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25 Mar 15 Default assessments correct – Re Rigoli

The Administrative Appeals Tribunal, on remittal from the Full Court of the Federal Court, has found that the Commissioner’s objection decisions in relation to default assessments issued by him were correct. The taxpayer had failed to discharge his onus of proving, on the balance of probabilities, that his actual taxable income from all sources was less than the amount assessed by the Commissioner for the period in question.

The taxpayer was a member of a family partnership which carried on a business of manufacturing polystyrene and cardboard boxes. It was not a formal partnership and it did not have a Partnership Deed. The taxpayer had lodged no income tax returns for the relevant years. The Commissioner therefore issued default assessments for the relevant years.

The taxpayer accepted the Commissioner’s assessments of his income, but objected to the disallowance of depreciation expenses which ought to have been taken into account in assessing his taxable income in the relevant years.

The Tribunal initially allowed in part the taxpayer’s objections in relation to depreciation deductions: Re Rigoli and FCT [2012] AATA 757.

On appeal, the Federal Court allowed the Commissioner’s appeal, and ordered that the Tribunal decision be set aside and the matter be remitted: FCT v Rigoli [2013] FCA 784. On further appeal, the Full Court of the Federal Court dismissed the taxpayer’s appeal and ordered that the matter be remitted to the Tribunal, to be heard and determined on the evidence which was before the Tribunal in the original proceeding: Rigoli v FCT [2014] FCAFC 29.

On further hearing in the Tribunal, in order to establish his taxable income for the years in question, the taxpayer sought to rely on an expert report prepared for the Commissioner, subject to the findings the Tribunal had made on the first hearing of this matter regarding depreciation. The Commissioner had relied on that expert report when making the default assessments.

The Tribunal held that, despite the taxpayer seeking to rely on the expert report for the purpose of establishing his actual taxable income or an estimate of his actual taxable income in the years in question, the case law dealing with this topic makes it clear that in order for a taxpayer to establish that the assessment arrived at by the Commissioner is excessive, absent an agreement to confine the issues in dispute, he or she must prove, on the balance of probabilities, that the actual taxable income from all sources is less than the amount assessed by the Commissioner for the period in question. In this case, the taxpayer did not discharge his onus of proof by simply relying on the expert report.

The Commissioner had made an assessment of the amount on which, in his judgment, income tax should be levied based essentially on the expert report. Regardless of the methodology employed by the expert, his calculations could not be substituted for the actual taxable income of the taxpayer from all sources. Not only did the taxpayer bear the onus of proving what his actual taxable income was in each of the income years, in any event, the expert’s report dealt only with his best estimate of partnership income.

On the function of the Tribunal in taxation reviews, the Tribunal said that it only exercises all of the powers and discretions conferred on the Commissioner for the purposes of reviewing the objection decision. That does not involve a review of the assessment of taxable income by the Commissioner. There is no onus on the Commissioner to show that the assessments were correctly made or that they are supported by evidence. The review by the Tribunal involves determining whether a taxpayer has discharged the onus of proving that the assessment made by the Commissioner is excessive.

Re Rigoli and FCT [2015] AATA 169 (Egon Fice, Senior Member, 24 March 2015).


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