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03 Apr 12 Property-related deductions disallowed - Re Sobel Investments Pty Ltd

The Administrative Appeals Tribunal has confirmed the Commissioner’s assessments issued to a property development company following an audit of the company’s tax affairs. The dispute principally involved the question of the deductibility of expenses allegedly incurred by the taxpayer in buying, renovating and selling properties in circumstances where the expenses were largely undocumented.

The ATO auditor requested information or supporting documentation regarding sources of income received and expenses incurred during the relevant years but the taxpayer failed to provide this information.

Following a request by the Commissioner, the taxpayer lodged income tax returns for each of the years in question, in May 2010. Each return claimed nil return for the year in question.

The Commissioner determined that the returns were inaccurate because they failed to account for certain property sales. The Commissioner issued assessments for the relevant years, and imposed shortfall penalties. The Commissioner’s calculations included a carried forward loss.

The taxpayer objected that the Commissioner had included the sale price of the properties in its assessment but had not allowed the cost incurred in purchasing those properties, including associated costs such as land cost, stamp duty, renovations, legal expenses, wages, interest etc, all of which it described as clearly allowable deductions.

The Tribunal found that, given the lack of documentary evidence and unreliable oral evidence given by a director of the taxpayer, the taxpayer had failed to discharge its onus of showing that the Commissioner’s assessments were excessive. The Tribunal also confirmed the penalties imposed by the Commissioner.

Re Sobel Investments Pty Ltd and FCT [2012] AATA 180 (Administrative Appeals Tribunal, Dr G Hughes, Member, 26 March 2012).

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