Deductions for property expenses denied Print E-mail

The AAT has held a taxpayer had failed to discharge the onus of proof in relation to the deductibility of expenses incurred in buying, renovating, and selling properties for the income years ended 30 June 2003 and 30 June 2004: AAT Case [2012] AATA 180, Re Sobel Investments Pty Ltd and FCT (AAT, Ref Nos: 2010/5449-5450, Hughes M, 26 March 2012).


The taxpayer was incorporated in 1995 and was in the business of buying and selling properties. In 2003, the taxpayer was placed under external administration. The Commissioner selected the taxpayer for audit in 2009 in relation to omitted income and expenses for the 2003 and 2004 financial years. Following a request by the Commissioner, the taxpayer lodged nil income tax returns for the relevant years.

The Commissioner determined the returns were inaccurate and issued amended assessments for 2003 with a taxable income of $1,263,500, and for 2004 with a taxable income of $2,450,000. The figures related to the proceeds of sale from two properties, a deposit on the failed sale of one of the properties, rental and lease income, and dividends.

The Commissioner also imposed shortfall penalties of $189,525 for 2003, and $367,500 for 2004. The taxpayer objected to the amended assessments and the penalties arguing that the Commissioner had not taken into account the costs incurred in purchasing and maintaining the properties.



The Tribunal found the taxpayer had failed to discharge the onus of proof arising under s 14ZZK(b) of the TAA to show that the assessments were excessive. It noted that the taxpayer was unable to produce documentary evidence in relation to stamp duty, legal expenses, renovations, wages and directors' fees, interest and legal expenses. In relation to the external administration fee claimed by the taxpayer, the Tribunal said the costs were not allowable as a deduction under s 8-1 of the ITAA 1997.

The Tribunal also noted that one of the directors of the taxpayer agreed with the Commissioner's estimates of rental and leasing income, but disagreed with the Commissioner on the other income the taxpayer derived during the relevant years, however, the director could not provide any evidence to refute the Commissioner's estimates.
In relation to the penalties, the Tribunal said it was satisfied that the taxpayer's conduct in the case was appropriately catergorised as reckless and subject to a 50% administrative penalty. The AAT also did not consider a remission of GIC to be justified as the taxpayer "failed to provide any grounds to substantiate its objection". The AAT therefore affirmed the amended assessments and penalties issued by the Commissioner.


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