Bai and Commissioner of Taxation
[2013] AATA 612
•29 August 2013
[2013] AATA 612
Division TAXATION APPEALS DIVISION File Number(s)
2010/4191-4194
Re
Tao Bai
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President S E Frost
Date 29 August 2013 Place Sydney The Tribunal decides:
(a)to vary the objection decisions in respect of the 2003 and 2005 years, so as to take account of the Commissioner's concessions as set out in [18] and the Tribunal's conclusions at [52] of the reasons that follow;
(b)to set aside the objection decisions in respect of the 2004 and 2006 years and substitute a decision in each case that the objection is allowed in part, to take account of the Commissioner's concessions as set out in [18] and the Tribunal's conclusions at [52] of the reasons that follow;
(c)to affirm the objection decisions in relation to penalty at 50 per cent of the shortfall amount, but reduced in quantum so as to reflect the adjustments at (a) and (b) above.
........[sgd]........................................................
Deputy President S E Frost
CATCHWORDS
INCOME TAX – amended assessments for four income years – Commissioner's opinion in respect of each year that there was evasion – administrative penalty imposed at 50 per cent for recklessness – taxpayer's burden of proof – Tribunal not satisfied that there was no evasion – objection decisions set aside and varied so as to allow objections in part – administrative penalty at 50 per cent upheld – no remission
LEGISLATION
Taxation Administration Act 1953, s 14ZZK
Income Tax Assessment Act 1936, s 170
CASES
Gauci v Federal Commissioner of Taxation [1975] HCA 54; 135 CLR 81
Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614
Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333
Nguyen and Commissioner of Taxation [2011] AATA 544
Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74
Davis v Federal Commissioner of Taxation [2000] FCA 44
Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation 91 ATC 4546McCormack v Commissioner of Taxation (1979) 143 CLR 284
REASONS FOR DECISION
Deputy President S E Frost
29 August 2013
INTRODUCTION
The applicant in this case is one of four taxpayers who are, or were, connected in some way with one or more companies in the High Trade group, including:
·High Trade Company Pty Ltd (High Trade Company);
·High Trade Constructions Pty Ltd (Constructions);
·Resort Hunter Valley Pty Ltd.
This particular applicant, Tao Bai, was married to one of the other taxpayers, Li Zhang. Mr Zhang was a director and, it seems, the controlling mind of the companies in the High Trade group. The remaining two taxpayers are Lian Zhang, who is the brother of Li Zhang; and Song Chang, who was an employee of the High Trade group.
Following tax audits that commenced in 2007, the Commissioner formed the view that the taxpayers had understated their income over a period of years. He made a number of amended assessments in relation to each of the taxpayers. The taxpayers objected against the amended assessments. While in some cases the Commissioner allowed their objections in part, the amended assessments were largely upheld. The taxpayers have sought review of the objection decisions in this Tribunal.
The applications were heard consecutively over a period of seven days in September and October 2012. After the hearings, the Commissioner engaged in the time-consuming task of preparing spreadsheets seeking to summarise the adjustments made by the Commissioner in the amended assessments. The last of those spreadsheets were provided to the Tribunal in April 2013. They provide a degree of assistance in unravelling the complexities of these applications.
THE ISSUES
The main question for the Tribunal is whether Ms Bai has shown that the amended assessments are excessive. This is the burden that she bears under s 14ZZK of the Taxation Administration Act 1953 (TAA). A subsidiary question, which will arise if her case falls short to any extent, is whether she is liable to administrative penalties.
BACKGROUND
Ms Bai married Li Zhang some time prior to her migration to Australia in 1997. They are now separated.
She claims that from December 1994 to August 1996 (that is, before she migrated to Australia) she transferred AUD800,000 to Australia for business purposes[1]. At least some, and perhaps all, of that money had come from Brightfull International Ltd, a company that she and her former husband had incorporated in Hong Kong in 1992. She claims that all of the funds that came from Brightfull were beneficially owned by her[2]. The funds were described as having been transferred to “High Trade/Li Zhang”, to “High Trade”, or to “Li Zhang’s Westpac account”[3].
[1] Affidavit affirmed 2 April 2012 (Exhibit A2-1), [48]
[2] Exhibit A2-1, [46]
[3] Exhibit A2-1, [46]
The purpose of these transfers was, she said[4]:
… in order to build up our business in Australia, especially the Resort Hunter Valley project. My husband dreamed to build a resort to an internationally high standard. Resort Hunter Valley is managed by Crown[e] Plaza Hotel and brings hundreds of local jobs. It made our dream come true, but we suffered huge financial pressure from building it. My husband and I and many family members and friends loaned large sum of money in order to finish this project. The project was undertaken by High Trade Company Pty Ltd …
[4] Exhibit A2-1, [44]
For at least part of the period from July 2002 to June 2006 (this is the period with which these applications are concerned – the “relevant years”), Ms Bai was employed by one or other of the companies in the High Trade group. She was also a shareholder and a director of some of those companies. She moved around from one company to another, but her duties remained roughly the same. She said she was an “office manager”[5], she was involved in “market research”[6], she would “look at the prospects of development”[7] of a particular site, or she would “gather all the information and then report this information to the company”[8]. She was, however, quite unspecific as to the particular activities that any of the companies carried on.
[5] Transcript, P-240, line 6
[6] Transcript, P-240, lines 42-43
[7] Transcript, P-241, lines 5-6
[8] Transcript, P-241, lines 13-14
Her tax returns, as lodged for the relevant years, disclose the following:
Salary and wages Interest Rental property loss Deductions Taxable income 2003[9] 60,000 518 16,537 460 43,521 2004[10] 61,153 19 20,357 567 40,248 2005[11] 60,000 7 45,646 571 13,790 2006[12] 65,384 196 46,435 642 18,503 [9] T33-229
[10] T35-245
[11] T37-261
[12] T39-277
Notices of assessment issued, in respect of each of those years, in accordance with the returns as lodged.
However, after the Commissioner’s audit, Ms Bai’s taxable income was re-assessed to the following amounts:
·For the 2003 year – $261,332[13];
·For the 2004 year – $272,313[14];
·For the 2005 year – $1,183,398[15];
·For the 2006 year – $1,178,027[16].
[13] T25-213
[14] T26-214
[15] T27-215
[16] T28-217
Notices of amended assessment issued on 22 June 2009 to reflect those amounts of taxable income. The total further tax sought from Ms Bai on the basis of the amended assessments was over $1.5 million[17]. Administrative penalty was also imposed, at the rate of 50 per cent for recklessness[18].
[17] T28-217
[18] T23-211 and T24-212
Each of those amended assessments would have been out of time, unless the Commissioner was of the opinion that there had been fraud or evasion: s 170 of the Income Tax Assessment Act 1936 (ITAA 1936).
It seems that, by June 2009, when the amended assessments were made, the Commissioner suspected that evasion was involved, but he had formed such an opinion, in a formal sense, only in relation to the 2003 and 2005 years, and not in relation to the 2004 year or the 2006 year[19]. On that basis the amended assessments for 2004 and 2006 could not be sustained. Further amended assessments were therefore made for the 2004 and 2006 years, to reinstate the taxable income figures of $40,248 (for 2004) and $18,503 (for 2006), as originally declared in Ms Bai’s tax returns. Notices of those further amended assessments were issued on 1 February 2010. But on the following day, 2 February 2010, and as a result of the Commissioner’s having formed a further, formal opinion that evasion was involved in the 2004 and 2006 years, the Commissioner made yet further amended assessments for 2004 and 2006 (the “third amended assessments for 2004 and 2006”), once again reflecting the increased taxable income amounts that had been shown in the notices of the original amended assessments issued on 22 June 2009. Ms Bai objected against the original amended assessments for 2003 and 2005, against the administrative penalty imposed for those two years, and against the third amended assessments for 2004 and 2006. (It seems that no fresh assessments of administrative penalty were made when the third amended assessments for 2004 and 2006 were made. As a result, penalty is not an issue for those years.)
[19] T2-8, [4]
The objections in relation to primary tax for 2003 and 2005 were allowed, but only in part. The administrative penalty was reduced to reflect the reduction in Ms Bai’s taxable income for those years. The objections in relation to 2004 and 2006 were disallowed.
Ms Bai remains dissatisfied with the outcome. She has applied to the Tribunal for review of the objection decisions.
By the time the matter came on for hearing, Ms Bai had satisfied the Commissioner that some of the deposits on which the amended assessments were based did not represent her assessable income. Of the 128 deposits originally identified[20], the Commissioner allowed Ms Bai’s objection in respect of 14 deposits[21]. Since then the Commissioner has accepted Ms Bai’s explanations in respect of 51 of the deposits in full[22], and a further 11 deposits in part[23]. Accordingly the Commissioner notified Ms Bai’s representative that, on the basis of further evidence provided by Ms Bai, a further $350,000 (approximately) of the $2.7 million increase in Ms Bai’s income for the relevant years, was now being conceded.
[20] Spreadsheet line items 17-145 inclusive, but excluding line 46 (identified as an “adjustment”)
[21] Spreadsheet line items 17, 19, 20, 25, 34, 82, 84, 85, 89, 91, 93, 94, 96 and 97
[22] Spreadsheet line items 21, 22, 23, 28, 31, 33, 46, 53, 56, 57, 59, 60, 63, 64, 65, 67, 70, 71, 73, 75-81 inclusive, 90, 102, 104-116 inclusive, 124, 126, 127, 133, 134, 137, 139-142 inclusive
[23] Spreadsheet line items 18, 29, 30, 32, 35, 37-40 inclusive, 44 and 62
WHY DOES MS BAI SAY THE AMENDED ASSESSMENTS ARE EXCESSIVE?
Apart from asserting that there was no fraud or evasion, Ms Bai claims that the amounts on which the Commissioner based the amended assessments are either amounts transferred to her bank accounts from other accounts that she controls, or payments from the government such as education allowance payments, or repayments of loans, or reimbursements of expenses that she had paid on behalf of one of the High Trade companies or one of her own companies, or gifts from her husband.
She claims to have been hampered in establishing her case by the fact that documents which she would like to rely on were seized by the Australian Federal Police when search warrants were executed at various premises, including her own place of residence, in April 2009.
Nevertheless, her affidavit, affirmed on 2 April 2012[24], deals extensively with the deposits identified by the Commissioner and seeks to explain the great bulk of them, either individually or in categories. It provides detailed information about the sources of and the reasons for virtually every deposit focused upon by the Commissioner. Any documents that were available and relevant have been annexed to her affidavit. These include bank account statements, copies of cheques and cheque butts, applications for bank transfers, contracts for the sale of real property, and property settlement adjustment sheets.
[24] Exhibit A2-1
THE TAXPAYER’S BURDEN OF PROOF
Under s 14ZZK of the TAA a taxpayer has the burden of proving that an assessment is excessive.
The Commissioner provided very detailed and helpful written submissions on this issue. Those submissions correctly point out that there is no obligation imposed on the Commissioner to show that an assessment can be sustained or supported by evidence: Gauci v Federal Commissioner of Taxation [1975] HCA 54; 135 CLR 81. It is also the case that the Commissioner is entitled to “rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment”: Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at 624 per Brennan J.
In Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333, Latham CJ said at 337:
… upon an appeal the onus rests upon the taxpayer of establishing the facts upon which he relies and if it is necessary for him to establish a particular fact in order to displace the assessment he must satisfy the Court with respect to that fact.
In assessing the evidence of a taxpayer, the Tribunal must acknowledge, as Senior Member O’Loughlin did in Nguyen and Commissioner of Taxation [2011] AATA 544 at [7], that the evidence of witnesses who have interests that turn on whether that evidence is accepted needs to be approached critically, and will necessarily be the subject of careful scrutiny. The Senior Member referred to Commissioner of TaxationvSNF (Australia) Pty Ltd [2011] FCAFC 74 and DavisvFederal Commissioner of Taxation [2000] FCA 44 in support of those propositions. But that is not to say that evidence that may be described as “self-serving” should necessarily be disbelieved (Imperial Bottleshops Pty LtdvFederal Commissioner of Taxation 91 ATC 4546 at 4552, per Hill J) or should be regarded as “prima facie unacceptable” (McCormack v Commissioner of Taxation (1979) 143 CLR 284 at 302, per Gibbs J).
Fraud or evasion
A taxpayer who asserts the absence of fraud or evasion[25] also bears the burden of proving that absence. In that respect it is helpful to recall Gleeson CJ’s explanation in R v Meares (1997) 37 ATR 321 at 323:
Although on occasion, it suits people for argumentative purposes, to blur the difference, or pretend that there is no difference, between tax avoidance and tax evasion, the difference between the two is simple and clear. Tax avoidance involves using, or attempting to use, lawful means to reduce tax obligations. Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people may feel entitled to disregard that difference, no lawyer can treat it as unimportant or irrelevant. It is sometimes said that the difference may be difficult to recognise in practice. I would suggest that in most cases there is a simple practical test that can be applied. If the parties to a scheme believe that its possibility of success is entirely dependent upon the revenue authorities never finding out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance.
[25] In this case, only “evasion” needs to be addressed since it was never part of the case against the taxpayer that there had been fraud.
To the extent that Ms Bai relies on her contention that the Commissioner was out of time to make the amended assessments, she must satisfy me that there had been no evasion in the relevant years.
THE AMOUNTS IN DISPUTE
A small number of large deposits
There are a few big-ticket items that make up a very significant proportion of the total amount that remains in dispute. They are:
(d)in the 2005 year – deposits of $15,000.00, $526,821.97 and $476,261.86[26] (totalling $1,018,083.83) on 11 and 15 October and 5 November 2004 respectively; and
(e)in the 2006 year – deposits of $217,000, $122,000 and $500,000[27] (totalling $839,000) on 27 July 2005, and 17 February and 25 May 2006 respectively.
[26] Spreadsheet line items 98, 99 and 100 respectively
[27] Spreadsheet line items 143, 144 and 145 respectively
In relation to the 2005 year deposits, Ms Bai explained to the Commissioner, in an affidavit sworn on 30 January 2010[28] (that is, unfortunately, three days after the issue of the notice of the objection decision), as follows:
…
Westpac Business Loan Account No. […]
[55] In September 2004 at my husband’s suggestion I purchased a property at Sylvania Waters for $2.9 million. My husband arranged the finance and deposit funds for the purchase of the property, including a mortgage from Westpac. Copies of the loan statements for September to November 2004 are at [T16-198 to 200].
[56] On 11 October 2004 my husband gave me $15,000 to reduce the Westpac mortgage. Similarly, on 15 October 2004 and 15 November 2004 my husband gave me $526,821.97 and $476,261.86 respectively.
[28] T16-73
The explanation she gave in the affidavit affirmed on 2 April 2012[29] was more detailed:
[100] … At paragraphs 55 and 56 of my affidavit dated 30 January 2010, I explained these deposits were arranged by my husband to reduce the family home loan in respect of my property at Sylvania Waters. My husband supplied a “declaration of statement” on 19 February 2010[30] confirming that he arranged for these payments to me. As explained by my husband, the funds came from repayment to my husband of loans he had made to High Trade.
[101] The loans from my husband assisted the funding of project by High Trade. High Trade developed a six unit block called “High Waters” at 11 Burke Road, Cronulla. The developed units were held in the name of Brightfull[31]. At the request of my husband, High Trade repaid part of my husband’s loan to High Trade from the proceeds of sale of units 4 and 6 and the resulting funds were directly deposited into the Westpac loan account above to reduce the family home loan:
(a) Part F-Tab 18 [to Exhibit A2-1] is a copy of a settlement adjustment sheet in respect of 6/11 Burke Road, Cronulla as at 15 October 2004. The proceeds of $526,971.97 from unit 6 deducting $150.00 settlement fee for the amount of $526,821.97 was deposited to Westpac loan account above on 15 October 2004;
(b) Part F-Tab 19 [to Exhibit A2-1] is a copy of settlement adjustment sheet of 4/11 Burke Road, Cronulla as at 5 November 2004. The proceeds of $476,411.86 from unit for deducting $150.00 settlement fee for the amount of $476,261.86 was deposited to Westpac loan account on 5 November 2004.
[29] Exhibit A2-1
[30] T17-202
[31] This is a locally-incorporated company, Brightfull Pty Ltd, controlled by Ms Bai, and apparently the provider of market research and consulting services to the High Trade group.
It is clear from the documents that the amounts of $526,821.97 and $476,261.86 are the proceeds of the sale of units 6 and 4 respectively. The vendor of the units was Brightfull Pty Ltd. Ms Bai explained that High Trade had “purchased this land [a development site] in the name of Brightfull”[32], that Brightfull had borrowed $2 million from Westpac for that purpose[33] and that the borrowing was guaranteed by High Trade[34]. Brightfull had provided a portion of the Westpac funds ($880,000) to High Trade[35] but High Trade had contributed $491,364.15 towards the purchase: in other words, High Trade was receiving a net $388,635.85 from Brightfull (ultimately, of course, sourced from Westpac). When the units were sold, according to Ms Bai, High Trade (presumably at the direction of Li Zhang) paid $1,003,083.83 ($526,821.97 + $476,261.86) to Ms Bai. Specifically why (and how, given that it had no apparent control over those funds) it did so remains unclear.
[32] Transcript P-298, line 38
[33] Exhibit A2-2, page 15
[34] Transcript P-303, line 38
[35] Exhibit A2-2, page 15
Ms Bai’s explanation is hard to understand. On the face of it, Brightfull (a company owned and controlled by Ms Bai, not her husband) was the registered proprietor of the property. The borrowing from Westpac appears to have been in Brightfull’s name; no document supporting the assertion that the loan was guaranteed by High Trade has been produced. Construction work undertaken by Constructions was invoiced to Brightfull and apparently paid[36]. When Brightfull sold the units the net proceeds totalling over $1 million were paid to Ms Bai (the owner and controller of Brightfull, the property owner) personally. Ms Bai’s explanation does not satisfy me that those payments do not form part of her assessable income.
[36] Transcript P-305, lines 19-45
In relation to the 2006 year deposits[37], Ms Bai explained[38] that these amounts were “repayments to me of loans I had made. By way of deposit rebated, High Trade reduced its debt to me”.
[37] See [28](b) of these reasons
[38] Exhibit A2-1, [111]
Ms Bai claims to have lent “at least $430,000” to High Trade by March 2004[39]. She claims that the amounts of $217,000 and $122,000 were partial repayments of the amounts she had lent. She described the first amount as a reimbursement to her of the deposit paid for the purchase of a property in Sylvania; it represents the difference between the purchase price ($1.15 million) and the amount she borrowed from HSBC ($933,000). She described the second amount as a reimbursement to her of the deposit paid for the purchase of a property in Chippendale; it represents the difference between the purchase price ($610,000) and the amount she borrowed from the Commonwealth Bank ($488,000).
[39] Exhibit A2-1, page 26
The third amount, for $500,000, is much the same, representing the difference between the purchase price of a second property in the Sylvania development ($1.4 million) and the amount borrowed from HSBC ($900,000). But Ms Bai’s detailed explanation was somewhat different[40]:
I already bought unit 36 at the same address. This Unit was bought at the request of High Trade and in order to assist High Trade to pay off its construction loan because it was expired.
As I don’t want to have two units at the same place, I asked High Trade to put unit 15 & 36 on the market to sell either one of them. As condition, High Trade and I agreed that the deposits on these two properties would be finalized when one of them was sold.
Two months later, on 28 July 2006 this unit was sold to an old couple who had bought another unit on the first floor from High Trade subject to the installation of a private disable elevator. But their application was refused by owners’ corporation. As this unit was on the ground floor, at the direction of High Trade, it was sold to the couple.
I refer to paragraph 52 of this affidavit. I received $421,235.30 from the sale of this property. The entire proceeds were paid to High Trade after deducting relevant outgoings.
[40] Exhibit A2-1, pages 43-44
Paragraph 52 of the affidavit and the documents referred to there confirm the payment of $400,000 by bank cheque to High Trade Company upon disposal of the unit in August 2006.
These three payments – of $217,000, $122,000 and $500,000 – do not, in my opinion, bear the character of income in Ms Bai’s hands. They are examples of what appears to me to have been a regular flow of funds – which occurred in both directions – between Ms Bai and various companies in the High Trade group but which are not of an income character.
While I have found myself unable to accept Ms Bai’s evidence in its entirety (because some of it lacked either plausibility or corroboration, or both), I do accept that over a period of time she had lent money to her husband for use in his companies. Unfortunately the state of the evidence renders it impossible for me to make any reliable finding as to the precise amount she lent, or the precise times when she did so. I also accept that some of the money that was deposited into her accounts, and which originated from her husband or from one of the companies in the High Trade group, was a repayment, or a partial repayment, of the amounts that she had previously lent. The amounts of $217,000 and $122,000 are in that category. The amount of $500,000 is, in my opinion, properly regarded as an inducement to purchase the second unit in the Sylvania development, but it bears no relationship to any income-producing activities of Ms Bai and does not form part of her income.
One of the areas in which I found Ms Bai’s evidence unsatisfactory was in relation to her conduct of the affairs of her company Brightfull. Despite holding herself out as a person capable of running a company providing market research and consulting services, mainly if not exclusively to companies in the High Trade group, she appeared to have little understanding of her responsibilities, and an almost total inability to explain how the company met its tax obligations. Simple questions on the company’s business records attracted unconvincing responses; she was unable to explain satisfactorily the records underpinning the company’s business activity statements. My dissatisfaction with the evidence she gave about her company’s affairs was a factor in my conclusion, at [32] of these reasons, in relation to the tax treatment of the proceeds of the sale of the units in Burke Road, Cronulla.
A large number of smaller deposits
Apart from the six large deposits I have just dealt with, there are an additional 57 deposits that remain in dispute, including the 11 that have been accepted only in part by the Commissioner.
Twenty of those[41] are explained by Ms Bai as representing reimbursement to her of business expenses incurred either by Brightfull, or by an alternative company, Safety Monitor Pty Ltd, and which she had paid on the company’s behalf. Eleven of those are the ones that have been accepted by the Commissioner in part, since the Commissioner accepts that company expenses were paid by Ms Bai, and reimbursed, but not for the full amount represented by the deposit. The remaining nine deposits have not been accepted at all.
[41] These deposits are shown as spreadsheet line items 18, 29, 30, 32, 35, 37, 38, 39, 40, 42, 44, 47, 50, 55, 58, 61, 62, 87, 88 and 103
Ms Bai’s explanations, and the supporting information she has provided, do not justify any alteration to the position the Commissioner has taken with respect to this category of deposit. In those cases where the expenditure is substantiated by third-party tax invoices, the Commissioner has accepted Ms Bai’s claim, even where there may be some doubt as to whether the expense was truly incurred by the business, and not by Ms Bai personally. I do not propose to disturb the Commissioner’s conclusions on this category.
Twenty of the deposits[42] are described by Ms Bai as payments “arranged by my husband for family expenses” or something similar. They total $358,788.30 over four income years. (There is an additional deposit of $44,500 which bears the same description, but the Commissioner removed this from Ms Bai’s assessment as an instance of double counting since it was also included in Li Zhang’s assessment.)
[42] These deposits are shown as spreadsheet line items 27, 51, 52, 54, 68, 69, 74, 83, 86, 92, 101, 117, 118, 119, 120, 121, 122, 123, 125 and 138
Ms Bai’s explanation of these deposits is that she and Mr Zhang came to an arrangement by which he would pay her $80,000 per year towards her family expenses. That in itself, conceptually, is not unusual. What is unusual is the irregular nature of the payments, the inconsistent amounts, the fact that he paid more than she says he agreed to pay – over 25 per cent more – and the fact that these payments are said to have been made during periods when the High Trade companies were repeatedly forced to borrow money (not only from banks, but also from associates, even employees) to fund their activities. That makes it difficult to accept that Mr Zhang was – at any stage during the relevant years – able to pay amounts of that magnitude to his wife, for “family expenses”.
This alleged $80,000-a-year arrangement is said to be the justification for the following payments:
·$15,000 on 8 July 2002;
·the next amount, $33,034.30, over a year later, on 29 July 2003;
·two days later, $18,700;
·nothing further until 16 April 2004, $8,500;
·five days later (21 April 2004), $14,800;
·one month later (18 May 2004), $41,000;
·six weeks later (28 June 2004), $15,000.
Meanwhile, on 24 February 2004, Ms Bai said that she lent $50,000 of her own money to High Trade[43].
[43] Exhibit A2-1, [50]
Her explanation simply does not ring true, and I do not accept it.
As a result, there is no satisfactory explanation for these deposits. It follows that I cannot exclude the possibility that these are receipts of income that Ms Bai knowingly failed to declare. In other words, and in respect of each of the relevant years, I am not satisfied that evasion was not present.
THE CONSEQUENCE OF THE FINDING IN RELATION TO EVASION
The amended assessments are not out of time. But the next question is, to what extent will they be upheld? For example, will it be sufficient, in respect of a given deposit, for Ms Bai to satisfy me that there was no evasion involved in her failure to declare that deposit in her tax return? The answer is no.
Item 5 in the table in s 170(1) of the ITAA 1936 provides:
The Commissioner may amend an assessment at any time if he or she is of the opinion there has been fraud or evasion.
Ms Bai has not made out her case that there has not been evasion, and therefore the Commissioner was empowered to amend the original assessments. If she had made out her case that there had not been evasion, then she would have established that the amended assessments were entirely excessive. But, having failed on that point, she must now establish that the amended assessments are arithmetically excessive, by proving that particular deposits should not have been included in her assessable income, and therefore her taxable income. In that exercise, the question of evasion in relation to a particular deposit is irrelevant. The threshold under s 170 having been met (or, more accurately, Ms Bai having failed to establish that it had not been met), it is now simply a question as to whether she can prove that any given deposits should not have been included in the assessment.
Of the 63 deposits in dispute, I am satisfied that the following ones should not have been included in Ms Bai’s amended assessments:
·Deposit 24, for $30 (a cash back payment on an electric shaver);
·Deposit 72, for $26.19 (a credit card refund for the return of goods purchased);
·Deposits 26 ($6,000), 66 ($30,000), 128 ($4,000), 129 ($1,000), 130 ($4,500), 131 ($1,800) and 132 ($2,000), representing repayments of loans previously made by her;
·Deposit 45, for $80,000 (a rebate on the purchase of a home unit in Kogarah) – I accept Ms Bai’s explanation at Exhibit A2-1, [74]-[78];
·Deposits 143, 144 and 145, totalling $839,000, as dealt with in [33]-[38] of these reasons.
In respect of all the remaining deposits in dispute, Ms Bai has not discharged her burden of proving that the assessments are excessive.
ADMINISTRATIVE PENALTY
Ms Bai has not satisfied me that her shortfall amount did not arise as a result of recklessness, and there is no basis on which any remission of the penalty is justified.
DECISION
In each of the relevant years I have concluded that the objection should have been allowed in part.
Since the objections for 2003 and 2005 were allowed in part by the Commissioner, but I have concluded that they should have been allowed to a greater extent, I will vary those two objection decisions to take account of the Commissioner’s concessions, referred to in [18] of these reasons, and the conclusions that I have reached in [52].
The objections for 2004 and 2006 were disallowed by the Commissioner. I will set aside those objection decisions and substitute a decision in each case that the objection is allowed in part, so as to take account of the Commissioner’s concessions, referred to in [18] of these reasons, and the conclusions that I have reached in [52].
I certify that the preceding 57 (fifty -seven) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost. ........................................................................
Associate
Dated
Dates of hearing 24-28 September and 2-3 October 2012 Date final materials received 3 April 2013 Solicitors for the Applicant Luk & Associates Solicitors Counsel for the Respondent B C Kasep Solicitors for the Respondent ATO Legal Services Branch
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