Mold and Commissioner of Taxation [2011] AATA 823 – Tribunal allows partial increase in input tax credits

On 18 November 2011 the Tribunal handed down its decision in Mold and Commissioner of Taxation [2011] AATA 823.  The case essentially involved the issue of whether the applicant could substantiate input tax credits in the absence of tax invoices, but the decision does provide an interesting insight into the capacity of the Tribunal (while sitting in the shoes of the Commissioner) to step outside the somewhat prescriptive rules in which the Commissioner sometimes operates when conducting investigations into the affairs of taxpayers.

The applicant was a cabinet maker who the subject of an audit.  During the periods in questions the applicant suffered periods of ill-health, which meant that the business was not as profitable as it might have been.  Following the audit, the taxpayer was assessed for GST shortfalls on the basis that claims for input tax credits could not be substantiated.  The applicant claimed that he posted the relevant tax invoices to the Commissioner, who says they were not received.  This left the applicant in the difficult position of not being able to substantiate those input tax credits.

The applicant was able to provide some information to substantiate the credit claims, including tax invoices from previous periods and bank statements.  The Commissioner accepted that the applicant was entitled to some of the input tax credits, but only to the upper extent of the industry standard for cabinet makers.

Senior Member O’Loughlin accepted that the applicant did have a significant amount of documentation of the expenditures associated with the business and that he no longer had it as a consequence of at least attempting to provide it to the Commissioner.  The Tribunal also accepted that some “surrogate” information was provided, but not enough to substantiate all the claims. The Tribunal found that a balance needed to be struck between the onus on the applicant to prove his assessments are excessive and where the applicant experiences difficulties because his attempts to do so rendered him unable to do so.

In determining this balance, the Tribunal found that the industry range was not appropriate, in circumstances where the applicant had suffered a serious illness that undoubtedly impacted his business activities and it can readily be concluded that he may not be within industry norms.  Accordingly, something more than the industry average was appropriate.  Instead of the upper range of the industry average of 44% of the GST on sales revenue, the Tribunal awarded credits of 72.87%.

This decision is a good example of how the Tribunal is often in a better position to consider the particular circumstances of a case, as opposed to the Commissioner who is sometimes distracted by things such as industry standards.  It is also clear that the Tribunal found the applicant to be an honest and credible witness, which is always a good start.



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