Velocity Legal Successful in Federal Court: Overturning AAT Decision on Property Trust Income Assessment

We are pleased to announce that Velocity Legal assisted two taxpayers to successfully appeal a decision regarding a property trust income assessment.

Facts

The case concerned a property trust controlled by individuals related to the trust. Over two income years, the trustee received over $735,000 in cash deposits which the ATO assessed as income. The initial decision by the Administrative Appeals Tribunal (AAT) formed the view that the trustee had not provided sufficient evidence that the deposits were not 'income,' leading to an affirmation of the ATO's assessments.

Initial Decision (AAT)

The three key issues were:

1. Nature of the Deposits: the ATO assessed the cash deposits as income under section 6-5 of the Income Tax Assessment Act 1997 (Cth), leading to increased taxable income for the trust and consequently the taxpayers;
2. Evidence Rejection: the AAT dismissed the claim that the funds were loans or equity contributions due to inconsistencies and lack of detailed evidence; and
3. Burden of Proof: the AAT concluded that the taxpayers did not discharge their burden of proof to show the assessments were excessive.

Appeal (Federal Court)

The Federal Court found that the AAT failed to perform its statutory task of assessing whether the deposits were indeed income based on the established facts and common ground between the parties. Justice Logan ruled that the AAT had erred in its interpretation and application of the burden of proof required under section 14ZZK of the Taxation Administration Act 1953 (Cth).

In determining the matter, Justice Logan referred to and applied long-standing High Court authority. He noted that "[t]hose who cannot remember the past are condemned to repeat it," and cited academic commentary to the effect that "the meaning and effect of the onus of proof provision in respect of a taxation appeal or review [are] frequently misunderstood".

Outcome

The outcome of the appeal was that:

1. the Federal Court quashed the AAT's decision and allowed the taxpayers' objection to their amended assessments for the income years ending 30 June 2017 and 30 June 2018;
2. the case was remitted to the ATO for the making of all necessary amended assessments; and
3. the ATO was ordered to pay the taxpayers' costs for the appeal.

The full text of the case can be found here.

Team Effort

The successful appeal was led by Rajan Verma (Director) and Seamus Ryan (Director), with support from Amy Debelak (Paralegal) and Tal Septon (Law Graduate). Their combined expertise and dedication were instrumental in achieving this favourable outcome.

Rajan Verma (Director) commented that:

"It was an incredibly complex case and we're thrilled that our clients obtained the outcome they deserved. We unwaveringly protect our clients in tax dispute matters, and this successful appeal provides further validation that our approach achieves results."

Our specialist tax team provide services in relation to:

• Business Restructures
• Tax Advice
• Tax Residency
• Transaction Structuring
• State Taxes
• Tax Disputes
• Tax-Effective Estate Planning and Taxation of Deceased Estates
• Trusts

You can contact Rajan Verma by emailing rajan.verma@velocitylegal.com.au. Alternatively, you can book an appointment to speak with our tax team by clicking here.