Tax Facts
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A fatal lack of evidence about purported loans
In brief: A tax practitioner has failed to overturn the assessment of funds received over several years from companies of which he was the sole director or otherwise controlling mind. His contention was that the Administrative Appeals Tribunal had found that he genuinely believed that the receipts constituted loans from the companies, and that that belief should be imputed to those companies, given his control of them. The taxpayer submitted that such common belief was sufficient to establish the character of the receipts as loans. The Federal Court, however, dismissed his appeal, finding no error of law by the Administrative Appeals Tribunal in upholding the Commissioner’s assessments.
More: The law has long recognised that a director (including a sole director) may contract with their company, although necessarily doing so as agent for their company. However, this case is a salutary lesson – perhaps counterintuitively to what some practitioners would regard as the effect – that the subjective intentions of the director may not be sufficient to stamp any transaction between them with the character desired. The taxpayer failed because he had not proved that the receipts were the proceeds under loan contracts, thus failing to discharge his onus of showing that the Commissioner’s assessments were excessive. Rather than evidence merely of the taxpayer’s state of mind, it was an objective assessment of all the circumstances surrounding the receipts that was determinative. No interest was paid on the purported loans or recorded in any books or tax returns and there was a lack of other documentary evidence, apart from loan agreements entered into well after the receipts. (Rowntree v C of T [2018] FCA 182)
07 Mar 2018
Topic: Income Tax
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