05 May 14 Decision Impact Statement - Rigoli
The case concerned the question whether, to establish in a tax appeal that a default assessment is excessive, a taxpayer can “concede” parts of the Commissioner’s calculation or must prove the actual amount of his taxable income.
During the 1994 to 2001 income years, the taxpayer carried on business in partnership. The partnership did not keep business records. The taxpayer did not initially lodge an income tax return for any of those years of income, and the Commissioner made default assessments under s 167 of the Income Tax Assessment Act 1936 of the amount upon which, in his judgment, income tax ought to be levied for each year. The taxpayer objected to the assessments on the simple ground that he had “no taxable income”.
Before the Administrative Appeals Tribunal, the taxpayer treated the assessments as if they were assessments for each year of his assessable income less allowable deductions. In so doing, his counsel informed the Tribunal that the taxpayer no longer challenged the amounts which he claimed had been identified by the Commissioner as his assessable income (“the concession”). He maintained that what was then left in dispute before the Tribunal was his entitlement to deductions by way of depreciation which the Commissioner had not allowed. The Tribunal accepted the taxpayer’s arguments that the Commissioner had made assessments of the taxpayer’s taxable income, in the sense of assessable income less allowable deductions, and that a taxpayer could prove that such assessments were excessive simply by a correction to one element of the assessments. The Tribunal accepted the taxpayer’s concession about the amount of his assessable income and proceeded to determine that the assessments were excessive because the taxpayer was entitled to some depreciation deductions.
On appeal to the Federal Court, Pagone J made it clear that, for a taxpayer to succeed in establishing that an assessment under s 167 was excessive, the taxpayer must establish what was the actual amount of his taxable income, and not just point to some error made by the Commissioner in his calculation. That could not be done, as the Tribunal thought in this case, by assuming that only part of the assessment was in contention before it. The Tribunal erred in thinking that what was before it under s 167 was an assessment of taxable income, being assessable income less allowable deductions, rather than an assessment of the amount on which the Commissioner considered income tax ought to be levied. The court concluded that the taxpayer had not discharged his burden of proof, allowed the Commissioner’s appeal, set aside the decision of the Tribunal and remitted the proceeding to it: FCT v Rigoli  FCA 784.
The taxpayer appealed to the Full Court. The Commissioner filed a cross-appeal from the order of the court remitting the matter to the Tribunal, on the basis that, having found that the burden of proof under s 14ZZK of the TAA had not been discharged by the taxpayer, remitter was futile.
The Full Court dismissed the taxpayer’s appeal, finding that the “reasoning and conclusions of the primary judge were entirely correct”.
In the ATO’s view, the Full Court’s decision is consistent with the Commissioner’s view on what is required by a taxpayer in a tax appeal to discharge the onus of showing that an assessment issued under s 167 is excessive. The ATO also “respectfully accepts” the decision of the Full Court on the Commissioner’s cross-appeal.