Tax Relief

Small enterprise retirees granted greater than $ 85,000 in tax breaks in a dispute with the ATO

The Administrative Appeals Tribunal (AAT) overturned the Australian Taxation Office (ATO) decision to prosecute $ 106,576 tax debts from the former owners of a family freight and transportation company.

Garry and Glenda Smith, a couple in their 70s, ran a small interstate transportation and freight company in Benalla, Victoria before they retired.

Eight years ago, the company faced a series of challenging events after a large contractor entered volunteer management while owing the company about $ 80,000. The couple were unable to reclaim any money from the contractor as the contractor was liquidated and their business was not secured as a creditor.

In the years 2016 to 2018, the couple’s business received two assessment notices from the ATO, which stipulated their tax liability in the income years 2015, 2016 and 2017.

The couple responded by filing three appeals to the ATO to re-examine their tax liabilities. However, the ATO declined all of these requests.

In February 2019, the couple applied to the AAT to review the ATO’s decisions. At the time of the AAT Melbourne hearing in May, the ATO confirmed that the total outstanding tax debt was $ 106,577.

The AAT was required to determine whether the couple’s tax liability fell under the tax obligations of Section 340-5 of Appendix 1 of the Taxation Administration Act 1953 (“TAA”). This section gives the ATO a margin of discretion to exempt a taxpayer from certain tax debts if it is satisfied that the taxpayer would experience serious hardship in paying his debts.

The ATO has developed guidelines that contain tests to determine the exercise of discretion. For example, the ATO needs to check whether a taxpayer has inappropriately acquired assets before paying his taxes or has a poor compliance history.

The AAT learned that several adverse events created serious cash flow pressures for the company, which eventually led the couple to launch the company.

After the couple tried to sell the business for several years, the couple sold the business in May 2017, leaving them with about $ 70,385 in net proceeds.

The couple told the tribunal that during this time they felt significant personal pressure to pay off debts to people with whom they had longstanding business relationships, including paying a worker’s pension and vacation entitlements.

The tribunal heard about the couple’s financial circumstances, including the value of their assets such as property and retirement plans.

The ATO argued that its discretion to cancel the couple’s debts should not be exercised because the couple failed to meet their tax obligations by filing multiple late tax returns.

The ATO also alleged that the couple had disposed of assets, including their home, business, and a boat, and had priority paid out to creditors and an employee to meet their tax obligations.

For these reasons, it is not justified to treat the couple differently from other taxpayers who have to meet their tax obligations.

Ultimately, the tribunal found that the couple’s evidence was “consistent, frank, truthful and compelling”.

“The tribunal has no doubt that the applicants are very decent, hard-working people,” said the AAT in its decision.

Satisfied that the couple could contribute $ 21,000 to pay off their debts without facing serious hardship in the future, the tribunal overturned the ATO’s decision.

The couple’s tax liabilities for the 2015, 2016, and 2017 income years have been reduced to a total of $ 21,000, or $ 10,500 each.

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