Bakery finds itself on the wrong side of ATO benchmarks

The Administrative Appeals Tribunal (AAT) has affirmed an amended assessment issued to a corporate taxpayer that ran a bakery business (of which a husband and wife were directors and owners) for undeclared income and incorrectly calculated GST. It did so on the basis of finding the taxpayer had not satisfied the onus of proving that the assessment was excessive. In arriving at its decision, the AAT took into account, among other things, the following matters:

• the fact that the taxpayer's costs were 58% of reported sales income, which was considerably higher than the 32% to 40% range usually expected in the industry under relevant benchmarks;
• the absence of any corroboration by way of documentary evidence regarding the taxpayer's claim that "no sales" had been made over relevant periods (especially when viewed in the context of the industry benchmarking figures); and
• the major discrepancy between income declared in the tax returns of the husband and wife and the income disclosed in loan applications for a loan of $362,000 (together with a similar disparity in the following income year, which was outside the audit period).

The AAT said the husband had declared his taxable income to the Commissioner to be $33,800 for both 2008 and 2009, while documents he and his wife had signed in order to obtain loans to purchase real estate showed each of their incomes as $54,000 in the 2008 year and $72,000 in the 2009 year. Both persons signed the documents, declaring the contents to be true and correct, the AAT said. The AAT said it did not accept the husband's explanation that higher figures than those provided to the Commissioner were included in the loan documents because they were completed by the broker, that he did not see the loan documents completed, and that he was therefore not responsible for the content. The AAT noted that later on in his oral evidence, the husband admitted he had lied to the bank about his income on the loan documents because his primary aim was to obtain a loan. While noting that the broker was not called by either party, the AAT said the evidence before it was that the husband declared that the information regarding his income on the loan documents was true and correct, "and he must be bound by that".

The AAT also upheld the 50% shortfall penalties imposed for "recklessness" on the basis that the failure to maintain adequate records to substantiate GST and income liabilities, and that "signing what essentially was a false declaration in regard to income", demonstrated a degree of recklessness (in terms of "showing a disregard of or indifference to consequences foreseeable by a reasonable person"). The AAT also noted that the husband had been in Australia for 30 years, and should have been able to obtain good advice and adhere to the law.

Re Vita Hot Bread Pty Ltd and FCT [2012] AATA 570, www.austlii.edu.au/au/cases/cth/AATA/2012/570.html