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Tax assessments confirmed for undisclosed business income

The increasing cost of underreporting and failing to lodge.



The Administrative Appeals Tribunal has ruled that the Australian Taxation Office (ATO) was correct to issue tax assessments of $3.7 million and penalties of $3.3 million to a business taxpayer that had underreported its income and failed to lodge several year returns.

The taxpayer argued that it owned and rented out several Sydney properties, but did not engage in other business activities or receive the significant amounts of income that the ATO had assessed to it.

Evidence before the Tribunal showed the taxpayer made a range of expensive capital purchases, including fitness equipment, more than 30 motor vehicles, firearms and a “bomb dog”. Its bank statements included references to “consultation fees”, “gun licenses” and a “security industry register”.  A loan application suggested income 20 times what the taxpayer admitted to earning and had apparently made significant loans to related parties with no returns.

The commentary suggested that ATO was better prepared with evidence than the taxpayer.

It is hardly surprising that the Tribunal upheld the assessments and penalties issued and allowed the ATO to impose an extra 20% penalty for two of the taxpayer’s income years.

We report this case mainly to remind taxpayers about that burden of proof is theirs and disputation success can depend on case preparation and credibility.