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Tribunal: Senior Member Egon Fice

The applicant failed to lodge income tax returns for the 2008, 2009 and 2010 income years. In April 2012 the Australian Tax Office (ATO) requested the applicant lodge his outstanding income tax returns for the three years in question but the applicant did not respond to the request. The ATO sent a further letter in June 2012 warning the applicant that if he did not lodge the returns he would become liable to a default assessment and he may also be liable for additional penalties for late or unlodged income tax returns. The applicant again failed to comply. A default assessment is when the Commissioner of Taxation makes an assessment of the taxable income that, in their judgement, tax should be levied for the years where an income tax return wasn't lodged.[1] The Commissioner may make this assessment based on the returns received or any other information in their possession.[2] 

The Commissioner wrote to the applicant informing him that default assessments had been raised. The applicant then lodged three income tax returns for the income years in question. The Commissioner issued the applicant default assessments of tax payable in the amounts of $16,743.45, $78,637.15 and $82,712.25 respectively for the income years in question and issued notices of assessment of a penalty for failing to provide an income tax return.[3]

The applicant lodged an objection to to the assessments made by the Commissioner, who disallowed it in full.  Included in the objection decision was the Commissioner’s decision not to process the income tax returns lodged for the 2008, 2009 and 2010 income years.

If the Commissioner makes an assessment which is disputed by the taxpayer, the taxpayer must prove that the amount was excessive.[4] The Tribunal stated that to do this a taxpayer must, by evidence, establish their true income and demonstrate that it is less than the amount assessed by the Commissioner.

The Tribunal concluded that the applicant had not proven that the amount assessed by the Commissioner was excessive. The applicant’s assessable income for the three years in question was derived essentially from consulting services he provided through his private company. The Tribunal stated that the absence of documentary evidence created significant problems for the applicant in proving the assessment amounts were excessive. The Commissioner indicated that the default assessment of the applicant’s assessable income was derived from his private company’s financial records. In the absence of documentary evidence provided by the applicant, the Tribunal found that this was reasonable.

The applicant also claimed work related travel, rental property, motor vehicle and phone/internet expenses. The Tribunal found that the applicant failed to substantiate such claims and was not entitled to claim those expenses.

The applicant also lodged a variety of reasons why the penalty assessments made by the Commissioner should be set aside.  The Tribunal found that the applicant’s history and attitude towards keeping proper records to enable him to complete income tax returns and his reluctance to lodge such returns within the time required by the Commissioner weighed heavily against the grant of any cancellation.[5]

The Tribunal affirmed the objection decisions made by the Commissioner.

Read the full written decision on Austlii.

[1] Section 167 of the Income Tax Assessment Act 1936

[2] Section 166 of the Income Tax Assessment Act 1936

[3] Section 284-75(3) of the Taxation Administration Act 1953

[4] Section 14ZZK of the Taxation Administration Act 1953

[5] Clause 28 of PS LA 2014/4 sets out the approach which should be adopted regarding the discretion to remit penalties.