Kortum v Commissioner of Taxation

[2013] AATA 246

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(Decision by: Egon Fice, Senior Member)

Kortum
v Commissioner of Taxation

Tribunal:

Member:
Egon Fice, Senior Member

Subject References:
Income tax
deductions
onus of proof
work related expenses
depreciation
shortfall penalty
remission of penalty

Legislative References:
Administrative Appeals Tribunal Act 1975 - 33; 37
Income Tax Assessment Act 1936 - 51; 227
Income Tax Assessment Act 1997 - s 8-1; s 28-13; s 28-25; s 28-35; 40-25; 40-40; 900-35
Taxation Administration Act 1953 - 14ZZK,; 284-75; 284-80; 284-90; 298-20

Case References:
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) - (2011) 196 FCR 457
Drake v Minister for Immigration and Ethnic Affairs - (1979) 2 ALD 60
Federal Commissioner of Taxation v Maddalena - (1971) 2 ATR 541
Federal Commissioner of Taxation v Traviati - (2012) 205 FCR 136
Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation - (1991) 22 ATR 148
Nozzi Pty Ltd v Federal Commissioner of Taxation - (2003) 52 ATR 521

Other References:
Byrne DM and Heydon JD, Cross on Evidence, (3rd Australian ed, Butterworths, 1986)
Taxation Ruling TR 95/15 Income tax: nursing industry employees - allowances, reimbursements and work-related deductions
Shorter Oxford English Dictionary (3rd ed, 1983)

Hearing date:
Decision date: 24 April 2013

Melbourne

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Decision by:
Egon Fice, Senior Member

REASONS FOR DECISION

1. During the 2010 and 2011 income years Mrs Louise Kortum was employed as a clinical nurse specialist at the Mercy Maternity Hospital and at Cabrini Hospital. In a letter dated 10 January 2012 Mrs Kortum explained her work in the following way:

In my role at the Mercy Maternity Hospital I conduct classes/courses for expectant mothers and fathers who have a booking at the hospital for the upcoming birth of their child. These classes are conducted weekly, they run for some three hours each week and are held over eight weeks. I prepare for these classes at home utilising the Internet to obtain source material and reference information. I utilise various audiovisual material for my classes and utilise power point and other computer applications. I use my laptop and USB's in the presentation to these classes....

As I am employed by Nurse Bank at Cabrini Hospital I have to phone in to obtain shift details.

2. The reason why I have referred to Mrs Kortum's letter above is that she was not present at the hearing and did not give evidence. She was represented by her husband, Mr Gary Kortum. When asked, Mr Kortum explained that his wife had not attended the hearing because she was working.

3. Mrs Kortum lodged her 2010 income tax return on 5 July 2010. She claimed deductions for work-related car expenses; work-related clothing expenses; other work-related expenses; dividend deductions; and gifts and donations. Although the Commissioner of Taxation (the Commissioner) accepted the return as lodged and issued a notice of assessment based on that return, on 5 May 2011 of the Commissioner requested she review the accuracy of the information she had given to the Australian Tax Office (ATO) in her 2010 tax return. The Commissioner requested Mrs Kortum return a completed schedule and the information by 23 May 2011. Mrs Kortum did not respond by that date.

4. On 9 June 2011 the Commissioner issued Mrs Kortum with a Notice of Amended Assessment for the 2010 income year increasing her taxable income from $54,773 to $71,770. On that date the Commissioner also issued Mrs Kortum with a Notice of Assessment of Shortfall Penalty in the amount of $1428.25.

5. On 9 August 2011 Mr Kortum lodged a complaint on behalf of his wife following which the Commissioner wrote to Mrs Kortum on 23 August 2011 indicating there would be no changes to the assessment of 9 June 2011. However, in a letter dated 30 August 2011 the Commissioner asked Mrs Kortum to disregard the letter issued to her on 23 August 2011. The Commissioner stated he would cancel the Amended Notice of Assessment of 9 June 2011 and reverse the adjustments and issue a new Notice of Assessment. This occurred on 7 September 2011 when the Commissioner issued a Notice of Amended Assessment to Mrs Kortum for the 2010 income year in which he amended her taxable income back to $54,773.

6. On 8 September 2011 the Commissioner again wrote to Mrs Kortum requesting information regarding her work-related car expenses, work-related clothing expenses, other work-related expenses, dividend deductions and gifts and donations claimed for the 2010 income year. Mrs Kortum responded to that letter on 27 September 2011 providing further information including receipts and documents relating to the deductions claimed.

7. On 9 December 2011 the Commissioner issued Mrs Kortum with a Notice of Amended Assessment for the 2010 income year amending her taxable income from $54,773 to $62,732. On that day the Commissioner also issued to Mrs Kortum a Notice of Assessment of Shortfall Penalty in the amount of $706.25 for failure to take reasonable care.

8. Mrs Kortum lodged a valid objection against the Amended Assessment of taxable income for the 2010 income year and the Assessment of Shortfall Penalty on 4 April 2012.

9. On 7 June 2012 the Commissioner issued to Mrs Kortum a Notice of Objection decision for the Amended Assessment of taxable income for the 2010 income year and the Assessment of Shortfall Penalty, allowing her objections in part. On 18 June 2012 the Commissioner issued to Mrs Kortum a Notice of Amended Assessment for the 2010 income year reducing her taxable income from $62,732 to $61,253.

10. Mrs Kortum lodged an income tax return for the 2011 income year on 10 September 2011. Mrs Kortum again claimed a number of work-related expenses as deductions which resulted in her returning gross income of $81,332. The Commissioner required her to provide further information in support of her deduction claims.

11. Mrs Kortum responded to the Commissioner's request for further information on 9 December 2011, providing a list of items and various receipts and documents relating to the deductions claimed for the 2011 income year.

12. On 20 January 2012 the Commissioner sent Mrs Kortum a letter notifying her of income tax adjustments to her 2011 income tax return. A number of deductions were disallowed and some were reduced. On 30 January 2012 the Commissioner issued Mrs Kortum with a Notice of Assessment for the 2011 income year assessing her taxable income as $79,675. On that day the Commissioner also issued Mrs Kortum with a Notice of Assessment of Shortfall Penalty for failure to take reasonable care in the amount of $1581.40.

13. Mrs Kortum lodged a notice of objection against the assessment of her taxable income for the 2011 income year, the interest charge and the Shortfall Penalty on 16 March 2012. The Commissioner issued Mrs Kortum with the Notice of Objection Decision on 7 June 2012. On 16 July 2012 the Commissioner issued Mrs Kortum with a Notice of Amended Assessment for the year ended 30 June 2011 which reduced Mrs Kortum's taxable income from $79,675 to $68,115.

14. On 6 August 2012 Mrs Kortum lodged an application for review with the Tribunal seeking review of the Commissioner's Objection Decisions made on 7 June 2012 in respect of the 2010 and 2011 income years.

15. By the time this matter came on for hearing, the list of deductions remaining in dispute had been reduced. Those remaining are set out in the table below.

16. I am required to determine whether Mrs Kortum has discharged the onus of proving, on the balance of probabilities, that the above claimed deductions fall within s. 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and that the expenditures can be substantiated.

ONUS OF PROOF

17. Section 14 ZZK of the Taxation Administration Act 1953 (TAA) deals with the grounds of objection and the burden of proof. It provides:

On an application for review of a reviewable objection decision:

(a)

an applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)

the applicant has the burden of proving that:

(i)

if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or

(ii)

if the taxation decision concerned is a franking assessment - the assessment is incorrect; or

(iii)

in any other case - the taxation decision concerned should not have been made or should have been made differently.

18. This Tribunal is required to determine matters in issue on the evidence before it at the hearing. As the Full Federal Court of Australia (Bowen CJ, Smithers and Deane JJ) said in Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 68:

The question for the determination of the Tribunal is not whether the decision which the decision-maker made was the correct or preferable one on the material before him. The question for the determination of the Tribunal is whether the decision was the correct or preferable one on the material before the Tribunal.

19. While it may seem obvious, the evidence of a fact is that which tends to prove it - something which may satisfy an enquirer that the fact exists(see: Cross on Evidence, 3rd Australian ed, at page 1). The reason why I need to explain this is that Mr Kortum appeared to be of the view that he was able to speak for his wife regarding evidentiary matters. Quite clearly, any evidence which Mr Kortum purported to give on behalf of his wife was hearsay. Although it is clear that the Tribunal is not bound by the rules of evidence, but may inform itself on any matter in such manner as it thinks appropriate (s. 33 of the Administrative Appeals Tribunal Act 1975), as Bowen CJ and Deane J explained in Drake's case, the Tribunal is not at large. Their Honours said, at 69:

...In its proceedings it is obliged to act judicially, that is to say, with judicial fairness and detachment....

20. The problem with hearsay evidence is that it must, necessarily, carry little weight unless it can be supported by some corroborative evidence. The same of course has been said of a taxpayer who does not keep records of deductible outgoings. Hill J explained this inthe Federal Court of Australia decision in Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148, where he said, at 155:

A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108 at 111. It would of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v FCT (1979) 143 CLR 284 at 302 per Gibbs J; 9 ATR 610; 23 ALR 583.

ALLOWABLE DEDUCTIONS GENERALLY

21. As Mr Wayne Stewart from the ATO Legal Services Branch submitted, work-related travel and other work-related expenses may be deductible under the general deduction provision of s. 8-1 of ITAA 1997. He submitted that an expense is deductible under s. 8-1 when it has the essential character of an income-producing expense. Section 8-1 provides:

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a)

it is incurred in gaining or producing your assessable income; or

(b)

it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a)

it is a loss or outgoing of capital, or of a capital nature; or

(b)

it is a loss or outgoing of a private or domestic nature; or

(c)

it is incurred in relation to gaining or producing your *exempt income or your non-assessable non-exempt income; or

(d)

a provision of this Act prevents you from deducting it.

22. Depreciation on capital items may also be allowed as a deduction where they are used for taxable purposes. Section 40-25 of ITAA 1997 deals with deducting amounts for depreciating assets. Insofar as it is relevant, it provides:

(1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a *depreciating asset that you *held for any time during the year.

(2) You must reduce your deduction by that part of the asset's decline in value that is attributable to your use of the asset, or your having it *installed ready for use, for a purpose other than a *taxable purpose....

(7) Subject to subsection (8), a taxable purpose is:

(a)

the *purpose of producing assessable income; or

(b)

the purpose of *exploration or prospecting; or

(c)

the purpose of *mining site rehabilitation; or

(d)

*environmental protection activities.

23. Division 28 of ITAA 1997 deals with car expenses. It describes four methods of calculating car expenses. They are: cents per kilometre; 12% of original value; one third of actual expenses; and log book method.

24. Division 900 of ITAA 1997 sets out the substantiation rules that apply to certain types of losses or outgoings. Work expenses are dealt with under subdivision 900-B and car expenses are dealt with under subdivision 900-C. Section 900-35 sets out exceptions to the requirement for record keeping for small total expenses. Section 900-35 (1) provides:

(1) If the total of all the *work expenses (including *laundry expenses, but excluding *travel allowance expenses and *meal allowance expenses) that you want to deduct is $300 or less, you can deduct them without getting written evidence or keeping travel records.

Note 1: If the total is more than $300, you need to substantiate all the work expenses, not just the excess over $300.

EXPENSE OF MAINTAINING A POST OFFICE BOX

25. Mrs Kortum claimed the expense of maintaining a post office box in the 2010 and 2011 income years in the amounts of $85 and $91 respectively. According to Mrs Kortum's statement of facts and contentions, the post office box was used for all correspondence relating to shares held in listed public companies. She contended that no personal correspondence was addressed to that post office box.

26. I had in evidence invoices from Australia Post for the provision of PO Box services in the amount of $84.50 on 31 March 2010 and $91 on 31 March 2011, both of which were paid. However, the invoiceswere addressed to Mr Kortum, not Mrs Kortum.

27. Mr Stewart submitted that even if the post office box was used for correspondence relating to the production of dividend income, nevertheless, that expenditure was of a private nature and not allowable under s. 8-1 of ITAA 1997.

28. At the hearing Mr Kortum told the Tribunal that the post office box was acquired some 15 to 18 years ago for the purpose of receiving correspondence relating to shares in listed public companies. He said the post office box was used solely for that kind of correspondence and it was used for the reason that it was more secure than having that material sent to his residential address. There was no evidence from Mrs Kortum about the post office box.

29. In cross-examination Mr Stewart asked Mr Kortum about a private company which had previously used that post office box address. Mr Kortum said that the company in question had not traded for many years. He agreed withthe suggestion that a particular superannuation fund had used the post office box address. He also agreed that he had used that address in correspondence with the ATO. When Mr Stewart put to Mr Kortum the question whether any other person used the PO Box address for correspondence, Mr Kortum said that 99% of the correspondence related to shareholdings and 1% to other matters. Mr Kortum agreed that the PO Box was registered in his name but it is used by both him and his wife. Mr Kortum also agreed that when he and his wife were on holidays, all redirected mail was delivered to the PO Box.

30. In my opinion, it cannot properly be said that the expenditure in relation to maintaining the post office box is expenditure incurred in gaining or producing Mrs Kortum's assessable income. Correspondence in relation to her shareholdings could just as easily have been delivered to her residential address, even though it may not be as secure as the post office box. I find that it is expenditure of a private or domestic nature.

31. Even if I am wrong about that, the PO Box is held by Mr Kortum not Mrs Kortum. It is expenditure for which he is liable, and not his wife. Furthermore, the evidence indicates it was not used solely for correspondence relating to shareholdings. It was established well before it was used for that purpose and is used as a convenient point to have mail redirected when Mr and Mrs Kortum are not at the residential address. That simply amplifies its private or domestic nature. I find that the expenses incurred in maintaining the post office box are not deductible under s. 8-1 of ITAA 1997.

DEPRECIATION CLAIMED ON LAPTOP COMPUTERS

32. There was some confusion about this claim. Two computers are involved. The first computer, a HP Mini Notebook computer, was purchased on 31 May 2009 for $699. I had in evidence and invoice from Harvey Norman which indicates that the computer was purchased by Mrs Kortum. According to the statement of facts and contentions signed by Mrs Kortum, this computer was stolen and it was not insured. Initially, she claimed $699 for writing off that computer. She also claimed depreciation at the rate of 33% for what is described as a desk computer valued at $925 as well as $800 in respect of the second laptop computer purchased on 9 April 2010.

33. The Commissioner disallowed her claims in respect of the two laptop computers on the ground that this was capital expenditure.

34. Despite the computer purchased on 31 May 2009 being stolen on an unidentified date, Mrs Kortum claimed depreciation of $233 for the 2010 and 2011 income years. Other than what Mrs Kortum said in the statement of facts and contentions, and what Mr Kortum said at the hearing, I had no other evidence supporting the theft of this computer.

35. I had in evidence an invoice from Harvey Norman indicating the purchase of a Pavilion DM1 laptop computer for $800. However the invoice is made out to Mr Kortum, and not Mrs Kortum. Mrs Kortum claimed depreciation for this computer in the amount of $267 for the 2010 and 2011 income year.

36. Leaving aside for the moment issues which arise regarding the stolen computer and the fact that the second computer was purchased by Mr Kortum, the first matter which needs to be determined is whether the computers were used by Mrs Kortum for a taxable purpose, as that expression is defined in s. 40-25 (7) of ITAA 1997. To be a valid deduction claim, the computers must have been used for the purpose of producing assessable income.

37. In her statement of facts and contentions, Mrs Kortum explained that in her role at the Mercy Maternity Hospital, she conducted classes/courses for expectant mothers and fathers prior to the birth of their child. She said those classes were conducted weekly, running for some three hours each week over an eight week period. To prepare for those classes, Mrs Kortum said she obtained the source material and reference information from the Internet. She also used various audio/visual materials for her classes including PowerPoint and other computer applications which she did not describe. She said she used her laptop in the course of presenting her classes.

38. Mr Stewart contended that Mrs Kortum failed to provide evidence from her employer that she was required to use her own laptop computer for work purposes or, if she was so required, she failed to make an apportionment for business and private use. Mr Stewart also submitted that if Mrs Kortum was required to use a laptop for work purposes then one would have been supplied by her employer or she would have received a direction from her employer requiring her to have a laptop computer. He also submitted that it would be unreasonable to accept from Mrs Kortum that the hospital required her to purchase a laptop computer which is to be used only once per week.

39. The problem with the contentions made by Mrs Kortum is that due to her absence from the hearing, her claims about using the computer could not be tested by the Commissioner. Simply making assertions about the need to use equipment for the purpose of producing assessable income is not evidence upon which this Tribunal can make a decision. To begin with, it is a self-serving statement and should in any event be treated with caution (see the Imperial Bottleshops case). Furthermore, it would be procedurally unfair to accept those contentions without giving the Commissioner the opportunity to test the statements made by the taxpayer. Quite clearly, Mr Kortum could not give evidence on behalf of his wife regarding Mrs Kortum's claimed need to purchase her own laptop computer. His evidence would be hearsay and also self-serving. In the absence of corroborating objective evidence, I could not give it any weight. I would therefore disallow the deduction claim for both laptop computers.

40. For completeness, I should also point out that it is simply incorrect to continue to claim a depreciation expense on a capital item which is no longer held by the taxpayer in the income years in question. In those circumstances, balancing adjustments need to be made in accordance with Subdivision 40-D of ITAA 1997. Also, in accordance with s. 40-40, a depreciating asset is held by the owner or the legal owner if there is both a legal and equitable owner of the asset. The legal owner of the second computer appears to be Mr Kortum and not Mrs Kortum. That would result in disallowance of the depreciation claimed by Mrs Kortum on the second computer.

AUSTRALIA POST STAMPS

41. In her statement of facts and contentions Mrs Kortum simply said that she had provided the Commissioner with receipts and invoices verifying and substantiating the $38 and $46 claimed for the 2010 and 2011 income years respectively. The Commissioner acknowledged that Mrs Kortum had provided receipts regarding those expenses and copies of those were in evidence. The receipts indicate the purchase of postage stamps, both local and international. Mrs Kortum provided no explanation as to how that expenditure is related to a taxable purpose.

42. I find that Mrs Kortum has not discharged the onus of proving that this expenditure was incurred for the purpose of producing assessable income.

TELEPHONE EXPENSES

43. Mrs Kortum claimed telephone expenses of $432 in each of the 2010 and 2011 income years. According to a supplementary statement provided by Mrs Kortum which is dated 7 January 2013, she has a mobile telephone plan which requires her to pay $60 per month or $720 per year. She claimed 60% of that amount because, according to her, the mobile phone is used almost exclusively for contact with Cabrini Hospital.

44. In her supplementary statement Mrs Kortum said she was employed by Nurse Bank, which I understand is an employment agency. She claimed she was or is required to contact by telephone Nursing Administration to submit work availability and to obtain shift details. It is not clear to me whether the reference to Nursing Administration is part of Nurse Bank or whether that is a reference to Cabrini Hospital. I had three copies of printed text messages which were examples of Nursing Administration contacting nurses whose services were provided by Nurse Bank informing nurses of shift availability and instructed them to call if they were interested in any of the available shifts. The contact telephone numbers on those text messages are clearly telephone numbers at Cabrini Hospital. Mrs Kortum claimed that she would make about 20 calls per month of which 12 would be business calls to Cabrini Hospital regarding her availability to work on available shifts.

45. Mrs Kortum said she had requested copies of her accounts from Telstra but had not received them. I had no evidence before me of her Telstra telephone accounts.

46. On the material before me, it is not clear that Mrs Kortum is in fact employed by Nurse Bank even though that is what she claims in her supplementary statement. I had no documentary evidence of her arrangement with that entity. Mrs Kortum was not available to be cross-examined about that.

47. The Commissioner has issued a taxation ruling (TR 95/15) which deals with the income tax of nursing industry employees. It specifically deals with work-related deductions. Under the heading Agency nurses is set out the following:

40. For the purposes of this Ruling, an agency nurse is a nursing employee who seeks and obtains employment (whether full time, part time or casual) through the services of a nursing agency.

41. While an agency nurse is generally employed by the organisation for which he or she works (e.g., hospital, clinic, etc), there is a view within the industry that some nurses are actually employed by the agency itself. On the basis of discussions, we understand that the latter situation would be less common than the former....

48. TR 95/15 also details the characteristics that would be necessary if the nurse and the agency were engaged in an employer/employee relationship. Under the heading Control test is set out the following:

51. Control test: Generally, the master/servant or employers/employee relationship exists where the 'control test' is satisfied. For agency nurses this would mean that the agency possessed the right to control how, where and when the work is carried out. The greater the obligation the nurse has to obey the orders of the agency as to the performance of the work, the greater the weight attached to the control test and the more likely they are to be an employee of the agency.

52. It is our view that nursing agencies predominantly act as a 'go-between' and simply assist nurses in obtaining short-term or casual employment. They do not normally control how, where or when the work is carried out. These decisions will be made by the nurse in the sense that they control which days they work, whether they work days or nights and which hospitals they work at, obviously subject to shift availability. Once they obtain a shift they are then controlled by the organisation for whom they are performing duties. The agency merely advises the nurse that a shift is available. Nevertheless, it is open to individual taxpayers to provide evidence that they meet the control test and are in fact employed by the agency.

49. On the very limited material which was before me regarding the relationship between Mrs Kortum, Nurse Bank and employment at Cabrini Hospital, it appears to me that Nurse Bank acts as a go-between. When Cabrini Hospital requires nurses to fill shifts it apparently refers to Nurse Bank to obtain appropriately qualified nurses for a particular shift and then sends a text message asking those nurses to call in if they are available for the shift.

50. TR 95/15 also refers to substantiation. In particular, paragraph 204 provides:

Work-related calls may be identified from an itemised telephone account. If such an account is not provided, a reasonable estimate of call costs, based on diary entries of calls made over a period of one month, together with relevant telephone accounts, will be acceptable for substantiation purposes.

51. As I have already indicated above, I did not have any telephone accounts in evidence nor did I have a diary in which Mrs Kortum recorded work calls. It follows that, given the unclear employment relationship between Mrs Kortum and either Nurse Bank or Cabrini Hospital, and the lack of substantiation of the expenditure, I must find that Mrs Kortum has not discharged her onus of proving that this expenditure was incurred for the purposes of producing assessable income rather than simply being expenditure for the purpose of obtaining employment. The distinction between incurring expenditure in the course of producing assessable income and incurring expenditure for the purpose of obtaining employment so that one can subsequently produce assessable income was made clearly in the High Court of Australia decision in Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541 at 548, where Barwick CJ said:

The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment.

52. Also, Menzies J said, at 549:

Had the taxpayer claimed as a deduction the expenses of changing from one job to another as an employee electrician his outlay would not have been an allowable deduction. The expenditure would have been incurred in getting, not in doing, work as an employee. It would come at a point too soon to be properly regarded as incurred in gaining assessable income.

53. Although Maddalena's case was dealt with under s. 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936), it is in identical terms to those used in s. 8-1 in ITAA 1997.

54. In my opinion, the evidence does not permit me to find that the expenditure Mrs Kortum incurred in respect of the use of her telephone falls within s. 8-1 of ITAA 1997.

MISCELLANEOUS WORK EXPENSES

55. Mrs Kortum claimed $138 and $117 for the 2010 and 2011 income years respectively for miscellaneous work expenses which she said were incurred for acquiring torches, batteries, scissors, pens and nappies (for classes). She referred to TR 95/15 as the basis for claiming this deduction.

56. TR 95/15 does not make any specific reference to the miscellaneous items claimed by Mrs Kortum. Furthermore, it provides, at paragraph 21:

In short, a deduction is only allowable if an expense:

(a)

is actually incurred (paragraph 25);

(b)

meets the deductibility tests (paragraphs 26 to 33); and

(c)

satisfies the substantiation rules (paragraphs 34 and 35).

57. Paragraph 34 of TR 95/15 provides that income tax law requires substantiation of certain work-related expenses unless the total of these expenses is $300 or less. That is of course a reference to s. 900-35 (1) of ITAA 1997 which I have set out above. In Mrs Kortum's case, the total of all of her work-related expenses exceed $300. In that case, she is required to substantiate all of the work expenses, not just the excess over $300. This is reflected in paragraph 35 of TR 95/15 which provides:

A deduction is not allowable if the substantiation requirements are not met.

58. Mrs Kortum did not provide any evidence of the expenditure claimed. Accordingly, I find she has not met the substantiation rules set out in Subdivision 900-B relating to substantiating work expenses. Mrs Kortum has not satisfied the onus of proving that this expenditure was incurred.

MOTOR VEHICLE EXPENSES

59. Mrs Kortum claimed $2895 for motor vehicle expenses in 2010 income year and $2736 in the 2011 income year. She claimed that receipts and invoices verifying and substantiating those expenses had been provided to the Commissioner.

60. As I have explained above, there are four methods which a taxpayer can choose when calculating the expenditure for this item. Mrs Kortum chose the cents per kilometre method. She claimed the costs related to her motor vehicle in travelling to the Mercy Hospital once per week, a return trip of 56 km. She claimed she was required to use her car in order to transport her laptop computer, pamphlets and publications, breast pumps, nappies and other aids used in the classes she conducted at the hospital. She also claimed for travel to collect mail from the post office box; to do banking; and travel for purchases. For the 2010 income year, she claimed for a total of 80 km per week for 48 weeks at $0.75 per kilometre and for the 2011 income year, 76 km per week for 48 weeks at $0.75 per kilometre.

61. The first thing I need to point out is that Mrs Kortum's claim for the 2010 income year has been miscalculated. The total distance travelled in the first year is 3840 km which results in claimable expenditure of $2880 rather than the $2895 claimed.

62. Subdivision 28-C of ITAA 1997 deals with the cents per kilometre method. Section 28-25 provides:

(1) To calculate your deduction using the "cents per kilometre" method, you multiply:

•

the number of * business kilometres of the * car travelled in the income year;

by:

•

a number of cents based on the car's engine capacity.

The number of cents can be found in the regulations.

(2) But you can use this formula for the first 5000 *business kilometres only. If the *car travelled more than 5000 business kilometres, you must discard the kilometres in excess of 5000.

(3) Business kilometres are kilometres that the *car travelled in the course of:

(a)

producing your assessable income; or

(b)

your *travel between workplaces.

You calculate the number of business kilometres by making a reasonable estimate.

63. Substantiation under this method is provided for in s. 28-35 which provides:

To use this method, you do not need to substantiate *car expenses for the *car.

64. The expression car expense is a defined term and its meaning is set out in s. 28-13 of ITAA 1997. It provides:

(1)

A car expense is a loss or outgoing to do with a * car.

(2)

In addition, any of the following is a car expense:

(a)

a loss or outgoing to do with operating a * car;

(b)

the decline in value of a car.

65. While the claimed car expenses under the cents per kilometre method need not be substantiated, it is clear from the legislation that the first thing Mrs Kortum was required to do was to produce evidence that she owns a vehicle and evidence of its engine capacity so that the correct cents per litre calculation can be made. The Commissioner contended that at the relevant time, because Mrs Kortum claimed $0.75 per kilometre, she owned a large car which is described as being over 2600cc engine capacity.

66. I had in evidence a Certificate of Registration for a motor vehicle described as a 2008 Toyota Wagon. That document is addressed to Mrs Kortum at her home address. As the Commissioner submitted, the Certificate of Registration does not disclose the engine capacity of that motor vehicle. In fact, my searches on the Internet disclose that it is possible that the Toyota Wagon has an engine capacity of 2400cc. While I do not for one moment suggest that this should result in the claim being disallowed, it obviously raises a serious question about whether the claim is correct. Mrs Kortum produced no evidence of the engine capacity for the purposes of this hearing.

67. Mrs Kortum relied on TR 95/15 for the purpose of claiming this deduction. While that taxation ruling clearly provides that a deduction is not allowable for the cost of travel by a nursing employee from home to his or her normal workplace because it is generally considered to be a private expense, there is an exception dealing with transporting bulky equipment. Paragraphs 146 and 147 of TR 95/15 provide:

146. A deduction is allowable if the transport costs can be attributed to the transportation of bulky equipment rather than to private travel between home and work (see FC of T v. Vogt 75 ATC 4073; 5 ATR 274). If the equipment is transported to and from work by the nursing employee as a matter of convenience, it is considered that the transport costs are private no deduction is allowable.

147. A deduction is not allowable if an employer provides a secure area for the storage of equipment at the workplace (see Case 59/94 94 ATC 501; AAT Case 9808 (1994) 29 ATR 1232).

68. According to Mrs Kortum, she was required to transport her laptop computer, pamphlets and publications, breast pumps, nappies and other aids used in classes, to and from her home to the Mercy Hospital for the purpose of conducting the parent education classes. As I have already mentioned, Mrs Kortum did not give evidence but Mr Kortum said that his wife had three large duffle bags which she carried with her to store her equipment. It was also Mr Kortum who said that his wife was not provided with a storage facility at the hospital in which she could safely store that equipment.

69. Mr Kortum also said at the hearing that his wife in fact worked seven shifts per fortnight at the Mercy Hospital, two of those involved parent education and five as an administrator dealing with hospital coordination. He said there were occasions when one of the parent educators was unable to conduct a teaching session and the hospital would assign her to that task. For that reason, she kept the materials in the boot of her car.

70. Although Mr Stewart referred me to a number of Tribunal cases which have dealt with determining whether items carried by the taxpayer were bulky, with respect to Mr Stewart, each case must be decided on its particular evidence regarding the nature of the equipment to be carried and the application of the ordinary meaning of the word bulky. The Shorter Oxford English Dictionary defines the word bulky as: Of large bulk, voluminous; occupying (too) much space. The problem in this case is that all I had before me was Mr Kortum's description of what his wife carried for the purpose of conducting her classes. I have no idea what volume that equipment occupied and I have no idea as to the size of the duffle bags referred to by Mr Kortum. I have no idea of the total weight which was carried. It is sufficient for me to simply say that I had no evidence of whether the equipment Mrs Kortum purports to carry to the Mercy Hospitalon at least one occasion every week can be properly described as bulky.

71. There was also no evidence before me that Mrs Kortum could not have been provided with storage space at the Mercy Hospital where that equipment could have been securely held. Although Mr Kortum said that was the case, that is not evidence. As I have already explained, while this Tribunal is not bound by the rules of evidence, a taxpayer carries the onus of proving, on the balance of probabilities, that the assessment made by the Commissioner is excessive. Mr Kortum simply stating that to be the case does not satisfy Mrs Kortum's obligation to discharge that onus. Furthermore, given Mr Kortum's statement that his wife was sometimes asked to conduct a class when she was at the hospital in her capacity as an administrator, logically, there appears to be a benefit to her employer in providing her with storage space. In order to discharge the onus, Mrs Kortum would need to produce objective evidence of a refusal to do so. There was no such evidence before me.

72. While Mr Stewart also explained in the course of the hearing that using the Internet, he determined that the distance between Mrs Kortum's home to the Mercy Hospital in Studley Road, Heidelberg, was about 14.2 to 16.6 km, depending on the route taken, given the lack of evidence regarding this claim, I need say nothing further about that. I find that Mrs Kortum has not discharged the onus of proving the claim deductions for motor vehicle expenses.

73. As for the claim for travel expenses in collecting mail and doing banking, as I have already found that the Post Office box was an item of private expenditure, I find that this expenditure was not incurred in producing assessable income. The same must be said of expenditure claimed in travelling to do banking and making other purchases. There was no evidence before me to link the expenses incurred for that travel with producing assessable income.

74. Mrs Kortum contended that her travel in the 2011 income year for which she claimed work-related car expenses involved some 76 km per week. For the reasons I have already set out above regarding the 2010 income year, I find that Mrs Kortum has not discharged the onus of proving, on the balance of probabilities, that this expenditure was incurred in producing assessable income. Her work related car expenses for both income years should be disallowed.

ARITHMETIC ERROR REGARDING INTEREST DEDUCTIONS

75. In the notice of objection to the amended assessment for the 2010 income year Mrs Kortum claimed an additional interest deduction of $541 due to an arithmetic error. Her objection simply stated:

An additional deduction adjustment of $541 is required as Interest deduction was calculated in error.

76. The s. 37 documents provided by the Commissioner include two letters, one from Leveraged Equities dated 29 July 2010 and one from the Commonwealth Bank which has the date obliterated. The Leveraged Equities letter refers to interest incurred on a Leveraged Equities margin lending facility for the 2010 income years stating that interest on that facility amounted to $1539.10. The Commonwealth Bank letter refers to an Investment Loan where interest in the amount of $13,630.71 was incurred for the 2010 income year. The total interest expense incurred amounted to $15,169.81 for that income year. Both accounts are joint accounts in the names of Mr and Mrs Kortum. Although the Commissioner directed my attention to the investment loan statement issued by the Commonwealth Bank which he suggested indicated that the loan was made for the purchase of residential property (the contract loan term being 30 years and repayment via interest only expiring on 30 July 2014), Mr Kortum denied that be the case.

77. In my opinion, the Commonwealth Bank statement referring to the investment loan does not permit a finding, on the balance of probabilities, that the loan was made in respect of residential property. It simply appears to be an investment loan as is stated on the document.

78. The Commissioner has allowed Mrs Kortum a deduction of $8768 for the 2010 income year in what is described as a dividend deductionwhich is in fact a deduction for interest paid on the investment loans. Mr Stewart submitted that because both investment loans were held in joint names, Mr and Mrs Kortum were entitled to 50% of the total interest paid as a deduction in that year. That means each taxpayer was entitled to claim $7584. Given that the Commissioner already allowed Mrs Kortum in excess of 50% of the interest expenses by way of deduction, he submitted that the further claimed $541 by Mrs Kortum should not be allowed. In my opinion, the Commissioner's decision is correct. I find there is no basis in evidence for Mrs Kortum claiming a further deduction of $541. At best, she was entitled to a deduction of $7584. Mr Kortum was entitled to the same deduction. There is no basis in evidence for altering the distribution between Mr and Mrs Kortum.

PENALTY

79. As I have indicated above, the Commissioner issued to Mrs Kortum a penalty notice on 9 December 2011 relating to the 2010 income year in the amount of $706.25 and on 30 January 2012 in relation to be 2011 income year in the amount of $1581.40. However, after those assessments issued, the Commissioner in his Notice of Objection Decision dated 7 June 2012 allowed part of Mrs Kortum's objections. According to the Commissioner, he has allowed $10,517 of deductions for the 2010 income year and $11,873 for the 2011 income year. The resultant is that the Commissioner disallowed $6480 of claim deductions for the 2010 income year and $7755 claim deductions for the 2011 income year.

80. Although amended penalty assessments have not issued at this point in time, the Commissioner submitted that Mrs Kortum remains liable to an administrative penalty under Subdivision 284-B of the TAA on the ground that she has made a false or misleading statement which resulted in a tax shortfall.

81. Section 284-75 (1), which is located in Schedule 1 the TAA provides:

(1) You are liable to an administrative penalty if:

(a)

you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and

(b)

the statement is false or misleading in a material particular, whether because of things in it or omitted from it....

(5) You are not liable to an administrative penalty under subsection (1) or (4) for a statement that is false or misleading in a material particular if you, and your *agent (if relevant), took reasonable care in connection with the making of the statement.

82. The table set out under s. 284-80 (1) describes circumstances in which a taxpayer may have a shortfall amount. Item 1 is relevant and it provides:

A *tax-related liability of yours for an accounting period, or for a *taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999, worked out on the basis of the statement is less than it would be if the statement were not false or misleading.

83. The base penalty rates are set out under s. 284-90 (1). In this case the Commissioner has applied item 3 which results in a 25% of the shortfall amount of penalty if:

You have a *shortfall amount as a result of a statement described in subsection 284-75 (1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law.

84. Accounting for the objections allowed subsequent to this matter coming on for hearing, the Commissioner calculated that the remaining penalty amounts are $575.10 for the 2010 income year and $671.08 for the 2011 income year. I do not have sufficient material before me to verify these calculations. However, I am able to determine whether Mrs Kortum is liable to an administrative penalty arising out of a shortfall amount.

85. The Commissioner contended that Mrs Kortum has shown a lack of reasonable care when preparing her income tax returns for the two years in question because she was unable to substantiate the claims; she was not eligible to make those claims; and she did not contact the ATO to discuss or confirm that particular amounts were deductible. As the Commissioner submitted, Mrs Kortum made no submissions concerning penalties.

86. As is required in proving that an assessment is excessive, the taxpayer also has the onus of proving that a penalty should not have been imposed. Although dealing with ITAA 1936, Stone J said inNozzi Pty Ltd v Federal Commissioner of Taxation (2003) 52 ATR 521 at 525:

[12] One consequence of the applicants having the burden of proof is that, if they wish to show that the penalty under s 226J should not have been imposed, it is for them to prove that there was no intentional disregard of the ITAA 1936 and the regulations. It is not for the respondent to defend his decision. ...

87. In my opinion, the obligation to discharge the onus of proof regarding penalty which is to be borne by the taxpayer remains under the TAA.

88. The failure to take reasonable care was discussed in some detailby Greenwood J in Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) (2011) 196 FCR 457. His Honour said, after referring to the Revised Explanatory Memorandum to the 2000 Bill, at 465 - 466:

It follows as a matter of principle that the reasonable care test calls upon a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer in fulfilling the taxpayer's tax obligations. The test looks to whether such a person would have foreseen, as a reasonable probability or reasonable likelihood, the prospect that the action or step or the failure to act or take an affirmative step would result in a shortfall amount and in determining that question, a relevant factual enquiry is whether the taxpayer made the reasonable attempts a person in the position of the taxpayer ought to have taken so as to comply with the provisions of a taxation law. At para 1.75 of the Explanatory Memorandum, the observation is made that a taxpayer who prepares his or her own Business Activity Statement would usually be taken to have exercised reasonable care if the taxpayer relies upon the advice of an accountant or lawyer (or both) whom the taxpayer could reasonably expect to provide competent advice on the relevant matter in issue.

At para 1.76, the observation is made that a taxpayer would be at risk of a penalty if the taxpayer was careless (that is to say, did not act reasonably) in presenting all of the relevant facts to an adviser and such a failure materially affected the advice upon which the taxpayer sought to rely.

89. I had no evidence at all from Mrs Kortum. In those circumstances, it is not possible for her to have discharged her onus of proving that no penalty should be applied to a shortfall amount in the event that she made a false or misleading statement as a consequence of claiming the deductions which were disallowed in the income years in question. From the facts available to me from the evidentiary material, and in particular the failure to establish the nexus between the expenditure claimed and assessable income, I find that Mrs Kortum has made misleading statements in the income tax returns she lodged in the 2010 and 2011 income years and that in doing so, she failed to take reasonable care. She is therefore liable to an administrative penalty on the shortfall amount in each year.

REMISSION OF PENALTY

90. Section 298-20 of Schedule 1 of the TAA provides that the Commissioner may remit all or part of the penalty.

91. The Commissioner submitted that the main consideration relevant to the exercise of discretion under s. 298-20 is whether the outcome would otherwise be harsh so as to produce an unjust result, having regard to the particular circumstances of the taxpayer.

92. Middleton J inFederal Commissioner of Taxation v Traviati (2012) 205 FCR 136, although dealing with s. 227(3) of the ITAA 1936, which is in similar terms to s 298-20 of the TAA, said, at 151:

Section 227(3) in its terms gave the Commissioner and unfettered discretion to remit the whole, or any part of the additional tax payable. Where discretion is so unconfined, the factors which the decision-maker can consider are similarly unconfined, except insofar that they are limited by subject-matter, scope and purpose of the statute:...

His Honour went on to say, at 151:

Broadly speaking, the main consideration relevant to the discretion in s 227(3) was whether any part of the penalty should be remitted on the basis that the outcome is harsh so as to provide an unjust result, having regard to the particular circumstances of the taxpayer:...

93. Given that I have no submissions or evidence before me about whether the penalty, if maintained, would be so harsh as to produce an unjust result, I must find that there are no grounds made out for the remission of the penalty.

THE ABSENCE OF THE APPLICANT AT THE HEARING

94. By way of a postscript, I believe I should say something about the absence of Mrs Kortum on the hearing of her application.

95. According to Mr Stewart, the Commissioner gave notice to Mrs Kortum that she was required to attend the hearing for the purposes of cross-examination. Mr Kortum said at the hearing that his wife had received notice of the requirement which was stated on the hearing certificate provided by the Commissioner. That statement in fact said: The Commissioner reserves the right to cross examine the applicant's witnesses.

96. The correspondence on the Tribunal file indicates that a copy of the respondent's hearing certificate was provided to Mrs Kortum under the cover of a letter dated 24 October 2012. Although contact with Mr Kortum by telephone took place on 5 November 2012 when Mr Kortum said he had not received the hearing certificate, the Tribunal then provided Mrs Kortum with a copy of that document. Logically, the Commissioner expected Mrs Kortum to attend the hearing. The only reason Mr Kortum gave for Mrs Kortum not attending was that she was working.

97. In the course of the hearing, when I explained to Mr Kortum the need to have Mrs Kortum present at the hearing, he requested an adjournment to another hearing date. I refused that request because I was of the view that Mrs Kortum was made aware of the date of the hearing in either October or November of 2012. No reason was offered by Mr Kortum as to why his wife could not have made arrangements to ensure that she was not working on the date on which the hearing was listed. In my opinion, Mrs Kortum chose not to attend the hearing despite bearing the onus of proving her case. She was given every reasonable opportunity to present her case. The explanation given for her absence was unsatisfactory.

CONCLUSIONS

98. I have found that Mrs Kortum has not substantiated or established a nexus between the claimed expenditure incurred and the production of assessable income for each of the deductions in dispute for the 2010 and 2011 income years. Accordingly, I find that the Commissioner correctly disallowed those deductions.

99. I have also found that Mrs Kortum had a shortfall amount as a result of the disallowance of the claimed deductions and accordingly she is liable to pay an administrative penalty. I have also found that the shortfall amount resulted from misleading statements made in her income taxreturns and that she failed to take reasonable care when claiming those deductions. Accordingly, I find the Commissioner correctly assessed Mrs Kortum to a penalty of 25% of the shortfall amount.

100. Although the Commissioner has not issued amended penalty notices for the 2010 and 2011 income years, he has calculated that the penalty amounts are $575.10 for the 2010 income year and $671.08 for the 2011 income year. Subject to verification by the Commissioner of these calculations, I find that the Commissioner's assessment regarding penalties was correct. I have found that there were no grounds established for the remission of these penalties.

101. I affirm the decision made by the Commissioner on 7 June 2012 regarding the disallowance of the remaining deductions in dispute between the parties and the penalties to be applied to the shortfall amount subject to verification of the calculation of those amounts for the 2010 and 2011 income years.