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14 Jun 11 Drawings from business were assessable income – Ng

The Administrative Appeals Tribunal has held that drawings from a company, as recorded in cash flow spreadsheets for the company, were, on the evidence, assessable income in the taxpayer’s hands and were not, as he asserted, repayments of loans. The Tribunal substantially affirmed the Commissioner’s objection decision, subject to agreed adjustments to the amounts of drawings, and varied the penalties imposed on the taxpayer.

The taxpayer worked in a restaurant operated by a company of which his wife was a shareholder and director. Cash flow spreadsheets prepared for the company showed amounts paid to the taxpayer as “drawings”. These amounts were not declared as income by the taxpayer. He contended the drawings were not income, but were repayments of amounts loaned by him to the company. The taxpayer contended that the assessments were excessive because the Commissioner did not take into account any amounts deposited by the taxpayer into the business during the relevant period. The taxpayer argued there was a “running account” between him and the company, and the drawings recorded in the cash flow spreadsheets were in fact repayment of loans made by him to the company, as evidenced by the “deposits” also recorded in the cash flow spreadsheets. The taxpayer did not give evidence at the hearing before the Tribunal.

The Tribunal found that, in the absence of evidence from the taxpayer, tested under cross examination, it was left with the evidence of the taxpayer’s wife and the evidence from the cash flow spreadsheets and handwritten cashbooks. These documents did not of themselves establish loans from the taxpayer or the source of the funds for the deposits.

On the matter of penalty, the Tribunal found that there was no intentional disregard on the taxpayer’s part, and the penalties imposed by the Commissioner should be reduced accordingly.

Re Ng and FCT [2011] AATA 399 (Senior Member J Redfern, 9 June 2011).