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The Administrative Appeals Tribunal has declined to grant extensions of time to lodge objections which were lodged out of time. The Tribunal also held that amounts paid by one taxpayer, a medical practice service company, to the other, a medical practitioner who was an employee and director of the company, were properly characterised in the original returns as income of the medical practitioner, and not loans to him as he subsequently argued.

The company’s records over a number of years suggested the practitioner was paid remuneration and amounts in respect of director’s fees. The practitioner argued that he should not have been taxed on the director’s fees because they were actually loans. He put the confusion down to mistakes made by his former accountant. Objections in respect of the 2002, 2003, 2004 and 2005 years were lodged out of time. The Commissioner exercised his discretion to accept the objection in respect of the 2005 year of income but refused to accept the objections in respect of the earlier years.

The company lodged tax returns that recorded nil income in the relevant years of income. The Commissioner argued that a formal assessment does not occur for present purposes when a taxpayer lodges a nil return – which means there is no decision against which a taxpayer may object. If that was so, the Commissioner could not now go back and issue original assessments in respect of those years of income because of the passage of time. The Tribunal could not grant an extension of time to the company to lodge objections against non-existent assessments.

The Tribunal examined the principles governing applications for extensions of time, including the taxpayer’s explanation for the delay, the merits of the case, and the possibility of prejudice to either party. On balance, the Tribunal decided that it was not appropriate to allow the extension of time sought by the taxpayers.

The taxpayers both lodged tax returns in respect of the 2005 and 2006 years of income on the basis that amounts recorded as director’s fees were paid by the company to the practitioner. The company claimed a deduction in respect of the amounts, and the practitioner reported the amounts as assessable income. The practitioner now said that was a mistake: he said the amounts paid out by the company were actually loans to finance his other business operations.

Unfortunately, the company’s records were incomplete and contradictory. The Tribunal was not persuaded the Commissioner’s assessments were incorrect, which meant the taxpayers had not discharged their burden under s 14ZZK(b) of the Taxation Administration Act 1953. In the Tribunal’s view, the best explanation of what occurred was to be found in the practitioner’s oral evidence when he agreed he was told he was being paid directors fees, and that tax would have to be paid on those amounts. That was the approach adopted by his tax agent, and the practitioner allowed that approach to continue for some time before his new accountants suggested a different and better approach was open to him, and which probably should have been adopted from the outset.

The objection decisions under review were affirmed.

Re WGMH and FCT [2014] AATA 244 (AAT, Senior Member Bernard J McCabe, 28 April 2014).

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