3-D Scaffolding Pty Ltd and Anor and Commissioner of Taxation
[2007] AATA 1884
•19 October 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1884
ADMINISTRATIVE APPEALS TRIBUNAL )
)NT2004/287-293
TAXATION APPEALS DIVISION )
Re3-D SCAFFOLDING PTY LTD and JAMES DOCHERTY
Applicants
AndCOMMISSIONER OF TAXATION
Respondent
DECISION
TribunalMr Julian Block, Deputy President
Date19 October 2007
PlaceSydney
DecisionThe objection decisions under review are affirmed.
................[sgd]..............................
Mr Julian Block
Deputy President
CATCHWORDS
TAXATION – deductions claimed for rental under a lease – precise nature of contract and in particular whether it might be a hire purchase contract or a sale – identity of the lessor or seller – identity of the lessee or purchaser – conflicting nature of the evidence – onus of proof – Division 7A and onus – objection decisions under review are affirmed
RELEVANT ACTS
Income Tax Assessment Act 1936 - Division 7A, section 109C
Income Tax Assessment Act 1997 - section 8-1
Taxation Administration Act 1953 - section 14ZZK
CITATIONS
Jones v Dunkel (1959) 101 CLR 298
Stephens v T Pittas Ltd (1983) 56 TC 722
MacFarlane v Commissioner of Taxation (1986) 13 FCR 356
Di Lorenzo Ceramics Pty Ltd v Commissioner of Taxation 2007 ATC 4662; [2007] FCA 1006
Epov v Commissioner of Taxation 2007 ATC 5009
REASONS FOR DECISION
19 October 2007 Mr Julian Block, Deputy President PART A - preliminary and introduction
1. There are two Applicants in this matter:
(a)Applications NT2004/287-289 relate to Mr James Docherty, who is referred to in these reasons as “Docherty”. Docherty raised objections in respect of amended assessments referable to the tax years ending 30 June 1998, 30 June 1999 and 30 June 2000; those objections were disallowed and Docherty sought review by the Tribunal of that decision. The objection decision, which is under review in respect of Docherty, is thus the disallowance of his objection in respect of those tax years.
(b)Applications NT2004/290-293 relate to 3-D Scaffolding Pty Ltd, which is referred to in these reasons as “3-D”. 3-D raised objections in respect of amended assessments referable to the tax years ending 30 June 1998, 30 June 1999, 30 June 2000 and 30 June 2001; those objections were disallowed and 3-D sought review of that decision. The objection decision which is under review in respect of 3-D is the disallowance of its objection in respect of those tax years.
(c)The tax years referred to in subparagraphs (a) and (b) above are collectively referred to as the “relevant years”.
(d)The applications were heard together, and are connected. 3-D in the relevant years referable to it, claimed deductions for the hire of scaffolding equipment leased to it by a Mr Tony Borg (referred to in these reasons as “Borg” or as “Mr Borg”). The Respondent contends that 3-D was not entitled to the deductions claimed and raises in issue the question of whether or not Borg existed at all and received the payments alleged to have been made to him. The amended assessments in respect of Docherty were raised in accordance with Division 7A of the Income Tax Assessment Act 1936 (“the Act”), on the basis that if the deductions claimed by 3-D are disallowed, those payments would have been received in circumstances which permit assessments against Docherty in terms of Division 7A of the Act. The case in respect of Docherty is linked with that in respect of 3-D on the basis that if 3-D succeeds, then Division 7A assessments against Docherty cannot stand.
2. The Applicants were represented by Mr D. B. McGovern SC and Mr A. O’Brien of counsel instructed by Swaab Attorneys, while the Respondent was represented by Mr D. Fagan SC and Mr R. Quinn of counsel (and by Mr Quinn alone after the hearings in April 2007) instructed by the Australian Government Solicitor.
3. This case was originally listed for five hearing days commencing on 16 April 2007. Those hearing days proved to be insufficient, and it was re-listed for hearing on 30 May 2007, 31 May 2007 and 1 June 2007. In fact, and by consent, the case was, at the end of the hearing day on 30 May 2007, adjourned until 1 June 2007, and so that there was, in fact, no hearing on 31 May 2007.
4. The transcript for the five hearing days in April 2007 is sequentially numbered from page 1 to page 437. The transcript for 30 May 2007 commences at page one as indeed does the transcript for 1 June 2007. References to the transcript or “TS” refer, unless indicated otherwise, to the transcript for the hearing days in April 2007. (In Annexure A, references to the Transcript are designated simply by “T”.)
5. After the hearing had ended, a timetable for further written submissions was arranged. The Tribunal received written submissions as follows:
(a)In respect of the Applicants, dated 1 June 2007 (“AS1”);
(b)In respect of Docherty, submissions entitled “Additional Submissions of James Docherty as to Division 7A” dated 1 June 2007 (“DS1”);
(c)In respect of the Respondent, dated 1 June 2007 (“RS1”);
(d)In respect of the Applicants, submissions in reply dated 3 August 2007 (“AS2”);
(e)In respect of the Respondent, submissions in reply dated 6 September 2007 (“RS2”); and
(f)In respect of the Applicants, submissions in reply dated 14 September 2007 (“AS3”).
As to whether leave was granted for AS3 is debateable, but nothing turns on the question of whether or not it can be considered for the purpose of these reasons; put in other words, consideration by the Tribunal of AS3 would not affect its decision in these matters.
6. The documentation before the Tribunal is quite astonishingly large.
(a)In the first instance, the Tribunal accepted, in respect of each of 3-D and Docherty the tender of the T documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. The T documents in respect of 3-D are much larger than those referable to Docherty. It is relevant to note that, in fact, the hearing related almost entirely to 3-D and that there was little mention, in relation to Docherty, of Division 7A of the Act.
(b)The Tribunal accepted the tender of a number of Exhibits, one of which, in particular, is of itself very large. The Exhibits are as follows:
Exhibit A1:A large volume of documents entitled simply “Exhibit”. It is divided into 16 tabbed sections and so that a reference to Exhibit A1 together with a reference to a tab number relates to that tabbed part of Exhibit A1;
Exhibit A2:A witness statement by Docherty dated 2 December 2005;
Exhibit A3:A witness statement by Docherty dated 17 March 2006, which includes its own exhibit marked “Exhibit 2”; Exhibit 2 in turn consists of a large folder of documents divided into tabs numbered 1 to 9;
Exhibit A4:A further witness statement by Docherty dated 27 March 2007;
Exhibit A5:A spreadsheet prepared by Docherty during the hearing;
Exhibit A6:A witness statement by Lynette Susan Montgomery (who is referred to in these reasons as “Montgomery”) dated 1 December 2005;
Exhibit A7:A witness statement by Betty Orel (who is referred to in these reasons as “Orel”) dated 30 November 2005;
Exhibit A8:A statement of account issued by “Ricky Richards (Sales) Pty. Limited”;
Exhibit A9:A report by Paul Carter of PriceWaterhouseCoopers dated 2 December 2005;
Exhibit A10: A witness statement by Peter Docherty dated 1 December 2005;
Exhibit A11: A summons to produce addressed to the Office of State Revenue dated 4 November 2005;
Exhibit A12: An historical company extract in respect of 3-D;
Exhibit A13: Vodafone records;
Exhibit R1:A summons to produce addressed to the NSW Police, together with the documents furnished by NSW Police in response to that summons;
Exhibit R2:A diagram and picture of scaffolding equipment;
Exhibit R3:Mastercard statements for Docherty showing transactions during the period 11 May 1999 to 1 June 1999; 23 November 1999 to 8 December 1999 and 9 December 1999 and 20 December 1999;
Exhibit R4:An affidavit and report by Claude Arthur Jugmans dated 8 February 2007;
Exhibit R5:A witness statement by David Morse dated 9 November 2006;
Exhibit R6:A witness statement by Sue Hird dated 23 October 2006;
Exhibit R7:A search on “004576589”;
Exhibit R8:Working papers of interview on 21 February 2003;
Exhibit R9:File note of conversation between Vodafone and Sue Hird dated 14 April 2003;
Exhibit R10: A witness statement by Vladimir Proksch dated 15 November 2006.
PART B - summary and the nature of the proceedings
7. RS1 commences with a section which is entitled “Nature of Proceedings”. That section describes, as the name suggests, the nature of the proceedings. It is followed by a summary of the issues, some of the law involved and the manner in which the relevant amended assessments came to be issued. Clauses 1 to 20 of RS1 serve as a useful background, and are included in these reasons as follows:
Nature of Proceedings
1.These proceedings concern two applications under section 14ZZ of the Taxation Administration Act 1953 (“the TAA”) for review of the decisions of the Respondent to disallow the Applicants’ objections to amended assessments.
2.The application for review by 3D Scaffolding Pty Ltd (“3D”) concerns the years of income ended 30 June 1998, 1999, 2000, and 2001, while the application brought by Mr James Docherty (“Docherty”) concerns the years of income ended 30 June 1998, 1999 and 2000.
3.The Commissioner conducted an audit in relation to 3D and issued amended assessments in respect of the years of income ended 30 June 1998 to 2000 on 9 October 2003 disallowing certain deductions claimed by the Company of which the major part consisted of payments to a fictitious entity Modular Scaffold Hire Pty Ltd (“MSH”). In the 2001 year 3D was non taxable. In relation to the 1998 year the original assessment for that year had issued on 9 March 1999. In order to amend the 1998 assessment the Commissioner formed the opinion that the avoidance of tax was due to fraud or evasion.
4.The Commissioner also concluded that the alleged payments to MSH were in reality payments to Docherty and accordingly assessed him in respect of the years ended 30 June 1998, 1999 and 2000 under Division 7A of the Income Tax Assessment Act 1936 (“ITAA36”) by the issue of amended assessments on 9 March 2004 .
The Issues
5.While 3D has objected to the amended assessments and sought review of the objection decisions in respect of a number of matters concerning deductions claimed in the relevant years, it is only in relation to the following matters where evidence has been filed:
a)The deductibility of payments purportedly made to a bogus company MSH; (paragraph 4 of the Respondent’s Statement of Facts Issues and Contentions);
b)the land clearing expense; (paragraph 7-8 of the Respondent’s Statement of Facts Issues and Contentions);
c)the loan repayment to the director for scaffolding he had allegedly supplied to 3D from time to time; (paragraph 9-10 of the Respondent’s Statement of Facts Issues and Contentions)
d)Penalty.
6.The application brought by Docherty concerns amounts which were purportedly paid by 3D to MSH which the Respondent has concluded were properly assessable to Docherty as deemed dividends under Division 7A. Docherty has also challenged the penalty imposed.
The Facts
7.The material facts are as set out in the Respondent’s Amended Statement of Facts Issues and Contentions dated 17 October 2005 and as adduced at the hearing of this matter.
Legislation
Assessments issued to 3D
8.Section 8-1(1) of the Income Tax Assessment Act 1997 (“the ITAA97”) is in the following terms:
(1)You can deduct from your assessable income any loss or outgoing to the extent that:
a. it is incurred in gaining or producing your assessable income; or
b. it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income (Emphasis added)
9.The test of deductibility requires that the expenditure be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income (first limb) or the carrying on of a business for the purpose of producing assessable income (second limb). Expenditure will be deductible if there is a connection between the loss or outgoing on the one hand and the assessable income or business operations on the other, if it is “incidental and relevant” (Ronpibon Tin N.L. v FC of T (1949) 78 CLR 47 at 56) to that end. It is necessary to identify by this approach the essential character of the expenditure.
10.It has long been established that “incurred in gaining or producing” is to be understood as meaning incurred “in the course of” gaining or producing the assessable income: FCT v Payne 46 ATR 228 at 232. To come within the initial part of the subsection it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income: FCT v Payne 46 ATR 228 at 231-232; Ronpibon Tin N.L. v FC of T (1949) 78 CLR 47.
11.Conversely the principle underlying section 8-1 is also one which will exclude outgoings which although incurred for the purpose of deriving assessable income or in the carrying on of a business, are not incurred “in the course of” doing so: FC of T v Payne 46 ATR 228 at 230. It is not sufficient that the purpose of the expenditure is incidental or relevant to the derivation of assessable income but it must be of a character incidental or relevant to such derivation: Lunney & Anor v FC of T 11 ATD 404.
12.The task of characterisation will involve enquiring what the loss or outgoing was for: Colonial Mutual Life Assurance Society v FC of T (1953) 89 CLR 428 at 454; Hallstroms Pty Ltd v FC of T (1946) 72 CLR 634. The relevant question to be asked is: “is the occasion of the outgoing found in whatever is productive of actual or expected income”: FCT v Payne: 46 ATR 228 at 232.
13.It is clear from the words of sec 8-1 that a taxpayer will only be entitled to deduct a loss or outgoing incurred in gaining or producing assessable income, or incurred in carrying on a business for that purpose, from the assessable income of that taxpayer – i.e. sec 8-1 refers to “your assessable income”.
14.On the present facts it is not possible to conclude that the amounts said to be paid to MSH were deductible expenses incurred in gaining or producing assessable income, or incurred in carrying on a business for that purpose. The testimony of the witnesses called by the Applicants was so improbable and unreliable that the Tribunal has no alternative but to reject the story about the payments to Mr Borg/MSH. A rejection of that testimony inevitably leaves the Applicants in a position where they have failed to discharge the onus of proof and the Tribunal should affirm the objection decisions.
15.Even if the Tribunal were to accept the evidence of the Applicants witnesses in total the Applicants must still fail. It was the unequivocal evidence of Mr Docherty that it was the Docherty Family Trust of which the trustee was 3D which had purchased scaffolding. In those circumstances a deduction would not be available as the expenditure has not been incurred in gaining or producing the assessable income of 3D. It has merely been voluntarily incurred on behalf of another entity. This is discussed further below.
Assessments issued to Docherty
16.Division 7A of Pt III of the ITAA36 deems certain payments, loans and other credits from private companies to shareholders and associated persons to be assessable dividends to the extent that there are realized or unrealized profits in the company.
17.In the years of income ended 30 June 1998, 1999 and 2000 3D had claimed as a deduction a number of payments to a fictitious company MSH which were said to be incurred in gaining or producing assessable income, or necessarily incurred by it in carrying on a business under sec 8-1 of the Income Tax Assessment Act 1997 (“the ITAA97”):
Year
Amount
1998
$111,500
1999
$609,508
2000
$781,731
18.The Commissioner did not accept that the payments were deductible outgoings to the Company and disallowed the claim for the deduction. The Commissioner also took the view that in the absence of a satisfactory explanation from the director, that the payments were in reality payments made to the director and applied Division 7A. Pursuant to sec 109C(2) the amounts in the table above were deemed as dividends under sec 109C(2). However sec 109Y restricts the amount of all deemed dividends under Division 7A to the company’s “distributable surplus” for that year.
19.The amount of a Division 7A deemed dividend is proportionately reduced if the total of all Division 7A dividends taken to be paid by the private company at the end of the income year exceeds the distributable surplus of the company for that year. In these circumstances, the assessable proportion is the distributable surplus divided by the total of all Division 7A dividends paid: sec 109Y. Section 109Y(3) requires that the distributable surplus of a private company is to be calculated under sec 109Y(2) using the following formula:
Distributable surplus = Net assets — Non-commercial loans — Paid-up share value — Repayments of non-commercial loans
20.Subsection 109C(1) of Division 7A is in the following terms:
Payments treated as dividends
When private company is taken to pay a dividend
(1)A private company is taken to pay a dividend to an entity at the end of the private company's year of income if the private company pays an amount to the entity during the year and either:
a. the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or
b. a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time.
Note 1: Some payments do not give rise to dividends. See Subdivision D.
Note 2: A private company is treated as making a payment to a shareholder or shareholder's associate if an interposed entity makes a payment to the shareholder or associate. See Subdivision E.
Amount of dividend
(2)The dividend is taken to equal the amount paid, subject to section 109Y.
Note: Section 109Y limits the total amount of dividends taken to have been paid by a private company under this Division to the company's distributable surplus.
8. It will be noted that RS1 refers in clause 3 to a fictitious entity called Modular Scaffold Hire Pty Ltd, and which is referred to in these reasons as “MSH”. MSH (purportedly) issued documentation in which it described itself as Modular Scaffold Hire Pty Ltd, and in which it reflected an ACN. MSH did not exist, and the ACN reflected was false. According to Docherty, MSH was a company controlled by Borg. Prior to the relevant years, 3-D engaged primarily, but not exclusively, in the supply of labour in the building industry, although it did also supply on hire some scaffolding equipment owned by it. From and after the relevant years, it supplied in addition and on hire scaffolding equipment, and which, so the Applicants contend, was hired by 3-D from Borg, and to whom payments were made on a regular basis and always in cash. As to how precisely, and by whom (and when), the relevant cash was procured for this purpose was the subject of evidence which was in important respects contradictory.
9. Oral evidence on behalf of the Applicants was given by Docherty, his brother Mr Peter Docherty (referred to as “Peter”), his sister Orel, and Montgomery, who during the relevant years, lived (together with her daughter) in Docherty’s home, although there was not, according to their evidence, a de facto relationship between Docherty and Montgomery. Oral evidence was not given by another brother, Charlie Docherty, who during the relevant years was a co-shareholder with Docherty in 3-D, but not a director. Exhibit A2 states that Docherty was the sole director of 3-D. Oral evidence was also given on behalf of the Applicants by David Morse, an employee of the Office of State Revenue (“OSR”) and by Paul Carter, an accountant. Oral evidence was given on behalf of the Respondent by Sue Hird and Vladimir Proksch (both employees of the ATO) and by Claude Jugmans, an accountant.
10. Oral evidence was not given by Borg, who during the course of the proceedings took on an almost mythical significance. Docherty’s evidence was that he does not know where Borg is, but at the same time he made almost no attempt to find him. Such attempts as he did make were, according to his own evidence, perfunctory. The position as regards Borg is complicated further by the contradictory evidence as to the legal relationship between MSH or Borg, on the one hand, and (possibly) 3-D or (equally possibly) a trust referable to Docherty or Docherty’s family (the “Trust”), on the other. That legal relationship, while not reduced to writing, was usually described as one of lease and in terms of which MSH or Borg leased scaffolding equipment to 3-D (or perhaps the Trust), and in respect of which the arrangements as to consideration were decidedly unusual. Although the contract, when it was originally entered into, was allegedly one between MSH as lessor and 3-D as lessee, MSH proved (as I have indicated) never to have existed, and I refer in these reasons to Borg as the alleged lessor simply because the evidence for the Applicants was that “rental” was paid to him. To refer on a continuous basis to MSH and Borg in the alternative would be unnecessarily repetitive. (This is so also in relation to 3-D and the Trust). The Applicants did not seek to allege that MSH did in fact exist, or had ever existed. The word “rental” appears in inverted commas because the evidence strongly suggests that the payments in question were not in respect of rental.
11. As to whether the relationship was in fact aptly described as a lease is open to considerable doubt. The evidence by Docherty was that the contract in question was entered into on the basis that after “rental” had been paid for a specified period (and the evidence as to the precise period was unclear), the equipment in question would belong to 3-D. If this is so, the contract in question would have been more aptly described as a hire purchase contract and so that deductions, if allowable, would have been restricted to the interest component and thus excluding (in relation to each payment) the capital component. Docherty’s evidence was also that as the date for the commencement of the Goods and Services Tax (“GST”) drew nearer, Borg was anxious to avoid any involvement with GST, and was thus prepared to enter into an arrangement whereby certain capital payments amounting in aggregate to $75,000 were made by way of “commutation” of any further “rental” obligations. It was never explained why GST was a cause for concern, so far as Borg was concerned, more particularly because the lease or hire purchase agreement was entered into some years before the GST legislation was introduced, and there was no evidence as to any variation or other term embodied in it which would have brought it, notwithstanding that it was entered into previously, within the GST legislation.
12. As if this were not sufficiently complex, Docherty also gave evidence that the acquirer of the equipment was his family trust and which (as set out previously) is referred to in these reasons as the “Trust”. The Applicants did not ever produce evidence as to what precise equipment was supplied, or when it was supplied, or the terms on which it was supplied. Nor for that matter was there any evidence of any kind as to the nature of the Trust, except that it is a Trust referable to Docherty or his family.
13. The evidence before the Tribunal as regards Borg was so contradictory that a finding that Borg did not exist is, on the balance of probabilities, mandatory. This being so, much of the evidence before the Tribunal was irrelevant, and it is not necessary for the Tribunal to deal with it. This is so, by way of one important example, in particular (for the most part) as regards Messrs Carter and Jugmans. Both of these accounting experts gave evidence which, while on its face was unexceptionable, cannot be accepted simply because each of them assumed the existence of Borg, and the payment to him of rental for the hire of scaffolding equipment.
14. The evidence of Mr Morse can, in this context, conveniently be mentioned at this early stage. His evidence was that on behalf of the Office of State Revenue (“OSR”), he conducted an investigation into the question of whether hiring arrangement duty was being paid in accordance with stamp duty law in New South Wales. After he made contact with Docherty, duty was paid and moreover both on the hire of the scaffolding equipment to 3-D, and its subsequent on hire to customers of 3-D. Significantly, that duty was paid by 3-D. Mr Morse was given Borg’s name and a telephone number in Queensland by Docherty. He telephoned that number and spoke to a male person who said that his name was Borg. Morse did not make any further enquiries, more particular as duty was paid. Duty in these circumstances would, in the normal course, although not invariably, be paid by the lessor and by return, although the lessor would usually, in such circumstances, seek to recoup the duty from the lessee. That payment of the duty was made by 3-D is explicable on the basis that it lent support to the existence of a hiring arrangement with Borg. The evidence of Morse, in this context, as to his conversation with a man who said that he was Borg, does not, in all the circumstances, convince the Tribunal that he was in fact who he said he was.
15. It is in these circumstances that considerable quantities of accounting evidence as to the scaffolding equipment being leased out to, and returned by, customers of 3-D can be dealt with (comparatively) briefly. The evidence was that a computer program designed to cater for this aspect proved to be faulty. Spreadsheets were originally prepared, but were unhelpful in that they were prepared on the basis that information was entered without saving the information previously prepared. Spreadsheets of a sort were in time reconstructed, and “reconstructed” is the appropriate term; they cannot be accepted as a correct record of equipment coming in and going out. In the same light, the manner in which payments to Borg were calculated and recorded proved to be open to considerable doubt, and cannot be accepted at face value.
16. At a very early stage of the proceedings, Mr McGovern, in a brief opening statement, noted that Docherty is a man who engages in a robust trade, and moreover that his health is not good. Mr Fagan noted at a later time that while this may be so, the witness statements prepared for the Applicants’ witnesses are cast in a form which can aptly be described as polished.
17. Of the various submissions furnished on behalf of the parties, the format of RS1 appeared to me to be best organised; I have therefore, to some extent, in these reasons followed its general framework, and indeed have to some (at times considerable) extent, drawn on its content. In general terms, these submissions furnished by the Respondent dealt in detail with the evidence in a manner which the Tribunal found particularly helpful. (The Tribunal does not intend any criticism of the Applicants’ legal advisers in this context; the manner in which the evidence for the Applicants was given made their task difficult.)
PART C - the evidence on behalf of the Applicants in general terms
18. The Applicants seek to contend that a person, subsequently identified as Borg (although Docherty did not, when first questioned by Sue Hird on behalf of the ATO, remember his full name), who attended at 3-D’s premises on about 125 occasions, handed over equipment worth more than $1,000,000 under a contract which was not recorded in writing. There was, in other words, no written agreement, and there was no agreed purchase consideration. As a minimum, it could be expected that there would be a schedule of the equipment, and it is also reasonable to expect some form of documentation specifying the relevant period and the terms and conditions as to payments; it would be reasonable, furthermore, to expect provisions as to security, and generally provisions (such as, for example, as to insurance) inserted for the protection of the lessor. Docherty said that Borg was given a guarantee that he would receive a minimum of $12,000 per week.
19. Exhibit A2, clause 20 sets out that in this industry the absence of written agreements is not at all unusual. But at the same time, other 3-D transactions were fully and properly documented. One example, in particular, is the agreement described as Subcontract Agreement in tab 6 of Exhibit A1.
20. Borg did not apparently take any steps to protect the (valuable) property he was making available to 3-D. This is so, notwithstanding evidence before the Tribunal as to the fact that theft in the industry is rife. See in particular appendix C to Jugmans’ report, which is at annexure A to Exhibit R4; see also paragraph 21 of Exhibit R6.
21. That Borg should act in this unbusinesslike fashion is all the more surprising in light of the fact that he refused to take cheques in respect of rental, and insisted on cash. His attitude was, according to Docherty, that there were “a few unscrupulous people in the industry” (TS 52). However, Borg did not seek any form of security in respect of these valuable assets.
22. According to Exhibit A2 (paragraphs 15 to 16), 3-D was not able to buy its own scaffolding; (see also TS 85-86). The duration of this arrangement was apparently only two and a half years, since in December 2000 (and as to whether this meant the beginning or the end of December 2000 was never clarified) 3-D (or alternatively the Trust) would own the equipment outright. Assuming payments of $12,000 per week, the aggregate amount paid would have been somewhat less than $1,500,000. Payments in some weeks might be, and in fact were, in excess of $12,000. But a transaction of this nature with a total stranger (for so Borg was), on so indeterminate a basis, is inconceivable.
23. According to Docherty, the transaction was terminated early because GST was introduced. Leaving aside the fact that GST was irrelevant because this lease or hire purchase agreement predated GST, GST would, if it had been relevant (and this is very unlikely), have been passed on to the lessee, if lease it was. It is unnecessary for me to deal with the law as to when a pre-GST lease would come within the GST regime since the lease (if it was a lease at all, which is very doubtful) did not include provisions, which could or might have this effect. Docherty, in his evidence, could not say whether the time ran to the beginning or the end of December 2000 (TS 84). If the latter, the additional cost would have been about $48,000 and at 30 June 2000, there were still 22 weekly payments to be made, even if the term was to expire at the beginning of December 2000. At $12,000 per week, this would have yielded $264,000 in aggregate, but Borg was prepared to accept $75,000 in settlement. As to why this was so was, and remains, a mystery.
24. According to the Applicants’ evidence, the payments for equipment to Borg were no different from those 3-D had previously been making when it hired scaffolding equipment, by way of example, from Hillsley Hire. Yet in relation to Hillsley Hire, 3-D would not own the scaffolding equipment, in contrast to the alleged arrangement with Borg where 3-D (or alternatively the Trust) would acquire the equipment at the end of the term, and without being obliged to make any further payment. The Respondent in RS1 described the transaction as lacking commerciality; this is, in the Tribunal’s view, an understatement. On a commercial basis, Borg could have derived rent for the equipment, and then at the end of the term he could have continued to lease it for rent or, in the alternative, sold it. The year 2000 was the year of the Olympics in Sydney and where there was, at that time, considerable building activity.
25. Not only was there no written agreement or schedule of equipment, but in addition, there was also no evidence of inspection prior to purchase, or of warranties as to quality, especially given that the equipment was second-hand. None of 3-D’s staff inspected the equipment before delivery. Docherty said that Borg delivered one or two truck-loads for “testing” purposes. But why did Docherty not inspect all of the equipment? Peter, in Exhibit A10, said that there was always concern as to quality, because a failure of quality could result in accidents and substantial liabilities in consequence. Docherty said, at paragraph 16 of Exhibit A2, that he formed the view, based on a discussion with Borg, that the scaffolding equipment was worth more than $1,000,000. But that he formed this view without any inspection of the equipment is itself inconceivable. It must be remembered that Borg and Docherty were not, prior to this transaction, acquainted with each other; the transaction arose from a casual meeting of Borg by Peter (not Docherty) in a pub.
26. The evidence as to quantity is even more (if this is possible) unlikely. Not even Borg was aware of the precise quantities; the only record was made by Peter, who claimed to have made approximations as to quantities only after the equipment had been delivered. Peter, in Exhibit A10, said that there was no signage on the trucks making the deliveries. Nor was there any evidence as to who was to bear the cost of delivery. Of particular note is the total absence of consignment notes, or other documents, as to quantities or other information in this context.
27. The spreadsheets which were reconstructed or prepared by Montgomery were apparently accepted by Borg as to movements of the equipment in and out, although Borg had no records which would have enabled him to check them. Docherty claimed that Borg had only to look around the yard to know whether he was being “dudded”. See TS 133, lines 5 to 41 as follows:
But on occasions you did see him and he was checking the quantity of the
scaffolding in the yard was he?‑‑‑That’s not what I say in paragraph 22.
Is that the case though?‑‑‑Mr Borg came to the yard to collect his payments.
Whether he collected it in cash or cheque he still the scaffold in the yard to seewhat was going on.
Well, what did he do by way of checking the scaffolding in the yard, was he
checking the quantity of it?‑‑‑I imagine he was.
That’s what you have said in paragraph 22, that he came to check on the scaffolding, isn’t it?‑‑‑Yes.
And in paragraph 41, that he came almost on a weekly basis to collect payment and on each visit he received payment and the corresponding price sheet. He was regularly seen checking the equipment in the yard?‑‑‑Not by me.
I see, that’s something that you’re writing as hearsay from somebody else, is it? Is that right?‑‑‑No, Peter is – if you want to call it hearsay – Peter told me he came, collected a sheet and he collected and he looked at the scaffold and made sure that, you know, a rough idea of what was there and what was on the sheet. He’d know if he was been dudded or not.
Well, wasn’t he given a price schedule, a price sheet?‑‑‑Yes but what’s wrong with me putting a small amount on ‑ ‑ ‑
Please don’t ask me another question?‑‑‑Okay.
He was given a price sheet and that purported to show him how much scaffolding
had been out in the past week, didn’t it?‑‑‑Yes.
What would he be told by looking at what was in the yard?‑‑‑If I had a small amount on the spreadsheet, saying it was out and the yard was empty, he’d know it wasn’t true and accurate.
But you also had your own scaffolding in there, didn’t you?‑‑‑Not substantial
amounts like his.
28. This assertion was made despite the fact that the delivery of the equipment had required 10 semi-trailer loads, and despite the fact that the Borg equipment was not kept separate from other (and indistinguishable) equipment already owned by 3-D itself. It was acknowledged that the task was difficult, more particularly because there was no record of other similar equipment owned by 3-D itself, and moreover equipment which was not in fact distinguishable from the equipment alleged to have been supplied by Borg.
29. The time at which Price Spreadsheets were prepared compounds the problems. The Price Spreadsheet at tab 2 of Exhibit A1 was dated 1 November 1999, but was prepared for the week ending 19 October 1999. Put in other words, the Price Spreadsheet produced to Borg was, by that time, out of date.
30. The evidence given for the Applicants was that Borg visited 3-D’s yard on a weekly basis. But Exhibit A10, as one example, notes that he (Borg) just turned up, and there was no evidence as to regularity. How could Borg realistically know that he was being paid what was due to him, if he simply turned up without prior warning, to ensure that everything was in order? For that matter, how could 3-D know what cash amounts it had to have ready for Borg and when?
31. The only witnesses to ever lay eyes on Borg were Docherty, Peter and Orel (who are siblings) and Montgomery, with whom there was a relationship going beyond that of a purely employer/employee relationship. Montgomery was never required to clarify or justify or explain any amount so paid.
32. Orel referred in Exhibit A7 to the person “who I understood to be Mr Tony Borg”. Why was she so uncertain given the number of occasions on which he attended 3-D’s premises?
33. By the time of the hearing, Orel was able to be more precise. She said that she did not ever see Borg receive any payments, but did see him with Peter in the factory. This was so despite the number of occasions on which he attended at 3-D’s premises, and despite the fact that he was 3-D’s largest payee. And her description of Borg differed from that given by Montgomery. Montgomery described Borg as being “about 5’7” … average build, dark curly hair … [aged] 55/60” while Orel said “medium build. A bit heavy – not too heavy. Darkish hair, about my age”.
34. Orel was asked why she did not disclose Borg’s name when ATO officers first attended at 3-D’s premises in October 2002 and February 2003. Orel said that she knew him only as Tony. Orel was in fact 3-D’s bookkeeper or accounts clerk, and Borg was 3-D’s largest payee. Moreover, that evidence conflicted with evidence by Montgomery as to the envelopes containing cash which she provided to Orel. Montgomery said “in the very beginning I probably wrote Tony Borg and later on it was just Tony and the figure”. Orel must have known the name of the person for whom the envelopes were being provided. Nor was there any explanation as to why Orel did not simply ask Peter. And as to the need for receipts for cash, she said that the statements were themselves receipts; this astonishing statement was made by the person who was, in effect, 3-D’s accounts clerk.
35. Montgomery said that Borg never came to the office to collect his money. He never asked what equipment was out on hire and he never queried her calculations, and as set out previously, the Borg scaffolding equipment was indistinguishable from 3-D’s own scaffolding. Even though she lived in the same house with Docherty, she did not ever take up with him the possibility that Borg was being paid, in part, in relation to 3-D’s own scaffolding; that is, scaffolding which had not been supplied by Borg.
36. The frequency with which Borg visited the premises, and the importance of establishing his existence, did not result in evidence other than that of the three siblings and Montgomery, even though if he existed he would have been seen by many other employees of 3-D. The Tribunal was informed that he visited 3-D’s premises once or twice a week, and for four hours each time. This was after all Borg’s business, but Docherty had “no idea” as to how Borg ran his business.
37. It was always clear that the existence of Borg was challenged by the Respondent. In these circumstances it might have been expected that there would be evidence by others in the employ of 3-D. The only evidence as to Borg was, as I have said, by the three siblings and Montgomery; it was sparse in the extreme, and it was moreover contradictory. That this is so reinforces the view that Borg was invented.
38. Borg was described as a person who, in late 1997 or early 1998, was “in his 60s and … looking to retire”. Peter met him at a pub in Parramatta near a cinema. Peter had seen him about five times thereafter and believed that he was in the scaffolding business. Borg did not trust cheques because “there’s a few unscrupulous people in the industry” (TS 52). Borg then asked Peter if he was interested in buying scaffolding. Peter told him to go and see the “fat man” (a reference to Docherty). Peter had been urging Docherty to go into the business of hiring scaffolding (Exhibit A10, paragraphs 18-19). No contact details appeared to have been obtained. Moreover, 3-D was already in the business of hiring scaffolding; I refer in this context to the reference to Hillsley Hire set out previously in these reasons.
39. The MSH statements (Exhibit A1 at tab 9) do not contain either a phone number or a street address; that MSH turned out not to have existed at all is, in the circumstances, hardly surprising.
40. It is also surprising that it was never necessary to contact Borg. The first occasion Docherty met Borg was when Borg eventually came to 3-D’s yard unannounced (see Exhibit A2, paragraph 15). He was often seen “wandering around the yard without anyone at 3-D Scaffolding knowing that he was there”. The evidence was that Borg made unscheduled visits to collect his money. The Applicants apparently accepted an arrangement whereby large amounts of cash had to be maintained, and held in the safe, until Borg chose to come to collect it (see Exhibit A10, paragraph 28). It must be remembered that there was evidence that 3-D’s premises had previously been robbed on at least two occasions.
41. As to how Borg was paid was the subject of evidence that was remarkably contradictory. Peter said in Exhibit A10 at paragraph 28 that payment was made once a week. Also in paragraph 28 of Exhibit A10, Peter said that he sometimes gave Borg an envelope containing a Price Spreadsheet and the cash. Docherty said that Peter generally paid Borg (see Exhibit A2, paragraph 39). There was other evidence by Docherty that it was he who received the cash so that no-one else would know. That indeed was what he told the ATO auditors, Ms Hird and Mr Proksch, according to their evidence. Whenever Borg came he would be paid either out of cash, if somebody had already been to the bank, or if not, Peter or someone else went to the bank to cash a cheque (see Exhibit A2, paragraph 41). On odd occasions, Peter went to the bank with Borg to collect the cash. On each visit Borg would collect a Price Spreadsheet from Montgomery that may have related to a period which was two or perhaps three weeks earlier. Orel signed the cheques drawn as cash cheques. No receipts were ever required.
42. The evidence in the witness statement did not agree with Docherty’s evidence in chief. He said that Orel would phone the bank to tell the bank how much cash would be needed. Peter and Borg then went to the bank to collect the cash; this occurred for a while, but thereafter “Tony went on his own”.
43. The fact that Docherty had not known Borg previously is strange given the length of time that Docherty had been involved in the scaffolding industry. It was put to Docherty that over 20 years since 1987 he had not been able to find anyone who knew Borg. Docherty answered “that he was lucky to know 10 percent of the people in the scaffolding industry”. All of this must be seen against the background of a verbal contract between two strangers as to the supply, on unspecified terms, without security, of scaffolding equipment (not detailed) worth in excess of $1,000,000.
44. The Respondent contends that Docherty’s efforts to locate Borg bordered on the ridiculous. That description was altogether apt. He did not hire a private inquiry agent because he had those skills himself. See TS 219, lines 11 to 47 as follows:
Well, yes, you went to Stockport in Queensland?‑‑‑Southport.
Southport?‑‑‑Yes.
In Queensland?‑‑‑Yes. I went to Southport in Queensland but, I mean, as I said, I went round to – just because you retire doesn’t mean that you don’t still go and associate with friends from previously, you know ‑ ‑ ‑
But I want to put this to you, there are only two possible explanations for your
inability to find him. Either you didn’t look hard enough or you didn’t look in the
right places. There’s a third, and that’s that he died?‑‑‑That’s a possibility too butno, I believe I looked hard enough.
On the other hand, his age is not such that death is likely. But if he was in his early ‘60s when you first dealt with him in 1998, he’s not 70 yet. So - - -?‑‑‑But Sir, he no longer lives in Sydney and he doesn’t live in Southport or Surfers Paradise or anywhere there. I can’t look all over the rest of the State and I can’t go to Melbourne or Perth or ‑ ‑ ‑
But, Mr Docherty the amount involved in this case is considerable, is it not?‑‑‑I agree but ‑ ‑ ‑
The very fact that you’ve got solicitors plus well known Silk and Junior means that
you are taking this case very seriously?‑‑‑I am taking it seriously.
Why, if necessary, didn’t you get an inquiry agent to find Mr Borg for you? It
wouldn’t have been all that difficult?‑‑‑Well, I thought I could find him myself. Imean, I used to be a part inquiry agent and so did my brother.
When?‑‑‑A long, long time ago in the ‘80s. We had a private ‑ ‑ ‑
You seem to have undertaken a multiplicity of functions not excluding expert in that jacket?‑‑‑I wouldn’t say expert.
Well, it sounds like an expert to me. In fact, you were never more fluent during the whole of your evidence than in your description of how to count the numbers in a casino?‑‑‑It’s fairly simple – plus one zero, or minus one.
45. Previously and at TS 156 and on the same subject, Docherty had given evidence in lines 21 to 46 as follows:
MR FAGAN: Mr Docherty, you say in paragraph 45 of your statement of
December 2005 that in order to locate Mr Borg you have visited certain hotels in Parramatta and Bondi?‑‑‑Yes.
Which ones?‑‑‑You go to the – I think it’s the Bourke in Parramatta. I can’t tell you exactly their names but Bondi Junction there’s a hotel on the corner there that’s a well-known scaffold haunt. There’s several places are all well-known haunts. I’ve gone to Queensland looking for him as well but I haven’t been able to locate him.
It’s a bit of an outside chance to be going around hotels in Parramatta and Bondi looking for a man whose only known address was a post office box in Southport, Queensland, isn’t it?‑‑‑What choice do I have? I am asked to try and locate him. I
go to a hotel where scaffolders congregate or are. I have stopped in, I have checked. Who knows? Maybe I’ll be lucky and find him.
You’ve asked other people in the industry, have you?‑‑‑I have asked other people that know him.
Where’s Tony Borg? Is that what you asked?‑‑‑No, no. I’ve asked them if they
know him. I haven’t asked them, Where’s Tony Borg? Because I don’t know if any– if they know him.
You haven’t found anybody who knows him?‑‑‑No.
No one in the scaffolding business?‑‑‑No.
46. Docherty said that he asked people in the industry if they knew Tony Borg, and did so in the usual haunts of scaffolding people, and notwithstanding the fact that according to his own evidence, Borg had long since retired. His efforts appear to have been confined to Bondi and Parramatta in New South Wales, and Southport in Queensland. In Southport, he looked for him at the post office. The following exchange given in cross-examination is relevant; and see clause 54 of RS1 as follows:
54. Docherty’s description of the efforts which had been undertaken to locate Mr Borg bordered on the ridiculous. He had not hired a private inquiry agent to locate him and inferred that the reason for this was that he was possessed of those skills himself. He said that he had looked for him in various hotels around Parramatta and Bondi, and said that he had gone to Queensland looking for him. He said that he had asked other people in the scaffolding industry if they knew Tony Borg. He claimed to have looked amongst the regular haunts of people in the trade notwithstanding the fact that Borg had retired long ago. He claimed to have gone to Southport and started looking for Mr Borg at the post office:
A“I have gone to Southport. I have looked in the post office. I have looked around through the shops. I have been around Surfers Paradise, been around different places hoping that I may run into him.”
QHoping to bump into Mr Tony Borg at random on the streets of a fairly large urban area of the Gold Coast
AYes
QThis is just make-believe, isn’t it Mr Docherty?
47. The Respondent contends that Borg is in fact Docherty. In my view, the contentions of the Respondent in this context are well-founded. It is likely, on the balance of probabilities, that if Borg never existed, Borg is Docherty. Put at its best for 3-D, it has not discharged the onus upon it under section 14ZZK of the Taxation Administration Act 1953 (“the TAA”).
48. Having come to the conclusion that Borg did not exist, the elaborate arrangements alleged as to how he, Borg, was paid, may be of limited relevance. Put in very broad terms (and as noted previously), the computing system was faulty and did not achieve its desired purpose. Spreadsheets were prepared, but new information was inserted in place of the prior information, without saving the old. Price Spreadsheets were reconstructed comparatively late in the chain of events.
49. I do not think it necessary to go into great detail as to the accounting and related problems which arose in this context. At the same time, and in the interests of completeness, it is necessary to deal with those aspects, at least to some extent.
50. RS1 contains in clauses 56 to 101 an admirable (and correct) summary of the evidence given in this connection. Those clauses are set out separately (due to their length and because they are of peripheral relevance) in Annexure A to these reasons, although Annexure A should be treated as incorporated in these reasons. Before leaving this aspect of the matter, it is relevant to note that the manner in which 3-D maintained its accounts tended, at times, to be chaotic. Reference was made to the fact that when Docherty’s parents sold their home, the purchase consideration was paid into 3-D’s account; when it was paid out, that amount was claimed by 3-D as a deduction (TS 29).
51. Put in general terms, the witnesses called by the Applicants (and I refer in this context to the three siblings and Montgomery) invariably sought to give their evidence in accordance with their prepared witness statements. The witness statements were polished to an extent, which could not have been achieved by either Docherty or Peter, although Orel demonstrated a somewhat greater degree of sophistication. Orel’s evidence was given in a fashion that is best described as guarded in the extreme. Peter, by contrast, started by confirming the content of his witness statement, but then required an adjournment in order to consider it, and then sought changes (and changes which were material) to it.
52. Docherty, at the relevant time, owned half the shares in 3-D while another brother, Charlie, owned the other half. Charlie did not figure in the hearing in any manner whatever. Peter’s position in 3-D appears to have been menial and, given the manner in which he gave evidence, this is not surprising. Montgomery can be described, at least to an extent, as being in the family; she worked for 3-D and lived in Docherty’s home. Each of them was reluctant to answer questions about the business in which they worked, unless it fell within their own restricted area. Docherty, for example, denied any knowledge of the Price Spreadsheets; see TS 136, lines 10 to 34 as follows:
And that indicates, does it, that the payment for the weekend of 19 October ’99 was made on 1 November, is that right?‑‑‑Yes.
And the date on the spreadsheet is 1 November?‑‑‑Yes.
The payment couldn’t have been made any earlier than 1 November on what you’re telling us because it was only on 1 November that the spreadsheet is dated and brings up to date the amount payable?‑‑‑I’ve no idea.
They all follow that pattern, don’t they, that the ‑ ‑ ‑ ?‑‑‑I have no idea. I didn’t do ‑ ‑ ‑
You haven’t heard my question?‑‑‑Okay.
They all follow a pattern, don’t they, that the spreadsheets, such as they’ve been able to produce from the relevant time, dated some little time, perhaps two weeks later than the week ending to which they relate?‑‑‑I have no idea.
And the payments likewise?‑‑‑I have no idea.
And consequently when Mr Borg, as you say, came into your yard to get his money, looking around at what was in there that week wouldn’t be the slightest use to him to confirm the voracity or otherwise of a payment that he was getting that related to two weeks before, would it?‑‑‑I have no idea, I didn’t do the spreadsheets, I didn’t pay him.
53. Docherty also sought to distance himself from what went on in the yard saying that he would only get “into the yard once, maybe twice a week and in total I wouldn’t spend more than four hours in the day that I was in there”: see TS 111. Docherty said also that he did not “know anything about the banking whatsoever” and deferred to Orel in this regard: TS 176.
54. Montgomery knew only about the preparation of the Price Spreadsheets; she knew nothing about the drawing of cheques. Orel knew nothing about scaffolding, but did know about the drawing of the cheques. Only Peter dealt with Borg when he came into the yard. Any questions falling outside the compass of their witness statements were usually met with replies to the effect that the witness did not remember.
55. In respect of Docherty, appearances were, at times, deceptive. He sought to present himself as an uneducated and unsophisticated tradesman. In his evidence as to his gambling activities, he demonstrated that he can be more articulate (but not more truthful). He spoke of numerous visits to casinos in various parts of Australia, and at which he won money largely due to his skill at counting the cards in games of blackjack (the Tribunal notes in this context that casinos generally are on the watch for professionals of this kind and seek to ban them from their premises).
PART D - the evidence docherty in particular
56. I have dealt with a part of Docherty’s evidence in the preceding Part C, and this Part D relates to his evidence to a limited extent only.
57. I do not consider it necessary to include any extracts of Exhibits A2, A3 or A4 since Docherty’s oral evidence departed to so considerable extent from his witness statements.
58. In essence, Docherty said that he entered into the arrangement, previously referred to, with Borg (who was not known to him), which was not reduced to writing, and whereby after payments of $12,000 per week (as a minimum) over a period (not precisely specified) the equipment would be owned by 3-D or, alternatively, the Trust. As to payments to Borg, he had nothing to do with the presentation of cash cheques. Peter and Borg went to the bank at first, and then Borg went alone. This does not accord with the evidence of other witnesses in the same context.
59. When Docherty met Ms Hird on 19 June 2003, he told her (according to her evidence) that he received the cash and made the payments and that “no one else would know” (paragraph 28 of Exhibit R6). He denied in cross-examination that he made this statement to Ms Hird: see TS 131. Mr Proksch confirmed that a statement of this kind was made in his presence.
60. But later in his cross-examination, Docherty said that he did not know about the payment arrangement; put in other words, he did not know whether Peter went to the bank with Borg or went to the bank before Borg arrived. He did not know about cash being kept in the safe (see TS 132).
61. Prior to the arrangement with Borg, 3-D had hired equipment from other companies, but after the arrangement with Borg, MSH equipment was used. The first payment to Borg was $11,500 on 4 May 1998 and this payment was made by cheque, notwithstanding Borg’s refusal to accept payments otherwise than in cash. That payment suggests that the equipment was then out on hire, but Docherty said that it did not all go out immediately (TS 65). One might imagine that the MSH equipment went out progressively in substitution as the other equipment came back. Docherty elaborated at TS 76 and following as follows:
11,500?‑‑‑Well, we had a grace period. You can’t just get it all and get it out to that
in the first week, so we had to have a grace period, and then when we got scaffold from Mr Borg we would then take scaffold from there and send it back to our other suppliers to get it off hire there and put it out there.
What do you mean a grace period?‑‑‑Well, a period where we weren’t paying hire, you know.
To whom?‑‑‑To Mr Borg. He’s got to get the material down and he’s got to get it
there and we’ve got to have a chance to get it out and the hire starts.
He’s got to get it down to where?‑‑‑To our yard. He’s got to get it from wherever
he’s bringing it from to our yard.
Yes, and then?‑‑‑And then we’ve got to hire it out.
Yes?‑‑‑So we’ve come to an arrangement – and okay, he’s delivering it, but I can’t just go, I’ve got jobs for this tomorrow, let’s do that. I’ve given him a guarantee that
I would pay him a certain amount of money and that I would guarantee that moneyon a weekly basis for the length of the entire transaction. Now, I need some sort of grace – I need a couple of weeks to be able to keep going, find some jobs to get it on, and send material back to our other suppliers so that it comes off hire there and goes on hire here.
Well, why – if he brought you in a front load of scaffold and you started to put it out
on sites, why wouldn’t you be paying him hire on what you got from the sites that itwent to from when you got it and when you put it out?‑‑‑Because we asked for a grace period.
Have you referred to that anywhere in your statement?‑‑‑Did I need to?
Please answer me. Have you referred to that anywhere in your statement?‑‑‑I don’t think so, no. I don’t know, but I don’t think so, no.
Did you refer to that anywhere in your discussions with the ATO auditors when they came to your premises and saw the explanation of all this?‑‑‑I don’t remember.
You didn’t. You know you didn’t?‑‑‑I just said to you, I don’t remember.
You’ve just produced the proposition of a grace period to explain a difficulty that you have with having charged him in your first amount, according to your evidence of what this document, this invoice or statement from Modular Hire represents?‑‑‑I’ve just told you, we used his scaffold to send back to our other suppliers.
…
62. As the Respondent contends, this appears to have been an invention. There were many other instances; the Respondent drew attention to only a few in RS1, clause 109 as follows:
109.This has all the hallmarks of a fumbling recent invention – the witness endeavouring to invent to cover a deficiency in the story which the cross examiner has exposed. There were many instances of this in Docherty’s evidence:
a.The suggestion that there could have been a written contract – Docherty in cross examination could not remember whether this was the case or not. Docherty had stated unequivocally at paragraph 20 of Exhibit A2 that there had not been a written contract. This suggestion was further embellished when he suggested that he could not find a copy because the premises had been robbed, as if to infer that that the thieves had found his contract of interest. This was an absurd proposition and brought into focus the ridiculousness of the whole story.
b.Docherty was asked whether he had inquired of Mr Borg where the scaffolding was kept once he had ascertained that the scaffolding was worth a million dollars. The first answer he gave was “No why do I need to? He answered, I didn’t need to ask him where..” Within one question he had changed this answer to “I don’t think so, I don’t know. Again, you are asking me to remember back 10 years. I don’t remember everything in a conversation 10 years ago.”
154. It is clear that Division 7A of the Act must apply. The Respondent has prepared calculations which indicate that he has, on the figures before him, sought to ensure that the deemed dividends assessed do not exceed the amounts available, and there was no evidence of any kind before the Tribunal that would indicate that the Respondent’s calculations were in any way incorrect.
155. Mr Quinn, on the last hearing day (1 June 2007), advised me that the penalty, notwithstanding indications as to a higher percentage in some of the documents before the Tribunal, was confined to 25 percent. The circumstances are such that a penalty of this size was, on the facts, entirely justified and I do not think it proper to disturb it.
156. The evidence before the Tribunal indicates that the entire Borg/MSH transaction was concocted, and that all of the siblings and Montgomery were involved in it. The evidence presented by the Applicants was, as I have demonstrated, unsatisfactory in the extreme, and in the case of the siblings and Montgomery not worthy of credit.
157. In all of the circumstances, the objection decisions under review must be affirmed.
I certify that the 157 preceding paragraphs are a true copy of the reasons for the decision herein of Mr Julian Block, Deputy President
Signed: .................[sgd]................................................................
AssociateDates of Hearing 16-20 April, 30 May, 1 June 2007
Date of Decision 19 October 2007
Counsel for the Applicant Mr. D.B. McGovern S.C and Mr. A. O’Brien
Solicitor for the Applicant Swaab Attorneys
Counsel for the Respondent Mr. D. Fagan S.C and Mr. R. Quinn
Solicitor for the Respondent Australian Government SolicitorAnnexure A deleted
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