Deep pockets were needed but in Haritos & Anor. v FC of T (2015) ATC, the Full Federal Court struck down earlier decisions by the Federal Court and the Administrative Appeals Tribunal and brought justice to the taxpayers.
It seems that in this case, Tax Office investigators ignored evidence in MYOB accounting records and decided that a significant number of payments made by a cleaning contracting company were dividends to its shareholders.
This, despite the accounting records, despite the fact that a cleaning contracting business employs sub-contractors and must pay them, despite the fact that evidence was given as to that fact and despite the fact that payments actually made to the shareholders were described in the accounting records as loans. The Tax Office issued Amended Assessments on the basis that these payments were all dividends and charged 75% penalties. An appeal to the Administrative Appeals Tribunal was unsuccessful.
The taxpayers’ appealed to the Federal Court which held that as no question of law was raised, the Court had no jurisdiction (there is no appeal from a AATs decision on facts).
The taxpayers’ then appealed to the Full Federal Court which unanimously allowed their appeal and remitted the matter back to the Administrative Appeals Tribunal for reconsideration.
The Full Court found that the Tribunal’s approach to the evidence was irrational and illogical and that its approach affected its assessment of the taxpayers’ evidence. That approach, said the Full Federal Court, involved an error of law. The error involved a basic approach to the significance of relevant evidence and the AAT’s erroneous approach to that evidence. Evidence which corroborated the taxpayer’s evidence in relation to sub-contractor expenses and therefore, the taxpayers’ credit and reliability This also led to an error of law in the conclusion that certain payments from the company’s bank account were taxable income.
At presumably very significant expense, the taxpayers’ seemed to have finally achieved fairness and justice. What is the moral behind this story? Make sure you have good records and complete documentation. If you do nothing more than rely on verbal evidence and entries in accounting records, you may end up with a very expensive fight on your hands.
Andrew and Tony Lovett
11 August 2015
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