Bird v Queensland Building Services Authority [2013] QCAT 109

CITATION: Bird v Queensland Building Services Authority [2013] QCAT 109 PARTIES: Alan Stewart Bird (Applicant) v Queensland Building Services Authority (Respondent) APPLICATION NUMBER: GAR367-10 MATTER TYPE: General administrative review matters HEARING DATE: 4 March 2013 HEARD AT: Brisbane DECISION OF: Mr D Paratz, Member DELIVERED ON: 11 March 2013 DELIVERED AT: Brisbane ORDERS MADE: 1. The decision of the QBSA to refuse to declare Mr Bird to be a permitted individual is confirmed. CATCHWORDS: Excluded individual – permitted individual application - tiler – tax audit – taxpayer unable to produce supporting documentation to ATO – claiming personal expenses as business expenses – declared income inconsistent with personal living expenses – GST credits claimed without substantiation – GST and Income Tax amended assessments and penalties imposed – tax debt led to bankruptcy - individual not having proper control or records of his financial matters Queensland Building Services Authority Act 1991 s 56AD APPEARANCES and REPRESENTATION (if any): APPLICANT: Self represented RESPONDENT: Robinson Locke Lawyers -- 1 of 5 -- 2 REASONS FOR DECISION [1] Mr. Bird is a tiler. He operated a business known as ‘Straight Line Tiling’. He was declared bankrupt on 11 December 2008. [2] He applied to be categorised as a ‘permitted individual’ under s 56AD of the Queensland Building Services Authority Act 1991 on 16 July 2010. [3] The Authority refused the application on 07 October 2010. Mr Bird then filed this application on 08 November 2010 to review that decision of the Authority. There have been numerous adjournments of steps in this proceeding, including an earlier hearing date in August 2012, at Mr Bird’s request, for various reasons. [4] The principal creditor in Mr Bird’s bankruptcy was the Australian Tax Office. A GST debt of $166,000 arose following an audit of Mr Bird under the Cash Economy Audit programme. Mr Bird contested the assessment and appealed it as far as he was financially able. [5] It is fair to say that Mr Bird feels seriously aggrieved by the actions of the ATO, and his being forced into bankruptcy. To some extent this application is an extension of his ongoing resentment about the Audit and its consequences, and his desire to have the Audit reviewed, and for him to be vindicated. [6] In order to be declared a ‘permitted individual’ under s 56AD(8), Mr Bird must show that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event. [7] A number of actions are listed in s 56AD(8A) which the Authority is to have regard to in deciding whether all reasonable steps were taken. Two of the actions to be considered are (a) ‘ keeping proper books of account and financial records’ and (f) ‘making appropriate provision for Commonwealth and State taxation debts’. [8] The Audit commenced in July 2007. Initially the audit concerned his Business Activity Statement for the period 01 October to 31 December 2006. It was then extended to cover the period 01 July 2003 to 30 June 2007. [9] An interim decision of the ATO dated 27 November 2007 found that his private living expenses of $87,568 per annum (based on the period 01 October 2006 to 28 January 2007) exceeded the amounts being declared on his business activity statements as income. It concluded that he had understated the GST payable on his income by failing to declare income; and that he had overstated GST credits by claiming for personal or private transactions and for acquisitions for which he did not hold valid tax invoices. -- 2 of 5 -- 3 [10] He was assessed as owing income tax of $84,017.03, plus GST of $57,466, plus a penalty amount of 50% on those being $70,741.51, plus interest on those amounts. That is a total of $212,224.54. [11] KPMG were then engaged by Mr Bird to prepare a response to the interim decision, dated January 2008. [12] They noted that Mr Bird had literacy and communication difficulties, and had difficulty reading and writing, and difficulty performing simple tasks such as completing forms, and had difficulty with his memory. They considered that those difficulties had impacted on his ability to provide accurate and timely information to the ATO. [13] KPMG submitted that Mr Bird’s private living expenditure was not funded by cash or non disclosed income, but rather by an increase in debt, both through credit and family, and funds received from family maintenance payments and funds received from Centrelink. [14] They noted as to the activity statements that Mr Bird acknowledged that some valid tax invoices were not available at the time of lodgement, and that Mr Bird would endeavour to have the invoices reissued as valid tax invoices. [15] They also noted that Mr Bird had received contributions towards his mortgage (which was paid through his business cheque account) from his partner, although they were not paid on a recurrent or systematic basis, and received contributions from his family which were private in nature and did not form part of his assessable income. [16] Mr Bird lodged an Objection to the GST Reviewable Indirect Tax decision of the ATO on 10 April 2008. The ATO made a decision on the Objection on 21 November 2008. [17] The ATO allowed the objection in part for most of the quarters in question, and disallowed two in full. The effect of that decision was to reduce the GST shortfall and penalty and Income Tax shortfall and penalty by a total of $24,657.74. [18] In its reasons for disallowing the objection, the ATO said that Mr Bird had not provided documentary evidence to substantiate his claims, and that the onus was on the taxpayer to show that the assessments were excessive. [19] Mr Bird had claimed credits for GST he paid to one of his sub-contractors, K. Ward. That person was not registered for GST on the Australian Business Register. The ATO therefore did not allow those credits. Mr Bird says that he paid the GST to Mr Ward in good faith. [20] The ATO considered that Mr Bird had been ‘reckless’ in his behaviour under Miscellaneous Taxation ruling MT 2008/1. This referred to behaviour which falls significantly short of the standard of care expected -- 3 of 5 -- 4 of a reasonable person. This led to the imposition of the administrative penalties. [21] Overall the ATO found in the objection decision (p 24) that a large amount of private expenditure was claimed as business expenditure and reported on his activity statements, and also a considerable amount of claims were not substantiated by tax invoices. [22] In considering the objection, the ATO had attempted to obtain further information from Mr Bird’s accountant. However, in the course of the review, on 04 July 2008, Mr Bird advised that KPMG were no longer acting for him, and that Mr Gunter A Lion would be representing him, and a new accountant, Mr Barry Jones, had been appointed. [23] The final disputed amount of GST with the ATO was $169,804.55. Mr Bird stated that he believed he would have to pay half of that amount to dispute the matter, and that the cost of disputing the debt was $18,000. In addition, his debtor’s petition shows that he had an additional Tax debt of $60,000. He said he was unable to fund these amounts, and he was advised by KPMG and Mr Will Hawney of Queensland Administration Services to file a debtors petition. [24] He says that at no time did he owe any money to sub-contractors or suppliers. Apart from the Mortgagors of his house property, a Visa card debt of $33,700 owing to the ANZ bank, and some small amounts owing to others, the ATO was basically the sole creditor in his bankruptcy. [25] Mr Bird contends that his objections to the tax assessment were well founded and proper. He believes that he was unjustly dealt with by the ATO. [26] He says that his accountants, KPMG, advised him that in their opinion the auditor had a personal vendetta against him, and that it would not be cost effective and nearly impossible to avoid her wrath, and recommended for him to become bankrupt. [27] The essential question on this application is as to what steps Mr Bird took to avoid the relevant event coming about. In this case, the relevant event and the Amended Tax Assessments are essentially synonymous. The question then becomes – did Mr Bird take all reasonable steps to avoid the Amended Tax Assessment coming about? [28] Mr Bird says that he has complete answers to the claims of the ATO. The ATO say that they asked for information and substantiating documentation, and that Mr Bird was unable to produce that, and to satisfy them. [29] The difficulty for Mr Bird is that by failing to be able to produce the information and substantiating documentation which the ATO says it reasonably required, that he cannot show that he took reasonable steps which would have avoided the making of the amended assessments. -- 4 of 5 -- 5 [30] His accountants have submitted that Mr Bird has difficulty with literacy and communication, and being able to provide information in a timely manner. [31] In order to function as a Contractor, it is required that a contractor maintain proper books of account and proper records, and proper financial control of the business. [32] At paragraph 14 of his statement dated 3 October 2011, Mr Bird says that:- I have at all material times relied on Barry Jones and KPMG with respect to the keeping of proper financial records, making proper provision for tax and dealing with ATO dispute. [33] Mr Bird said in his evidence that he simply handed over his financial records to his Accountant who produced his financial statements, and that he was not familiar with them. The consequence of this is that Mr Bird did not turn his own mind to his financial affairs. [34] When the pattern of Mr Bird handing responsibility for his financial affairs over to his Accountant, is coupled with his difficulties in literacy and communication, the resulting picture is one of a Contractor who is not properly in control of his financial matters, and this is what led him to be unable to refute the assessments of the ATO. [35] The result is that Mr Bird is unable to show that he took all reasonable steps to avoid the relevant event occurring. Consequently, his application to become a permitted individual must fail. [36] The decision of the QBSA to refuse to declare Mr Bird to be a permitted individual is confirmed. -- 5 of 5 --