Case N57
Judges: HP Stevens ChJR Harrowell M
BR Pape M
Court:
No. 1 Board of Review
J.R. Harrowell (Member)
In this reference the taxpayer, a car salesman, claimed deductions in his return of income for the year ended 30 June 1975 relating to telephone expenses, entertainment expenses and accountancy fees.
2. The Commissioner by notice of assessment dated 4 May 1976 increased the taxpayer's assessable income by $1,288 made up as follows:
3. The taxpayer, through his registered tax agents, lodged an objection dated 9 June 1976 which resulted in a notice of amended assessment being issued by the Commissioner on 8 October 1976 increasing the deduction for telephone expenses from $10 to $70 and increasing entertainment expenses from $92 to the full amount claimed $460.
4. The second reference, heard with the first reference, related to the year ended 30 June 1976. In the taxpayer's return of income for that year he claimed $213 for telephone expenses. This was reduced to $56 by the Commissioner and the reduction of $157 was reflected in his notice of assessment issued on 4 November 1976. The taxpayer's objection dated 10 November 1976 was disallowed.
5. The two references now come before this Board. The taxpayer's representative when opening referred to certain errors, in the 1975 return where the two-thirds claim for telephone expenses was based on a telephone account of $195 instead of $189.58. Therefore the amount being claimed by the taxpayer is $127 not $130. The claim for the 1976 year was also altered from $213 to $191 being two-thirds of $286.40 not $319. The remaining adjustment to be considered is the disallowance in full in the 1975 year of $800 accountancy fees claimed under sec. 69 and paid to the taxpayer's registered tax agents and referred to in the objection as ``expenditures incurred in the preparation of a return required by or under this Act to be furnished to the Commissioner in respect of income of the taxpayer are an allowable deduction. As the information required by the Commissioner in respect of our client's investigations constituted returns within both sec. 162 and 163, it is considered that this expenditure is an allowable deduction under sec. 69 of the Act and that the amount claimed of $800 should be allowed in full''.
6. I will deal first with this claim for $800. The taxpayer was the subject of an investigation by the Australian Taxation Office in respect of the years ended 30 June 1968 to 1974 inclusive. The Chairman refers to the facts surrounding this investigation in para. 4 to 11 inclusive of his reasons and so I will not detail them again.
7. Section 69(1) allows as a deduction ``Expenditure incurred by the taxpayer in the year of income for the preparation by a registered tax agent of a return required by or under this Act to be furnished to the Commissioner in respect of income of the taxpayer...''
8. The sum of $800 was paid by the taxpayer to registered tax agents in the year of income but the matter to be determined is whether this sum was in relation to the preparation by those agents of returns in terms of sec. 69(1).
9. The word ``return'' is not defined in the Act but to interpret sec. 69(1) it is necessary to have cognizance of sec. 161, 162 and 163. These sections read as follows:
``161. (1) Every person shall, if required by the Commissioner by notice published in the Gazette , furnish to the Commissioner in the prescribed manner, within the time specified in the notice, or such extended time as the Commissioner may allow, a return signed by him setting forth a full and complete statement of the total income (other than income upon which withholding tax is payable) derived by him during the year of income, and of any deductions claimed by him:
Provided that the Commissioner may, in the notice, exempt from liability to furnish returns such classes of persons not liable to pay income tax as he thinks fit, and any person so exempted need not furnish a return unless he is required by the Commissioner to do so.
(2) If the taxpayer is absent from
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Australia, or is unable from physical or mental infirmity to make such return, the return may be signed and delivered by some person duly authorized.162. (1) Every person shall, if required by the Commissioner, whether before or after the expiration of the year of income, furnish to the Commissioner, in the manner and within the time required by him, a return, or a further or fuller return, of the income or any part of the income derived by him in any year, whether on his own behalf or as agent or trustee, and whether a return has or has not previously been furnished by him for the same period.
(2) If no income has been so derived by the person so required to furnish a return, he shall nevertheless furnish a return stating that fact.
163. Every person, whether a taxpayer or not, if required by the Commissioner, shall, in the manner and within the time required by him, furnish any return required by the Commissioner for the purposes of this Act.''
10. Section 69 has not been the subject of any judicial decision. The section was introduced by Act No. 69 of 1963. Prior to its introduction the cost of such work was a sec. 51 deduction for those engaged in business but not for an employee as it failed the first limb of sec. 51(1). Section 69 put the issue beyond doubt except that it has not been necessary until now to properly consider the meaning of the words ``preparation... of a return required by or under this Act to be furnished to the Commissioner in respect of income of the taxpayer''.
11. Quite clearly the cost of preparation of the annual return referred to in sec. 161(1) falls within sec. 69(1) if the preparation is performed by a registered tax agent or other authorised person, vide the definition in subsec. (3). In my opinion sec. 69(1) also applies to similar costs for returns required by or under sec. 162 and 163.
12. The word ``preparation'' as used in sec. 69 in my opinion goes further than the costs of the registered tax agent up to the point where the return is signed by the taxpayer. Perhaps sec. 69 would be confined to costs up to that point if such words as ``and lodgment'' were inserted after the word ``preparation''. The returns referred to in sec. 69 are prepared under a most complex Act and so the returns themselves can be most complex. If I put to one side for a moment the returns of taxpayers that deliberately mislead or embrace schemes of tax avoidance, I would expect that the Commissioner would require further information or explanation in regard to many returns before he considers that he is in a position to make an assessment.
13. In my opinion the word ``preparation'' as used in sec. 69 not only covers the cost of initial preparation and lodgment by a registered tax agent but also includes his subsequent costs covering work done by him to enable that return at least to be assessed by the Commissioner. Here I confine my comments to returns which state the income derived and deductions and rebates claimed but the Commissioner requires further information or explanations before he considers he is in a position to make an assessment. In my opinion the preparation of a return is not complete until it can be assessed. If our tax laws were less complex perhaps I may hold a different view. A requisition by the Commissioner for further details or explanations in respect of items already in that return is not necessarily a black mark against the taxpayer or his agent. Some queries may be the result of departmental directives which a taxpayer or his agent could not anticipate. Some queries may arise because communication is far from being a precise art, a fact known to anyone who is required to interpret a statute. Many queries directed to a taxpayer or his agent are computer inspired. A computer will ask a question even though the answer is contained in the information already before it. For these reasons it would, in my opinion, be unreal to confine the deduction under sec. 69 to the cost of the initial preparation of the return up to the point of lodgment.
14. On the other hand, where the Commissioner assesses a taxpayer under sec. 167 not on the taxable income returned but on a taxable income which he, the Commissioner, has determined from information in his possession or gained through action taken by him under sec. 264 then the cost of such work done by a
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registered tax agent to meet the requirements of the Commissioner in my opinion fall outside the provisions of sec. 69.15. Here I have endeavoured to deal with the interpretation of sec. 69 in principle. However, each case must depend on its facts.
16. In this reference the issue is confined to the amount of $800 paid to registered tax agents in regard to an investigation instigated by the Commissioner in relation to prior years of income which are not before the Board. The Commissioner acting under sec. 264 initiated the investigation and in doing so required the taxpayer to supply the information which the Chairman has referred to in para. 4 of his reasons. The information asked for would assist the Commissioner ``to make an assessment of the amount upon which in his judgment income tax ought to be levied'' (sec. 167). This method of arriving at an estimated taxable income is referred to as an ``assets betterment basis''. The forms used to make these calculations may be described as part of an investigator's working papers. They are not official forms or returns referred to in any section of the Act.
17. No evidence was tendered to inform the Board as to the outcome following the lodgment of these forms and so I do not know if the taxpayer was assessed for those prior years on taxable incomes arrived at by using an assets betterment basis. This information would have had an important bearing on my decision. If the figures on those forms had confirmed the taxable incomes shown on any returns lodged for those years and if such returns had been prepared by a registered tax agent, I may well have found for the taxpayer. On the other hand, if the figures enabled the Commissioner to arrive at taxable incomes different to those returned or to arrive at taxable incomes where none had been returned, I would have reached a contrary decision. As it is the taxpayer has failed to meet the evidentiary onus based on ordinary civil standards of proof and so I confirm the decision of the Commissioner.
18. With regard to the claim for telephone expenses, I adopt the reasoning of my colleague Mr. Pape and I agree with his conclusions.
19. I would reduce the taxable income in respect of the 1975 amended assessment by $57 and by $25 in respect of the 1976 assessment.
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