VITA HOT BREAD PTY LTD v FC of T
Members:G Ettinger SM
Tribunal:
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
[2012] AATA 570
G Ettinger (Senior Member)
REASONS FOR DECISION
SUMMARY
1. Mr Tien Dung Pham (Pham) is a director, and the managing director of the Applicant in these proceedings, Vita Hot Bread Pty Ltd (Vita Hot Bread). The Applicant conducts the business of a bakery and hot bread shop in a Sydney suburb. For the sake of convenience I shall refer to both Mr Pham and Vita Hot Bread as the Applicant.
2. The Applicant appeals against a decision of the Commissioner of Taxation (the Commissioner), dated 16 March 2011, which held, following an audit, that for the financial year 2008, the Applicant had underdeclared its income with the consequence that the GST amount declared was also incorrect. As a result penalties were imposed. The Commissioner has since decided that his figures for the calculation of the income tax assessment and GST were incorrect, and tendered Exhibit R5, reducing those figures, but has otherwise maintained his position.
3. Mr Pham gave oral evidence at the hearing, and told me that he is an honest person, runs a business in which family members trust each other and work together, and that although he had a system to calculate the total of his daily takings at the relevant time, he had scant knowledge of the operation of his cash register to capture all transactions.
4. Mr Pham also gave evidence of the rise in prices of ingredients for his products, the competition from Woolworths, wastage of cooked bakery products, and the general economic situation affecting his business.
5. Mr Pham and his wife both signed documents for two financial institutions providing income figures which did not accord with the amounts declared to the Commissioner in their income tax returns. Mr Pham's explanation for what occurred was that it was in order to obtain the substantial loans they required to purchase real property. He said that he did not come up with the figures on the loan documents, that they were inserted by his broker, and that he went along with it all because his purpose was to be able to secure the loans.
6. On the basis of the evidence before me, I have decided that Mr Pham has understated his income for the relevant year audited, being 2008, as held by the Commissioner of Taxation. I have varied the decision under review and take into account the fact that the Commissioner erred in certain of his calculations. I have adopted what the Commissioner has provided as revised figures for GST, and penalties. My reasons follow.
ISSUES IN DISPUTE
7. The issues before the Tribunal were:
- (a) Whether the Applicant can demonstrate that the assessments of the Commissioner pursuant to the Income Tax Assessment 1997 (the Act), and the GST assessments are for 2008 are excessive pursuant to section
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14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA). - (b) Whether the Applicant is liable to pay an administrative penalty in accordance with sections 284-75(1) and 284-90(1) of Sch 1 to the TAA.
- (c) Whether the administrative penalty imposed on the Applicant should be remitted in whole or in part pursuant to section 298-20 of Sch 1 to the TAA.
8. I have noted the Commissioner's concession that the figures set out in his Statement of Facts Issues and Contentions for the GST Assessment and the GST Penalty Assessment issued to the Applicant are excessive due to calculation errors. The Commissioner has submitted, that accordingly, I should vary the decision under review in order for him to exercise his powers under section 14ZZL of the TAA to implement the decision by issuing amended assessments. He submits I should otherwise affirm the decision under review.
9. I note further that the Applicant purported to challenge the validity of the Income Tax Assessment and the GST Assessment in its objection. It is well established law that the Commissioner does not need to show that the assessments were correctly made (
Gauci v Commissioner of Taxation (1975) CLR 81).
10. I am mindful that the onus of proof in tax matters is on the Applicant, and is provided for pursuant to section 14ZZK(b)(i) of the Act. In order to succeed in his appeal, the Applicant must demonstrate that the assessments made by the Commissioner are excessive. The onus of proof is well known, and I have noted the parties' submissions on the subject.
RELEVANT LEGISLATION
11. The relevant legislation in this matter is the Income Tax Assessment Act 1997 (the Act) the A New Tax System (Goods and Services Tax) Act 1999 (Cth), (GST Act) and the Taxation Administration Act 1953 (Cth) (TAA).
BACKGROUND
The family and the business
12. Mr Pham made a statement dated 11 January 2012 which was Exhibit A1 before the Tribunal. It was not in dispute that he is a director of the Applicant, and its Managing Director. He also conducted the business of Vita Hot Bread Pty Ltd, a bakery and hot bread shop at the relevant time of the audit in 2008, and continues to do so. The company was incorporated in 1992. It is a high volume, low value transactions business, conducted almost entirely with cash. Family members who are also directors and/or employees assist in the business, and an accountant has been employed to assist with financial matters. Mr Pham said that at the relevant time in 2008, he, his father and his brother were directors, and there were two fulltime staff, being he and his brother, and three part-timers who included his sister-in-law, a nephew and an overseas student. Mr Pham said that there was no wages sheet for his wife at the relevant time, as she only worked periodically, if at all in 2008, and had babies to look after. He said that his wife received basically only rental income in 2008 which was generated because the business leased the building from him. On her tax return for 2008, she was shown as having earned $1,604 from rental income.
13. Mr Pham gave evidence of a close knit family, and spoke of the mutual trust and regard in which they hold each other. He said that he had been in Australia for 30 years, but had not had any education. The evidence in the Tribunal took longer than it otherwise might have, because although Mr Pham speaks colloquial English, I took great care to ensure that he understood all the questions asked through the Vietnamese interpreter, and that he had every opportunity to answer. He was represented by his solicitor Ms Lye of Baybridge Lawyers, and counsel Ms B Nolan.
The Z tapes and calculation of takings
14. Mr Pham's evidence was that he permitted family members to help themselves to food and drink, which occurred particularly in the mornings when the bakery opened at four am, and family members served customers before he arrived at work at seven am. He said that he did not charge family members for the food and drinks they consumed.
15. At the relevant time, Mr Pham was using a Sharp Xe A203 cash register with a function that enables the user to print what is described by the manufacturer as a full sales report, or a Z report. His evidence of what occurred in the business was that in the early morning before he
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arrived, there would be transactions which were not recorded as sales. Each time money was put into the till and a sale was not recorded, a no sale showed up on the Z tape.16. Mr Pham said that daily, when he arrived at seven am, he would clear the till, print the Z tape, and then discard it. He would then commence a new tape for the day's sales. He explained that at the end of the day, he would total the money in the till, which would exceed the totals of the second, the daytime tape, so he would add the money in the till to the amount on the daytime tape as his total takings for the day. He said that there was no reason to retain the first tape because it served no purpose. He said that: … in the morning I never count nothing; nothing at all. Nothing. I just come in and clear it. That's it.
17. I noted that Mr Pham's oral evidence was inconsistent with what he said in his statement, particularly at paragraph 17, where he stated: …immediately prior to opening the Applicant for business hours, I would finalise the till tape again, so as to account for the staff and family takings. Once I have reviewed their takings against the till tape, I would discard the tape.
18. Mr Pham attributed any errors in the morning tapes to the young people serving in the shop in the early morning, and the small dollar value of sales, which in 2008, ranged from $0.20 to $0.50 a bun or roll.
19. The Applicant agreed when questioned that he did not have any documentation to corroborate his statements about the Z tapes. He said that he did the right thing by his family, and that he recorded all takings. He agreed that the documents at T9-49 and T9-50 were the only evidence of sales. It is quite clear from those records available that every second Z tape is missing. A large number of no sales was recorded in cases when the till was opened and no sale was recorded.
20. Ms Nolan submitted that Mr Pham's explanation that he cleared the register in the morning and added the morning takings to the amounts on the daytime tape when he closed the shop should be accepted. She also emphasised that this situation had now been rectified.
21. Mr Kasep submitted that the Commissioner, in his audit, failed to find any evidence of the daily reconciliations that Mr Pham said he made. In an interim report provided to the Applicant by the Commissioner, the Commissioner analysed the Z tapes and found that between 2 June 2008 and 29 June 2008, the number of no sales was 1,782. Mr Pham was unable to explain that except to say that he was generous to family members, and that the young people who assisted in the early morning before he arrived at the shop made mistakes at times. He stated further that he always did the right thing, and if he had done the wrong thing, he would be a rich man.
22. Mr Pham was extensively cross examined on how he dealt with the Z tapes, and I accepted his oral explanation that he discarded the early morning Z tape, and commenced a new tape at seven am when he started work. That explanation was, the early morning Z tapes were not totalled before the daytime tape was commenced. What Mr Pham did with the money in the till at seven am when he commenced work, and whether those amounts were declared as income is discussed below.
The declarations of income
23. The Commissioner held that Mr Pham underdeclared the Applicant's income, which had come to his notice when industry benchmarking was reviewed, and it was found that the Applicant's costs when compared to sales were 58%, that is considerably higher than the 32% - 40% usually expected in his industry.
24. As for Mr Pham's personal income; he declared to the Commissioner that his total gross income for 2008, and for 2009, as $33,800. Those figures were inflated to $54,000 in 2008, and $72,000 in 2009 on loan applications, in order, he said, to obtain loans from financial institutions as indicated in the paragraphs below.
25. Mr Pham explained that in general, his wife did not work regularly as she was in the process of child bearing, and looking after the children, and that she accordingly only worked sporadically. He said that her main income was rental income. She was not on the pay register in 2008, and he was not certain if she had worked in the business at all that year.
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The loans
26. Mr Pham and his wife (as well as his brother and sister), entered into loans with financial institutions in order to purchase real estate. There was a loan application dated 27 April 2008, for the amount of $362,000. Mr Pham confirmed that the signatures on the loan documents were his own, and those of his family. He signed a declaration stating that the contents of the loan document he signed were true and correct. He said that a broker assisted him. He said that he did not provide the figures of his taxable income of $54,000, to the broker in 2008, his English was not good, and he simply signed what the broker proposed would obtain a loan. Both Mr Pham's and his wife's taxable income were each shown as $54,000 in the application for a loan of $362,000 in 2008. Mr Pham told me that he did not see the fully completed application, and it was not read to him. Mr Pham said the sum for the taxable income was inserted by the broker so that the couple could obtain a loan to buy real property.
27. In that regard, I am mindful that Mr Pham's income tax return for 2008 indicated he had a taxable income of $33,800. His wife's income tax return indicated she earned gross rental of $6,766 and net rent of $1,739, her total income being $1,604.
28. A further loan for the amount of $612,500 in which Mr Pham stated his income to be $72,000, was dated 28 June 2009, and was also in the documents before the Tribunal. On that document, he also declared that the contents were true and correct when he signed it. This was a similar situation to the 2008 loan. I noted however, that the 2009 loan was outside the audit period.
29. When asked about the inconsistency between the amount of $33,800 shown as taxable income on his 2008 tax return as compared with the amount of $54,000 shown on the loan application for 2008, Mr Pham asked which baker we knew would earn $54,000 a year.
30. The following exchange was recorded on 9 May 2012 at the hearing (trs, p.46):
MR KASEP: Mr Pham, did you lie in this document in order to procure a loan for $362,000?
APPLICANT/INTERPRETER: I didn't lie directly. But the broker may be the one that lies.
MR KASEP: Well what do you mean by you didn't lie directly?
SM ETTINGER: I'm just going to ask you a question. Did you know the information was incorrect when you signed the document?
APPLICANT/INTERPRETER: Now when I read it I know it wasn't correct.
SM ETTINGER: Did you know at the time?
APPLICANT/INTERPRETER: No, I didn't see it.
SM ETTINGER: Why not?
APPLICANT/INTERPRETER: They brought this document to me and I said to them: I need this money and they asked me to sign. That's it.
….
SM ETTINGER: Can I just ask you Mr Pham, would you sign anything just to get the loan?
APPLICANT/INTERPRETER: Because I wanted to buy the house and I told the broker how much I need, so all they did was bring in the form for me to sign and they said they would help me to obtain the loan.
SM ETTINGER: So would you sign anything just to obtain the loan?
APPLICANT/INTERPRETER: No this is - require a big amount of money, so I just wanted - if it was just for a car or something I would not.
…
SM ETTINGER: But my question is would you sign any document just to get a loan?
APPLICANT/INTERPRETER: Yes, Yes.
SM ETTINGER: And is that what you did here?
APPLICANT/INTERPRETER: Yes.
31. At page 59 of the transcript, Mr Pham was asked:
MR KASEP: Vita Hot Bread in 2008 underreported its GST liabilities and income didn't it?
APPLICANT/INTERPRETER: I am not knowing that well. My accountant is the one who do them.
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MR KASEP: … what I put to you explains why in your tax return, your gross payments are identified as $33,800 yet in this document (the loan document), your annual gross income is described as $72,000.APPLICANT/INTERPRETER: To tell you the truth, I declare the correct amount of my income but because I want the loan, that's why my broker has declare (sic) the other amounts. I was indirectly incorrect about it but it wasn't me, the person who put that number.
MR KASEP: I'm sorry, I didn't quite understand that last sentence.
APPLICANT/INTERPRETER: I was truthfully declare my tax income with the Australian Tax Office but the only time I was indirectly telling lie with the bank because I wanted to buy the house and the broker was the one who did this.
….
I was only lie to the bank but I didn't lie to the Tax Office.
32. When questioned about how he would service a loan on the income he declared, Mr Pham said that the family in Vietnam sent him $18,000.
33. Ms Nolan submitted that the Tribunal should infer from the failure by the Commissioner to call the broker who acted for the Applicant in his bank applications, over which the Applicant was subjected to lengthy cross-examination, that the evidence of the broker would not have been of assistance, (
Jones v Dunkel (1959) 101 CLR 298). She submitted that a careful reading of what was said by Windeyer J in
Jones v Dunkel, disclosed the appropriateness of its application in this case. She described how the defendant driver in
Jones v Dunkel was not called to give evidence, and the trial Judge gave directions to the jury about the failure of the defendant to give evidence as follows:
The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which made some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted.
34. Ms Nolan also referred to Windeyer J, at 321, who referred to the decision of
R. v Burdett (1820) 4 B. & Ald. 95 [106 E.R. 873] where Abbott CJ said:
No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected." (2) And Best J. said: Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probable, particularly if the opposite party has it in his power to rebut it by evidence, and yet offers none; for then we have something like an admission that the presumption is just.
35. Ms Nolan submitted that the evidence given by the Applicant was not contradicted by the Commissioner, who referred to the loan applications as documentary evidence tending to refute the Applicant's claims of income earned. She submitted that even though the broker was available, he was not called, and noted that the Commissioner had interviewed him on 30 May 2012 or thereabouts. This, she said, like the
Jones v Dunkel case, was a case where the evidence of the Applicant remained
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uncontradicted. The Commissioner and the broker, as referred to by the Applicant, had knowledge which would throw light upon the Applicant's claim.36. Ms Nolan submitted that the onus of proof in this case was a significant issue because of the nature of the oral evidence given, and the documents admitted into evidence. She also submitted that it might have been expected that the Commissioner would call evidence regarding matters such as economic data in support of his claim that the industry standards should form the basis of the assessments in question. Accordingly, the Tribunal should infer from his failure to do so that such evidence would not have been of assistance (see
Jones v Dunkel).
37. Referring to Windeyer J, at 321, who referred to the decision of
R. v Burdett, Ms Nolan noted that there must be sufficient evidence adduced by the party which has the onus of proving its case to warrant a reasonable inference being drawn from that evidence in the absence of any explanation or contradiction. Where there is sufficient evidence to draw a reasonable inference from the party which bears the onus of proving its case, and the other party has in its power to rebut that inference or conclusion being drawn by evidence but chooses not to lead that evidence despite the witness being available to give evidence, if no explanation is provided for failure to call that witness, then a rational inference may be drawn that the evidence would not help that party's case.
38. Ms Nolan submitted that when the principle is properly applied to this case, it should be immediately apparent that the evidence adduced by the Applicant was enough to warrant a reasonable and just conclusion that the Commissioner's assessments were wrong, therefore, the reasonable inference that should be drawn is that the Commissioner's assessments were incorrect.
39. I have noted Ms Nolan's argument, but am mindful of the evidence Mr Pham gave that obtaining a loan was his primary aim, and that he accepted he had lied to the bank about his income when applying for a loan. The excuse on which he relied was that he did not complete the loan applications or see them fully completed, and that on both occasions, he went along with any figures that were suggested to him by the broker in order to obtain the loan. In considering his evidence I am mindful also that he completed the declaration on the loan document certifying it as true and correct, whereas at the hearing he acknowledged that on reviewing it, he realised it was not.
Benchmarking issues
40. Mr Phillip Chin, whose position at the ATO involves the development and production of performance benchmarks, provided a statement which was part of Exhibit R2. In it he explained in detail how benchmarks were arrived at. In this case, the benchmark, being a cost to sales ratio for bakeries and hot bread shops was calculated by dividing the cost of sales in those businesses, by the total sales. He stated that the calculations made in benchmarks for the various industries, including baking, took into account increases in the costs of ingredients, rent, and the cost of labour, and basically reflected what that industry advised the ATO. He advised that during the course of an audit, the auditors decide on a case by case basis whether to employ the benchmark, noting that benchmarks can be of assistance where there are few records available such as in this case.
41. It was alleged by the Commissioner that the Applicant reported his cost of goods sold for 2008 as 58% of his reported sales, a figure outside the expected figure of 32 - 40% identified by the Commissioner in his benchmark for costs in bakeries and hot bread shops.
42. Mr Pham told me that neither he nor his accountant knew anything about benchmarking conducted by the ATO. He said that if it was found that his costs were high pursuant to the ATO's benchmarking, it was for a number of reasons. One of those was because of the waste he incurred due to the competition by Woolworths. He said that he baked extra bread even when he could not sell it, in order to have displays to compete with Woolworths, and the extra, (which was unsold and therefore had to be disposed of), caused an increase in the costs of ingredients. I noted that there were no records kept with regard to the unsold bread
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which Mr Pham told me was discarded each day.43. Mr Pham also attributed his business woes to the war in Iraq, the GFC, and the increase in costs of ingredients. This was corroborated in a letter to the Commissioner by Mr Pham's accountants in June 2010.
44. In regard to the increase in the cost of ingredients; no evidence was available until the final day of hearing, when the Applicant provided invoices and a comparison of prices of ingredients, (Exhibit A2). He also commented that in 2008, he had outlays for a new floor and oven which may have increased his costs. A comparison of prices in the table Mr Pham provided, compared prices between 2006, 2007, and 2008 and showed certain prices rises. In that regard, I noted Mr Chin's evidence that the calculations made in benchmarks for the various industries (including baking) took into account increases in the costs of ingredients, rent, the cost of labour and basically reflected what consultations with industry provided as advice to the ATO.
45. Ms Nolan argued that the use of the industry benchmark was inappropriate in this case. She referred in particular to the rising cost of ingredients for the Applicant in the relevant period (Exhibit A2). She also mentioned the Applicant's was a family business, first generation migrants, struggling against price cutting by major concerns such as Woolworths.
46. I noted the following exchange on the first day of hearing when Mr Pham was giving his oral evidence: (Trs p.90)
MR KASEP: The real reason why the reported costs of goods sold was 58% of the total reported income by Vita is because Vita does not report all of its income or all of its GST liabilities.
47. Mr Pham's answer was rather discursive, so in order to clarify matters, I asked him:
SM ETTINGER: The question was, your ratio of the cost of goods sold is very high because you don't declare all the income. That's what the Commissioner is saying.
MR PHAM replied: Never wrong, never.
SM ETTINGER: So you're saying that you declared all the income.
APPLICANT/INTERPRETER: Yes. Maybe - only 2008. Maybe because I couldn't remember. Maybe I spend - maybe in 2008 on that year I do … other than something I buy the new oven, that's why it come in like that. Maybe I … the oven because oven … steam room, oven, the floor, we do it.
Procedural fairness issues
48. Mr Pham who has been in business since in Australia at least since 1992, and has been here some 30 years, speaks colloquial English. The Tribunal was however assisted by Mr Pham giving his evidence through an interpreter in the Vietnamese language. Ms Nolan of counsel who represented the Applicant made a submission on the first day of hearing after Mr Pham had been cross-examined for some time. (Trs, p 64,65).
MR KASEP: Would you agree with me that these documents do not in any way identify you having entered 'no sales' into the cash registry?
MS NOLAN: I object to that question. It suffers from a multitude of ills but the most is it's a double negative and this is just - it's too complicated and my general objection is based on - my instructing solicitor, and I don't have evidence of this but I will just make it as a submission, indicates to me on more than one occasion today, there has been confusion in the way in which questions have been translated and the authenticity or the - - -
MS ETTINGER: Well, she should speak up. Not afterwards.
MS NOLAN: Well, it's against - it's on my advice that she hasn't because I don't wish to doubt the integrity of the interpreter and she's not qualified. I'm not in a position to qualify her and that's why I was very careful in the way that I've put it to the tribunal because it is only a submission. I'm not in a position to be able to evidence it. But I raise it and I invite my friend to approach his questioning with caution on the basis that this could undermine the effectiveness of the evidence that can be elicited.
MS ETTINGER: Ms Nolan, first of all, if that is observed at any time, it should be raised at that time. Secondly, my job is to sit here and make sure this is fair for
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everybody. If I perceive the applicant doesn't understand - as you can have seen, I've asked a few times for the question to be rephrased or spoken in a more straightforward manner or broken up - you will have noticed that - into two questions. In fact, you've raised that on a number of occasions. I have no indication that Mr Pham has not fully understood what was said. If there is such an occasion, you bring forward the precise question; it will be re-asked. Generalisations are not of assistance.MS NOLAN: I will ensure that happens henceforth. I still object to the question on the basis of the double negative.
MR KASEP: I can try and rephrase it if that will assist the tribunal.
MS ETTINGER: Yes. And as I've asked you before, please ask straightforward questions, hopefully without double negatives because we're translating into a different language with a different grammar.
MR KASEP: Okay.
MS ETTINGER: And it's always difficult and I acknowledge the difficulty everybody has in translating, and thank you for doing a very difficult job, Ms Ly.
49. I am satisfied that with the competent representation Mr Pham had, the assistance of the interpreter, and my attention to the replies he gave, that Mr Pham was provided throughout the hearing with every opportunity of addressing whatever was relevant, and replying to questions asked.
Whether the Applicant has demonstrated that the income tax and the GST assessments are excessive
50. It is important to note at the outset that the Commissioner revised his assessments of both the Applicant's income tax and GST. I note also for the sake of completeness that it is indisputable that the Applicant bears the onus of proof in this matter.
51. Some corroboration of the Applicant's evidence would normally be required (
Nguyen v Commissioner of Taxation [2011] AATA 544 and
Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation [1991] FCA 276). In that regard I noted that corroboration by way of documentary evidence of Mr Pham's evidence regarding his takings which were recorded as no sales has been rather scant, and the industry benchmarking figures point to an unusually high cost of production to sales for the relevant period.
52. In coming to a decision regarding whether the Applicant has demonstrated that the income tax and the GST assessments are excessive for the 2008 year, I have taken into account all the evidence and submissions. I have dealt with:
- • the nature of the business;
- • the income declared by the Applicant to the Commissioner (and GST issue);
- • the Z tapes;
- • the loans;
- • the broker;
- • benchmarking; and,
- • procedural fairness issues raised by Ms Nolan in regard to interpreting and language difficulties.
53. Commencing with the final item first, I have noted above an exchange between Ms Nolan and the Tribunal in regard to language issues, and therefore, procedural fairness. As already stated, I am satisfied that with the competent representation he had, the assistance of the interpreter, and my attention to the replies Mr Pham gave, that he was provided throughout the hearing with every opportunity of addressing whatever was relevant, and replying to questions asked.
54. I have already stated above that Mr Pham's family are involved with the business. According to him, at the relevant time, his father and brother were directors of the company, and his father organised the financial matters which were ultimately turned over to an accountant in order to prepare tax returns. The business of the bakery and hot bread shop is a high volume, low dollar value transactions business conducted almost entirely with cash.
55. Mr Pham made a written statement, and there was in the documents before the Tribunal other statements, including ones prepared by the Applicant's accountants. Essentially the statements went to justifying the income tax and GST returns made to the Commissioner in 2008. As I have already pointed out in the paragraphs above, Mr Pham's oral evidence did
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not accord entirely with his written statements, in particular with regard to reconciliation of the Z tapes.56. I am satisfied that the selection produced in the T-documents indicated every second Z tape was missing. Mr Pham did not deny that, and explained that occurred because he closed off the first tape, the early morning tape which the other family members in the bakery had used for the early morning sales, and commenced a daytime Z tape on commencing work at seven am each day. What was not substantiated to my satisfaction was his explanation that he either totalled the takings before commencing the daytime (his own) tape, and added both to give a total figure for the day, or his later explanation in his oral evidence that he simply added the amounts in the till to the totals of the daytime Z tape to declare his income. There is no evidence he did that. Given the large number of no sales recorded, particularly as submitted by the Respondent for June 2008, and the high cost to sales ratio (see discussion of the benchmark), I am satisfied that the income declared was considerably below that gained in the business.
57. Unfortunately other issues corroborated the likelihood that income was underdeclared. That included the declarations of income made on loans in 2008 and 2009. Although the 2009 year is outside the period audited, in both years, Mr Pham declared his taxable income to the Commissioner to be $33,800 for both 2008 and 2009, whilst on documents he and his wife signed in order to obtain loans to purchase real estate, each of their incomes were shown as $54,000 in the 2008 year, and $72,000 in the 2009 year. Both persons signed the documents, declaring the contents to be true and correct.
58. I did not accept Mr Pham's explanation that higher figures than provided to the Commissioner were inserted on the loan documents because they were completed by the broker, that he did not see the loan documents completed, and that he was therefore not responsible for the content. Later on in his oral evidence Mr Pham admitted he had lied to the bank about his income on the loan documents because his primary aim was to obtain a loan.
59. I am mindful the broker was not called by either party, and his evidence was not material for me in order to make a decision. There is no doubt that it is the responsibility of the tax payer, in making a declaration that the contents of a document are true and correct, to in fact assure him or herself that that is so. The evidence before me is that Mr Pham declared that the information regarding his income on the loan documents was true and correct, and he must be bound by that.
60. By way of completeness, notwithstanding Mr Pham's wife declared on a loan document in 2008 that her taxable income was $54,000 in that year, I note that she indicated on her income tax return for 2008 that her taxable income was $1,604, derived from rental. Her name did not appear on the Applicant's wages list because, Mr Pham said, she may not have worked in the bakery in that year.
61. I am satisfied from the evidence regarding benchmarking that it is a tool used by the Commissioner in various industries. I have noted Mr Pham's explanations in regard to his 58% of costs to income. I am mindful that competition by giants such as Woolworths is no doubt difficult to manage. I am mindful also of the costs of ingredients and the economic situation. I am mindful also of Mr Pham's claim that he over baked in order to meet the competition, but am not able to consider that as I have no substantiation of his claim that he disposed of large amounts of unsold bread.
62. I am mindful also that in arriving at a benchmark, the Commissioner uses a range, in the case of Mr Pham's industry, 32% - 40%, and note Mr Chin's evidence that that takes economic conditions and the costs of ingredients into account.
63. From the evidence before me, particularly regarding the Z tapes, the benchmarking and the loans which are discussed in detail above, I am satisfied to the requisite standard that the Applicant understated his income and GST for the 2008 year.
Whether the Applicant is liable to pay an administrative penalty
64. Upon coming to a decision that the Applicant understated his income and GST for 2008, the Commissioner, applied an administrative penalty of 50% for recklessness.
ATC 5152
The Commissioner discovered he had made an error in the calculations, and the amount was reduced in a recalculation which was communicated to the Applicant, and more recently to the Tribunal.65. I have found in the paragraphs above, that I am satisfied to the requisite standard that the Applicant understated his income and GST for the 2008 year. I am not satisfied that there was any evidence before me in order to convince me that Mr Pham's actions in disposing of the first early morning Z tapes, or signing what essentially was a false declaration in regard to income, and underdeclaring the Applicant's income was less than reckless. I refer to
Hart v Commissioner of Taxation [2003] FCAFC 105 where their Honours explained that recklessness involves conduct showing a disregard of or indifference to consequences foreseeable by a reasonable person. I am mindful also of statements made by Senior Member O'Loughlin in
Nguyen and Commissioner of Taxation [2011] AATA 544, that failing to maintain adequate records that are capable of substantiating GST and income liabilities demonstrates a degree of recklessness. This is such a case.
66. Accordingly I find that the administrative penalty of 50% for recklessness as imposed is the correct or preferable one.
67. I note that Mr Pham is a family man that he operates a family business and works long hours. I note also that he has been in Australia 30 years, and should be able to obtain good advice and adhere to the law.
68. Cases such as
PS LA 2006/2 and TSC 2000 Pty Ltd v Federal Commissioner of Taxation [2007] AATA 1629 and
Sgardelis v FCT [2007] AATA 1499 provide guidance for the principle that rarely will remission be appropriate where a taxpayer has recklessly approached his tax obligations.
69. I have not heard any argument which would convince me that the penalty as imposed by the Commissioner should be remitted in whole or in part.
Whether the Applicant has discharged the onus
70. I am satisfied that the Applicant has not discharged the onus of proof necessary for me to find on his behalf in this matter except in so far as conceded by the Respondent in his recalculation of the figures as stated below.
DECISION
71. Vita has failed to demonstrate that the assessments issued to it are excessive.
The Tribunal varies the decision under review of 16 March 2011 to take into account the Commissioner's calculation errors as follows:
- (a) The Applicant's additional GST liability for the period 1 July 2007 to 30 June 2008 is $9,597.00;
- (b) In calculating the penalties payable by the Applicant pursuant to s 284-75 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) for having a GST shortfall amount, the base penalty amount for the purpose of item 2 of the table in s 284-90(1) of Sch 1 to the TAA is $4,798.50.
The objection decision made by the Respondent on 16 March 2011 otherwise is affirmed.
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