Decision impact statement
Siddiqi and Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2011/5274, 5648, 5649
Judge Name: SM Fice
Judgment date: 31 August 2012
Appeals on foot: No
Decision Outcome: Largely favourable
Impacted Advice
Relevant Rulings/Determinations:- N/A
Subject References:
Omitted income
GST taxable supplies
Onus of proof
Cash transactions
Lack of business records
Précis
Outlines the ATO's response to this case which concerned whether the taxpayer could satisfy the onus of proving that various cash receipts were not income from a business activity or not consideration for GST taxable supplies.
Brief summary of facts
The taxpayer was a sole trader operating an import, local purchase and export business. An audit of his business affairs revealed that there were a large number of unexplained deposits into the taxpayer's bank accounts during the 2008 and 2009 income years that were in excess of his returned business income for those years, and which did not correlate with the corresponding business activity statements lodged for those periods.
Before the Tribunal, the taxpayer did not produce any proper business records to establish the cash sales and purchases he made in the course of running his business. His largely oral testimony was that the unexplained deposits were not business income or from taxable supplies, but were personal loans from friends/family, repayments of money from returned supplies or redeposits. The taxpayer also relied on oral evidence from a few other witnesses, and some documentary evidence, including money transfer receipts and invoices.
Prior to the hearing, the Commissioner accepted that seven deposits neither evidenced assessable income nor taxable supplies.
Also at issue before the Tribunal was whether any shortfall amounts of the taxpayer for the relevant periods was due to a failure by him or his agent to take reasonable care.
Issues decided by the Administrative Appeals Tribunal
The Tribunal found that, with the exception of the amounts conceded by the Commissioner, the taxpayer had not discharged the onus of proving that the various cash deposits into the his bank accounts were not assessable income from his business and/or consideration from taxable supplies (paragraph 85).
While it is not unlawful to conduct a business in an environment where transactions are not documented, and payment is frequently made by cash, there is a high duty placed upon a taxpayer under the self-assessment system to keep business records to substantiate income and expenditure. For the purposes of the penalty provisions, a failure to keep such records speaks clearly of a failure to take reasonable care (paragraph 79). No remission of penalty was warranted.
Tax Office view of Decision
Subject to seven amounts conceded by the Commissioner during the hearing, the taxpayer was not able to discharge the onus of proving that the various cash deposits were not income from his business activities, nor consideration from taxable supplies. The Tribunal was not prepared to accept the largely oral evidence of the taxpayer in the absence of any proper business records.
Administrative Treatment
Implications on current Public Rulings & Determinations
None
Implications on Law Administration Practice Statements
None.
Court citation:
[2012] AATA 589
90 ATR 452
Legislative References:
Taxation Administration Act 1953
14ZZK
284-75 of Schedule 1
284-80 of Schedule 1
284-90 of Schedule 1
298-20 of Schedule 1
Case References:
Dixon v FC of T
[2008] FCAFC 54
167 FCR 287
2008 ATC 20-015
69 ATR 627
FC of T v Dalco
[1990] HCA 3
168 CLR 614
20 ATR 1370
90 ATC 4088
FC of T v Traviati
[2012] FCA 546
2012 ATC 20-321
Gauci v FC of T
[1975] HCA 54
(1975) 135 CLR 81
5 ATR 672
75 ATC 4257
Imperial Bottleshops Pty Ltd and Egerton v FC of T
(1991) 22 ATR 148
91 ATC 4546
Re Optimise Group Pty Ltd and Commissioner of Taxation
[2010] AATA 782
2010 ATC 10-155
79 ATR 953
R v The War Pensions Entitlement Appeals Tribunal and another ex parte Bott
[1933] HCA 30
50 CLR 228