative penalties were imposed for: (i) the taxpayer's failure to register at the correct time; (ii) his failure to lodge GST returns; and (iii) for false and misleading statements resulting in income tax shortfalls. | Objections to the tax and penalty assessments were partly allowed, and, on a review of the asset betterment, following evidence given by the taxpayer at the hearing, the Commissioner conceded that some amounts should not be included in the GST and income tax assessments. | Issues decided by the tribunal | The Tribunal found on the evidence that the taxpayer was carrying on an enterprise at all material times from 1 July 2002 to 30 June 2004, and that he should have been registered for GST as from that date (paragraph 22). | Subject to the concessions made by the Commissioner, set out at paragraphs 24 and 25, the Tribunal was not satisfied that the taxpayer had discharged the onus of proving that the relevant GST and income tax assessments were excessive (paragraph 32). | In relation to the administrative penalties imposed, the Tribunal agreed that no remission of the failure to register penalty was warranted, and that no further remission of the failure to lodge penalty was warranted past the reduction to 50% accepted by the Commissioner (paragraphs 33 and 34). The Tribunal was also satisfied that the income tax shortfalls resulted from recklessness (paragraph 37).

Issues decided:
The Tribunal found on the evidence that the taxpayer was carrying on an enterprise at all material times from 1 July 2002 to 30 June 2004, and that he should have been registered for GST as from that date (paragraph 22). Subject to the concessions made by the Commissioner, set out at paragraphs 24 and 25, the Tribunal was not satisfied that the taxpayer had discharged the onus of proving that the relevant GST and income tax assessments were excessive (paragraph 32). In relation to the administrative penalties imposed, the Tribunal agreed that no remission of the failure to register penalty was warranted, and that no further remission of the failure to lodge penalty was warranted past the reduction to 50% accepted by the Commissioner (paragraphs 33 and 34). The Tribunal was also satisfied that the income tax shortfalls resulted from recklessness (paragraph 37).

ATO view of decision:
Subject to the concessions made by the Commissioner, based on the evidence presented by the taxpayer at the hearing, the Tribunal accepted that the taxpayer had not otherwise discharged the burden of proving that the assessments were excessive or that the penalties should be further reduced. The case was decided on its own facts.

Administrative treatment:
Implications on current Public Rulings & Determinations; Implications on Law Administration Practice Statements | None

Legislative references: Income Tax Assessment Act 1936 167 A New Tax System (Goods and Services Tax) Act 1999 9-20 17-5 23-5 23-15 25-5 25-10 Taxation Administration Act 1953 14ZL(1) 14ZL(2) 14ZQ 14ZQ 14ZZK(b) Crimes Act 1914 4AA(1)
Case references: Eldridge v FC of T 90 ATC 4907 21 ATR 897 FC of T v Dalco 90 ATC 4088 20 ATR 1370 [1990] HCA 3 Gauci and Others v FC of T 75 ATC 4257 5 ATR 672 [1975] HCA 54 McCauley v FC of T 88 ATC 4605 19 ATR 1443 Trautwein v FC of T (1936) 56 CLR 63 [1936] ALR 425 [1936] HCA 77 Hart v FC of T 2003 ATC 4665 [2003] FCAFC 105 (2003) 53 ATR 371 Re Addoug and Commissioner of Taxation [2010] AATA 79 75 ATR 204
Subject references: Goods and Services Tax Income Tax Default assessments Asset betterment Burden of proof Administrative penalties