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08 Jun 11 Property developer’s income tax and GST assessments affirmed – A & C Sliwa Pty Ltd

The Administrative Appeals Tribunal has largely, except in one minor respect, affirmed the Commissioner’s objection decision in relation to income tax and GST assessments issued following an audit of the tax affairs of a property development and construction company. The Tribunal also affirmed the penalties imposed by the Commissioner.

There were seven broad issues arising from the Commissioner’s objection decision.

Firstly, in the 2005 income year, the taxpayer sold two vacant lots to an associated entity for prices which were one-fifth of the market price for those lots. The Tribunal found that the sales amounted to the disposal of trading stock outside the ordinary course of business, and the taxpayer’s assessable income for the 2005 tax year must therefore include the market value of those lots.

The second and third issues concerned the proper attribution of GST payable on the transfers of the properties and construction costs. The Tribunal found that the taxpayer’s accounts were unreliable, and the taxpayer had failed to discharge its onus of proving that the Commissioner’s assessments were excessive.

The fourth issue was whether the Commissioner had correctly amended the taxpayer’s income tax assessment for the 2006 tax year. It arose from the completion of construction of a dwelling. The Tribunal found that, because of an agreement between the entities regarding setting off liabilities in the respective accounts of each entity, and an agreement to pay for construction services upon completion, the taxpayer was legally entitled to be paid when the dwelling was completed in January 2006. It derived income from that work in the 2006 tax year. The Commissioner was therefore correct in amending the taxpayer’s income tax assessment for that year.

The fifth issue concerned the application of the margin scheme. The Tribunal found that there was no agreement to apply the margin scheme, and that the Commissioner’s allowance of the margin scheme was therefore incorrect. The taxpayer’s assessable income for that year should be reduced accordingly.

The remaining issues concerned the imposition and remission of penalties. The Tribunal affirmed the Commissioner’s decision in these respects, finding that the taxpayer’s director or its accountant had been reckless, leading to shortfalls in GST and income tax.

Re A & C Sliwa Pty Ltd and FCT [2011] AATA 390 (AAT, Egon Fice, Senior Member, 6 June 2011).