Did the company make loans to the partnership?
It was not in dispute that the company loaned money to the partnership in each of the 2011, 2012 and 2013 income years, the amount of the loans being $384,975 and $420,990 as at 30 June 2012 and 2013, respectively. In issue, however, was the amount of the loan as at 30 June 2011.
The taxpayers claimed the balance was $543,825 as compared to a balance of $218,825 as asserted by the Commissioner. The difference between the two proposed balances was $325,000 which was “perhaps not so coincidentally”, the same amount as a loan drawn down by the partnership from the National Australia Bank (‘NAB’) on 1 June 2011.
Presumably, the taxpayer was arguing the loan had arisen in the 2011 income year (rather than the 2012 or 2013 income years) because the 2011 was not under review by the ATO (perhaps the 2011 income year was outside the amendment period at the time the ATO commenced its review).
The $325,000 loan was used to purchase a property in the name of the partnership and remained drawn down in that amount (i.e., $325,000) as at 30 June 2011, 2012 and 2013. The taxpayers claimed that after 1 June 2011 (and presumably before 30 June 2011), the NAB loan became a debt owed by the company to the NAB, rather than a debt owed by the partnership to the NAB (in other words, the debt had been assigned by the partnership to the company – thus increasing the total loan amount on 30 June 2011 from $218,825 to $543,825).
In effect, the taxpayer were arguing that, as the $325,000 NAB loan was included in the company’s total (year-end) loan balances from 2011 to 2013, and the total value of the loans owed over the period decreased, it followed that the decrease was attributable to the amount lend to the partnership (in other words, the loan to the taxpayers was drawn down in 2011, was partly repaid over 2012 and 2013, with no further amounts being drawn down by the taxpayers during this time).
The Commissioner opposed this view, contending that the $325,000 NAB loan was properly a loan of the partnership from the time it was repaid (sometime around 31 December 2013) and, as such, should not be reflected as a company liability. If this is correct, then the company’s total (year-end) loan balances on 30 June 2011 is $218,825 ($543,825 less $325,000) with additional amounts (loans) being drawn down in the 2012 and 2013 years.
The taxpayers were unable to provide the AAT with any plausible objective evidence to support this claim. In this regard, the AAT stated the following:
“If that loan had been transferred to the company, it would have been a simple task to produce documents evidencing that transaction, presumably an assignment of the debt with the consent of the National Australia Bank. The transfer of a loan is not just a book entry. It is a real transaction that would require, amongst other things, consent of the borrower.
“The assertion that the loan was ‘transferred’ was not considered a satisfactory explanation where there is no evidence of any transfer except if the word ‘transfer’ is understood to mean for bookkeeping purposes only.”
Consequently, the AAT found in favour of the Commissioner, concluding that, as at 30 June 2011, there was a loan from the company to the partnership in the amount of $218,825. As a result, the total amount of the loans increased by $166,150 (i.e., to $384,975) in the 2012 income year and by $36,018 in the 2013 income year (i.e., to $420,993). Further, as these loans had not been repaid or put on complying terms under S.109N, the loans were deemed dividends ultimately assessed to the taxpayers under S.109D in the 2012 and 2013 income year.