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26 May 1111 Decision Impact Statement - Hua-Aus Pty Ltd

The ATO has issued a Decision Impact Statement on the Federal Court decision in Hua-Aus Pty Ltd v FCT [2010] FCA 341; 2010 ATC 20-175; 76 ATR 1.

The case was based on an assessment of a GST net amount, and concerned the construction and application of s 14ZZK of the Taxation Administration Act 1953. The primary issue was whether the onus of proving that the assessment was excessive is discharged where the taxpayer’s evidence is not impugned and there is no adverse finding as to credit.

The Federal Court allowed an appeal from the decision of the AAT which found that an escort service business and its proprietor had under-reported their taxable supplies for GST purposes. The Commissioner’s assessment, including penalties, was essentially affirmed by the AAT, subject to some adjustments of the amounts concerned.

The Federal Court, however, found that the AAT had fallen into legal error. The credit of the proprietor had not been impugned, and his explanations of the sources of the bank deposits were not unreasonable on the evidence.

The ATO accepts that, on the facts of the case, the outcome of the issue concerning the credit of the proprietor was open to the Court. The ATO also acknowledges that, where it is sought to impugn the credit of a witness, it is necessary to make it absolutely clear through cross-examination that the witness’s credit is in issue.