In this month’s Tax Update, we mention the case of the woman asked by the ATO to ‘please explain’…. she could not. They slapped a 75% penalty on top of the tax bill and she then appealed the case. Still unable to account for the apparent discrepancy between the income she declared and the spending the ATO could show, she lost. Here’s the story…
The Administrative Appeals Tribunal has upheld amended assessments issued by the ATO to a beauty technician, based on the high volume of money passing through the taxpayer’s various accounts when compared with the modest income she had included in her tax returns.
For example, in the 2015 income year, the taxpayer had declared income of $61,842, but the ATO’s analysis of her bank accounts, records of international money transfers, and casino data suggested she had spent $107,328.
The Tribunal noted that, in cases like this, the ATO is effectively making an “informed guess” as to the taxpayer’s income, but, provided there is a rational basis for the estimate, the ATO’s assessment will stand unless the taxpayer can:
– demonstrate the assessment was excessive; and
– establish what the correct (or more nearly correct) figure is.
After hearing from the taxpayer and witnesses at the hearing, and after reviewing the documents, the Tribunal was not persuaded that the taxpayer had demonstrated that the Commissioner’s assessments were ‘excessive’.
In particular, the taxpayer’s explanation regarding her income and expenditure was not supported by the objective facts in the hearing, being:
– the ‘churn’ through her bank accounts;
– the absence of contemporaneous records beyond the bank accounts (for example, she was always paid in cash without receiving pay slips); and
– the deficiency in corroborating evidence from other witnesses.
In addition to upholding the amended assessments, the Tribunal was also satisfied that the ATO’s 75% administrative penalty on top of the tax payable was properly imposed.
Why it matters? The Tax Office poured one heck of a lot of investigative resources into checking out the average tax return of Average Jane on average income, including banking records and gambling history. For a long time, many Average Joe’s felt secure in the knowledge that they were small fish and not worth the effort. However, nowadays a school of small fish is far more efficient a target and valuable a catch than an occasional big fish. The ATO know this too.