To succeed in an appeal, does it suffice for the taxpayer to show that the assessment was wrong?
11 April 2013
Posted by: Author: Johann Hattingh
Source: Johann Hattingh
Expressed more succinctly than in the language of the legislation, the intent of section 102 of the Tax Administration Act is that a taxpayer who contests an assessment bears the onus of proving that the amount in issue is not taxable or that an amount is deductible or exempt from tax.
It is interesting to ponder whether, given the opportunity, our courts will interpret this to accord with a recent decision of the Australian Administrative Appeals Tribunal, which is the counterpart of our Tax Court.
In Murray and Commissioner of Taxation (No 3)  AATA 557 , the Tribunal handed down a decision on 24 August 2012, upholding the decision of the Commissioner to assess the taxpayer to income tax for the 1999 to 2007 tax years on amounts totaling some A$25million derived from a certain Liechtenstein Foundation that he had formed.
The Australian Tax Office based the assessments on information that had been supplied to it by an employee of a financial institution in Liechtenstein who had unlawfully made an electronic copy of bank records.
The taxpayer’s web of trusts and companies
The facts were that the taxpayer in question had established a complex web of trusts and companies, some of which were incorporated offshore, through which his financial affairs were managed. This included the management of the investments of the Liechtenstein Foundation.
The taxpayer had lodged income tax returns that disclosed modest amounts of taxable income in each of the relevant tax years, namely 1999– 2003. However, no income of the Liechtenstein Foundation was
included in those returns.
The Administrative Appeals Tribunal expressed itself as being satisfied that the taxpayer was, at all material times, entitled to the income of the Foundation and that such income had accrued to him in terms of the relevant tax legislation.
The Tribunal rejected the argument that the taxpayer lacked the power to compel any payment to him from the Foundation on the basis that it would defy logic for the taxpayer to have conferred enormous financial benefits on the Foundation without retaining the capacity to control the use to which those funds would be put.
The Tribunal ruled that the taxpayer had not discharged the onus of showing that the assessments were excessive, for he had made no attempt to show what the actual income of the Foundation was during the relevant tax years.
It is the latter point that will be of interest to South African tax professionals.
Does it suffice for the taxpayer to prove that the amount of tax to which has been assessed is wrong?
The Tribunal took the view that it was not sufficient for the taxpayer to show that the assessments issued to him were wrong as to the amount of his taxable income, and that, if he were to succeed in his objection to the assessment, the taxpayer bore the onus of showing what his income actually was.
The language of the Australian tax legislation is not identical to that of the South African legislation and it will be a matter of interpretation for the courts to decide whether section 102 of the Tax Administration Act, properly interpreted, has the same import as was articulated in the Murray decision by the Australian Administrative Appeals Tribunal.
The taxpayer pleaded ignorance
In his response to a series of written question by the Australian Tax Office, the taxpayer in the Murray case claimed that he "had no recollection” of receiving any money from the Foundation.
The Tribunal ruled that it was prepared to accept that the assessments issued by the Australian Tax Office did not accurately reflect the taxpayer’s income, but went on to say that –
"the cases demonstrate that it is not enough for a taxpayer to show error in the [revenue authority’s] assessment; the taxpayer must also show what the actual taxable income was. That was a burden that the [taxpayer] here did not discharge.”
Hack, Deputy President of the Tribunal went to say that –
"It is certain that the respondent’s assessments are not correct; but the applicant has not shown what his taxable income actually was. On the view I take of the matter he was presently entitled to the income of the Foundation. He has made no attempt to show what the actual income of the Foundation was during any of the relevant years. This is not a case where all the relevant facts are known and the resolution of the proceedings depended upon the legal analysis of those facts. It is a case where the respondent has proceeded upon an intelligible basis to make an estimate of taxable income on the material available to him in circumstances where the applicant has chosen not to provide any information about the actual income of the Foundation. It is undoubtedly the case that the respondent’s assessments are not correct, but the applicant has not shown the taxable income on which tax ought to have been levied. It follows that he has not shown that the assessments are excessive.”