Default assessments confirmed for undisclosed income of property business
A taxpayer has been unsuccessful in proving that default assessments were excessive or otherwise incorrect: Peter Sleiman Investments Pty Ltd as Trustee for The Sleiman Family Trust v FCT  AATA 999.
PSI Pty Ltd (PSI) was the trustee of a discretionary family trust. PSI lodged income tax returns in its capacity as trustee for the years ended 30 June 2000 to 30 June 2004. For the years ended 30 June 2005 to 30 June 2007, it lodged forms indicating that “returns were not necessary”. For the years ended 30 June 2008, 30 June 2009 and 30 June 2010, it did not lodge income tax returns nor “returns not necessary” forms.
In June 2013, the Commissioner issued income tax assessments to PSI for the 2008, 2009 and 2010 income years totalling just over $3.7 million in tax and $3.3 million in penalties.
PSI contended that it did not do more than own and derive rental income from properties it owned in Sydney. It contended that its total income was significantly less than the ATO had assessed. To use one year as an example, it said its income for 2008 was $225,547, while the ATO had assessed it at over $983,000. PSI further argued that the office for its rental business consisted of no more than a desk and a computer. On this basis, it challenged the default assessments.
The Administrative Appeals Tribunal (AAT) agreed with the Commissioner’s assessments. The AAT said PSI had not shown that the assessments were excessive or otherwise incorrect, and had not proven what its actual taxable income should have been. These requirements would not be satisfied by identifying errors that the ATO might have made in its approach to particular items.
The taxpayer comprehensively failed in its quest. It was unable to produce any evidence to support its contentions. Indeed, the evidence it tendered worked very much against the taxpayer. The depreciation schedules showed significant outgoings on capital assets, indicating business activities well beyond the passive holding and rental of commercial and residential property. The outgoings included purchases of over 30 motor vehicles, plus firearms and fitness equipment. There was also expenditure on a “bomb dog”, which the taxpayer somewhat reluctantly agreed had nothing to do with a business of owning property and deriving rent.
Other evidence included bank statements with repeated references to “consultation fees”, “gun licences” and a “security industry register”. There was a loan application form which pointed to PSI having earnings more than 20 times the rental income it asserted. There was also evidence the taxpayer had provided significant loans to related parties, but no indication of any income or returns derived from those activities.
The AAT concluded that the contemporaneous material did not, at any level, support the taxpayer’s contention that it solely derived income from rent. Rather, it strongly suggested that income was derived from providing financial services to other related companies and “very likely” from involvement in other industries, such as security and hospitality. The AAT concluded, somewhat bluntly, that the taxpayer had not even “come close” to demonstrating that the assessments were excessive. There was a “myriad of discrepancies” between what PSI contended and what the evidence showed. The AAT also held that the 75% penalty tax was appropriate given the taxpayer’s deliberate and inexplicable behaviour in not lodging the relevant returns. The ATO sought to increase the penalty by a further 20% for the 2009 and 2010 income years, against which the taxpayer argued unsuccessfully. The ATO was allowed the capacity to impose the additional penalty.
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