Cachlios and Commissioner of Taxation
[2006] AATA 676
•3 August 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 676
| ADMINISTRATIVE APPEALS TRIBUNAL TAXATION APPEALS DIVISION | ) No NT2005/475 – 477 ) ) | ||
| Re | Vassilia CACHLIOS | ||
| Applicant | |||
| And | COMMISSIONER OF TAXATION | ||
| Respondent | |||
| DECISION | |||
| Tribunal | Mr Julian Block, Deputy President | ||
| Date | 3 August 2006 | ||
| Place | Sydney | ||
| Decision | The objection decision under review is affirmed | ||
[Sgd] Mr Julian Block,
Deputy President
CATCHWORDS
TAXATION – whether amended assessments raised by Commissioner are excessive – whether tax shortfall penalties imposed are excessive – Applicant does not contest income earned in amended assessments but contends that she should be taxed on that income after deduction of expenses - Applicant failed to disclose income earned from a business she conducted – Applicant charged with number of offences by NSW Police – police seized $76,482.50 cash from the Applicant’s home – Applicant submitted that her tax agent advised her that it was not necessary to declare her financial results unless the business made a profit – evidence of the Applicant not credible – only Applicant gave oral evidence –no evidence of any kind as to the extent of alleged expenses and in particular no books records or vouchers of any kind - evidence supports finding of deliberate evasion – decision under review affirmed
Taxation Administration Act 1953, s.14ZZK
Trautwein and the Federal Commissioner of Taxation (1936) 56 CLR 63;
Barripp v Commissioner of Taxation (NSW) (1940) ATD 58;
| REASONS FOR DECISION | |
| 3 August 2006 | Mr Julian Block, Deputy President |
PART A - introduction and background
The objection decision under review is the disallowance by the Respondent of an objection by the Applicant against amended assessments for the years ending 30 June 1996, 30 June 1997 and 30 June 1998 (collectively the “relevant years”).
The Applicant was represented by Mr John Papaspiros, a tax agent, and also by her cousin, Mr Peter Polias. The Respondent was represented by Mr P Bambagiotti of counsel instructed by the ATO Legal Practice Group.
The Tribunal had before it the T documents and also supplementary T documents lodged pursuant to s.37 of the Administrative Appeals Act 1975 (the AAT Act). The Supplementary T documents are numbered sequentially after the T documents and so that a reference to the relevant page number preceded by “T” is sufficient. The documents referred to in this clause 3 do not include the additional T documents furnished by the Respondent and referred to in clauses 4 and 6 below.
A directions hearing in this matter was held on 3 July 2006. Mr Bambagiotti appeared in person on behalf of the Respondent, while Mr Papaspiros represented the Applicant by telephone link. At that time the Applicant had not (notwithstanding the fact that the matter had been set down prior to that date for hearing on 19 July 2006) filed the statements of any witnesses on whom she intended to rely, or a Statement of Facts and Contentions. Directions were given at that hearing requiring the Applicant to file her witness statements and her Statement of Facts and Contentions by no later than 12 July 2006; the Respondent was allowed until 17 July 2006 within which to file his Statement of Facts and Contentions and (if relevant) the statements of any witnesses on whom he intended to rely. The fact that the Respondent was allowed what was, in the circumstances, a very short period of time arose purely because the Applicant, through her tax agent, indicated that she needed until 12 July 2006 within which to file her documentation. On that basis and given that the matter was listed to be heard on 19 July 2006, the Respondent could not be allowed more than five days (inclusive of a weekend) after receipt of the Applicant’s documentation (assuming receipt on 12 July 2006) within which to file his documentation. In fact the Applicant filed a document a day late, (and on 13 July 2006), and which might perhaps be characterised as a combined witness statement and Statement of Facts and Contentions. That document (which was admitted as Exhibit A2) was faxed to the Tribunal from Uneedit Supplies Pty Ltd (“Uneedit”) (by whom the Applicant is currently employed). Exhibit A2 is a lengthy document which, as will be seen, is somewhat rambling and difficult to comprehend, and even more to the point does not, in any meaningful sense, seek to grapple with the onus borne by the Applicant. It resulted in the production by the Respondent of his Statement of Facts and Contentions, a witness statement (Exhibit R1) and also the delivery of additional T documents.
Although Exhibit A2 is in fact the Applicant’s witness statement and so that it might perhaps be more apposite to include it in Part B below (which deals with the Applicant’s evidence) its content, considered in conjunction with the Respondent’s Statement of Facts and Contentions (referred to in clause 5 below) is such that it is appropriate to include it in this Part A. Exhibit A2 reads as follows:
1.There is no dispute that Vassilia Cachlios did not declare transactions concerning her business Totally Supplied Medical & Surgical.
2.We do dispute the amount that the Australian Taxation Office has asked Vassilia to pay as a tax debt. The ATO has not taken into account any business expenses or purchases of goods.
3.Police did a search on Mick Cachlios (Vassilia’s fathers) premises of 1381 Botany Road Botany, after information from James Boian that some pharmaceutical stock items were missing. A full search by police did not find any pharmaceuticals on the premises. This search did find an amount of approx $ 76,000 in cash belonging to Mick Cachlios which was his life savings
4.If it was not for this amount of money being located the police would have not pursued in any way any further action.
5.Mick Cachlios lived through the 2nd world war and preferred to keep his money At home. This was also common practice for many European families. John Cachlios (father of Mick Cachlios) also kept cash in large amounts at home especially when he ran his fish & chip shop business. Mick Cahlios kept some money in the bank whilst his wife Chris Cachlios was alive. Upon her passing away he withdrew the funds and kept them at home.
6.Statements produced to the court by Mick Cachlios (including bank statements) showing approx $33,000 in his joint account with his wife Chris Cachlios).
The fact that rental money was paid to him over 15 years from his property 1381 Botany Road Botany shop, amounted to very large amounts of money. This was paid to him either by cash or cheque by his tenants.
7.The ATO has in its possession a letter from the court that charges were dismissed and that the funds be returned to the legal owner. Letters were also sent by Murphy’s Lawyers stating these funds be returned to Mick Cachlios and now to the legal owner Fotini Mihopoulos (sister of Mick Cachlios).
8.The ATO has in its possession copy of the will of the late Mick Cachlios, which clearly the money was left to his sister Fotini Mihopoulos.
9.Mick Cachlios at the time of the search by police of his home he was in GREECE. The ATO requested copies of his passport which they were given. This clearly shows his visa stamped with entry and departure dates. Whilst Mick Cachlios was overseas he left his life savings with his daughter Vassilia to pay any house bills that might arrive and in case he needed her to send him some money, as he did not know how long hw [sic] would be away whilst he was spending time with his terminal ill mother in law.
10.Fact also is Mick Cachlios installed a safe in his bedroom at 1381 Botany Road Botany to put his life savings in, but unfortunately he lost the combination.
11.Mick Cachlios was a model Australian citizen, an honest, hard working proud man. Even though he suffered from polio from a very young age and could hardly stand up unassisted, he never looked for the easy way out with a disabled pension from the federal government that he was entitled to all his life, instead he worked as an upholsterer and held his head up high.
12.The rents that he collected were declared to the department of social security and his Old age pension was reduced. Mick Cachlios was a very religious man that went to church regularly and donated a lot of his time to charity and spent a lot of time reading religious book including the bible.
13.Totally Supplied Medical & Surgical was operational approx 3 years prior to Vassilia being offered a position as office manager/consultant at Boian Surgical. The ATO has a copy of her workplace agreement; she had existing clients and suppliers of medical and pharmaceutical supplies before her employment with Boian Surgical.
14.Vassilia introduced her existing customers to Boian Surgical when she became employed by Boian. Her clients also purchased from Totally Supplied Medical & Surgical when when [sic] Boian Surgical DID NOT STOCK their requirements, also Boian Surgical did not have competitive pricing on certain items, Vassilia would Advise her clients were to purchase these items at a much better price or source these Items through Totally Supplied Medical & surgical and supply her clients with these Items. Testimonial to this is several witnesses, on the stand and in court transcripts and also letters in the ATO’s possession from suppliers and customers.
14.At the time of James Boian so called complaint to police, he was under investigation by NOAH and questioned about this on the stand in court. (See transcript from court)
15.Also when questioned in relation to discrepancy in stock takes, James Boian was very vague and added that there was no great discrepancy in stock and stock take. (Refer to court transcript)
16.Read court transcript regarding original judge dismissing himself off the bench once he realized James Boian and Dan Boain were brothers and partners as he was involved directly in case of illegal activities by the Boian, which resulted Dan Boian being sent to jail. When this happened Vassilia was offered to become a director of one their companies by James Boian. She refused and James Boian was not impressed. A new judge had to be appointed to Vassilia case so it could continue.
17.After several witnesses and paper work produced the charges were dismissed. The court and solicitors issued letters for the (money) goods in custody to be returned to its legal owner being Mick Cachlios.
18.These legal proceedings were paid for by legal aid as Vassilia was not in a financial position to pay for legal representation.
19.Even though the court has ordered money be returned to legal owner the ATO illegally Is applying this money which is legally owned by Fotini Mihopoulos and applied it to to [sic] Vassilia Cachlios overstated tax debt. ATO has also copies of Mick Cachlios will Confirming money belongs to Fotini Mihopoulos and also a statement from Mick Cachlios (before his death) insisting his money be returned.
20.This matter is more than 10 years old, Vassilia has attempted to organize letters from from [sic] customers and suppliers, people have moved on or retired and anyone she has contacted did not want to get involved, as they are frightened of the ATO.
21.Even Murphy’s lawyers provided a letter for the ATO stating that any vital paperwork Invoices etc and all the evidence boxes were no longer in their possession or available due to time frame.
22.ATO has copy of this letter from Murphy’s Lawyers.
23.Vassilia would purchase products from several companies including Frankcom Hospital Supplies, Amada Pty Ltd, Roger Ley Agencies, Chemisell Beauty warehouse, Uneedit Supplies, Interpath Services, Lomb Scientific etc.
24.Buying in bulk and paying by cash would result in very competitive pricing for her clients. E.g. Panadol tabs 100 $ 5.00 each but were bought by the gross. (144 PKTS) This also enabled her to fully service her and Boian Surgical clients with a complete service and very competitive pricing. This would earn her more income and Commission from Boian Surgical. Clients would there fore stay loyal to her making her Position with Boian Surgical more secure.
25.James Boain was aware of Totally Medical & Surgical supplies being operational before Vassilia joined his company. (See court scripts)
26.This matter has gone through a lot of different hands even to the point where approx May 2005, Vassilia spoke to an ATO representative Mr. ROBIN NOYE which advised her this matter was settled and told her to get on with her life and be happy. He also told the same thing to one of the accountants from MPK & PARTNERS Nick Kaperonis.
Vassilia questioned these comments and was also instructed by a lawyer Mr. Michael Doughty to get this information in writing. Mr Noye refused and told Vassilia under No circumstances could he give this to her in writing? Later on Vassilia was told by her John Papaspiros that the debt was zeroed out on the ATO computer.
Robin Noye advised her to get on with her life and be happy and that she would have to talk to Mr. Tony Hyde and ask him to return the money he was holding. She questioned him about doing tax returns and he said just to go and do them and that she would have no problem.
27.Vassilia did her tax returns in September 2006 and then received another bill again saying she owed this money.
28.Vassilia and her father had sent letters and had numerous correspondence with the office Of the commissioner of police and they had agreed to release the money to her father Mick Cachlios, but just as the police were going to release this money to Mick, the ATO’ Swooped in and took it and applied it to Vassilias debt. (See copies of correspondence from police commissioner).
29.The government has issued an arbitrary assessment under ITAA365167. It is understood that under this section the commission Does not have to correctly ascertain the taxpayers assessable income and allowable deductions, does not have inquiries of the taxpayer, so long as the estimate is genuine and not simply plucked a figure out of the air.
It is made clear under many cases the onus is on the taxpayer to object to the assessment and prove under appeal that the assessment is excessive.
My problem is a simple one.
How can I defend myself or prove any of the above when I cannot obtain any information to defend myself a second time due to the amount of time elapsed as I mentioned before.
30.The courts have proven that I did not steal any product from my ex employer. My case was dismissed. If I did not steal the product then I must have paid something for the product.
If I paid something for the product then the whole of the bankings could not have been profit. There must have been a margin and this margin was very small based on my previous assertions.
Even though there has been such a long time elapsed I still managed to obtain written letters from some former suppliers acknowledging that I purchased product from them.
Unfortunately for me my biggest suppliers have long since gone, having liquidated their business.
31.I assert that the assessment is excessive. There was a small profit however 100 per cent is excessive.
I would have paid for the product as I have sold said before, on top of this I would have had other expenses such as bank charges, telephone, printing, stationary, travel, home office, motor vehicle and so on.
The Australian Taxation office has not only taken up the buying of my products but also none of these expenses before arriving at a profit margin.
The ATO’s margin is simply non-existent. The ATO has taxed the whole of the banking.
Further more the ATO has not issued assessments based on any notion of assets betterment. I have not during the time period mentioned or in any case since then have increased my assets by any significance. I do not have any assets or funds that are remotely close to someone who has profited $200,000 as the assessment was made on.
32.Although the appeals Tribunal is only discussing the issue of the assessment I want to make it clear that it is totally unfair and wrong for the ATO to hold funds that have been proven in a court of law not to be funds from the sale of stolen products and then apply these funds to my debt. I wish to make it clear that the funds in possession by the ATO are my deceased father’s and these funds should be returned to his estate.
33.I feel that my case overall has been tied up in a great bureaucracy where there seems to be no end. I have had to deal with countless police, investigations and tax officers. I feel that each time a letter is written or a tax officer is spoken to on the phone nothing is done or the matter gets pushed on to someone else and I have to start again.
34.I have expended countless hours and effort to try and bring an end to this matter to no avail. I have lost a lot of money through lost earnings and my personal life physically and mentally has suffered to a great degree.
35.I would like the ATO to explain to me under what section of the act, or what case it is that allows it to take someone else’s property and apply it to my perceived tax debt.
36.Based on the previous statement and also letters and previous correspondence provided, a fair outcome that should be applied by the ATO is as follows:
(1)All funds seized by the ATO immediately be released to my fathers estate.
(2)A fair assessment is levied on “the profit” of the business that I ran at the time. A fair profit would be no more than 10%; the assessment should also be adjusted accordingly for interest and fines.
(3)A deed of release is signed by both parties stating no further claims are made on the said income there after.
(4)The refunds the ATO applied against the debt continue to be applied to the reduced debt.
(5)Any debt that may remain is allowed to be repaid over a reasonable time.
[Signed]
Having received Exhibit A2 the Respondent filed his Statement of Facts and Contentions. Its content, under the head of “Background Facts” (clauses 1 to 16 inclusive) is also included, by way of background, in these reasons as follows:
“…
BACKGROUND FACTS
1.The Applicant, at all material times conducted a business in the name of Totally Supplied Medical Supplies (TSMS) which was in the business of supplying, inter alia, pharmaceutical supplies to retailers.
2.TSMS was not a registered business name for taxation purposes and was, at all material times, a name under which the Applicant traded on her own account.
3.1On 2 September 1994, the Applicant contracted with Dan Boian and Dumitru Boian trading as Boian Surgical, for the Applicant to provide office management services for Boian Surgical. A copy of that contract is in SB3.
3.2By that contract, the Applicant was to receive $1,733 per month plus a performance bonus. Exactly what work “office management services” was to comprise was not spelt out in the contract, however, by clause 1 of the contract, the Applicant was to “carry out such work as is assigned to it from time to time”.
3.3It appears that some at least of the Applicant’s activities for Boian Surgical involved sales of Boian’s stock to chemists and retailers of pharmaceutical products in respect of which the Applicant was entitled to and was paid a commission.
3.4It seems the Applicant issued invoices to Boian for her work and commissions under the name TSMS. Copies of some of those invoices are at SB4.
4.In addition to the sales made by the Applicant for Boian pursuant to her commission arrangement, the Applicant also conducted TSMS as a separate business. The Applicant says that she operated the TSMS business for 3 years before the contract with Boian, see para 13 of the Applicant’s Statement of Facts & Contentions.
5.The Applicant’s business was conducted predominantly by cash. The Applicant also held a bank account with the Commonwealth Bank of Australia, Botany branch, No: 2125 1002 8227 in the name of TSMS.
6.1.1The Applicant’s Tax Return for the year ending 30 June 1996, see T21-72 showed:
(a)a total income of $11,454 (see item 20 on page T21-73);
(b)total allowable deductions of $50 (see item 32 on that page);
(c)taxable income of $11,404 (see item 33 on that same page).
6.1.2That total income was said to be made up from the main salary/wage occupation in respect of which a group certificate was lodged (see item 3 on page T21-72) together with interest of $2,383 (see item 9) and less exempt income of $5,929 (see item 19).
6.1.3The tax return makes no mention of a business income.
6.2.1The Applicant’s Tax Return for the year ending 30 June 1997, see T22-76 showed:
(a)a total income of $12,533 (see item 20 on page T22-77);
(b)total allowable deductions of $50 (see item 34 on page T22-78);
(c)taxable income of $12,483 (see item 35 on that same page).
6.2.2That total income was said to be made up from the main salary/wage occupation in respect of which a group certificate was lodged (see item 3 on page T22-76) together with interest of $838 (see item 9) and less exempt income of $6,585 (see item 15).
6.2.3The tax return makes no mention of a business income.
6.3.1The Applicant’s Tax Return for the year ending 30 June 1998, see T23-81 showed:
(a)a total income of $27,165 (see item ‘i’ on page T23-81);
(b)total allowable deductions of $11,993 (see page T23-82);
(c)taxable income of $15,172 (see that same page).
6.3.2That total income was said to be made up from the main salary/wage occupation in respect of which a group certificate was lodged (see item 1 on page T23-81) together with interest of $2,253 (see item 8).
6.3.3Again, there is no reference to a business income.
7.1On 30 September 1997, the Applicant was charged with a number of offences by the NSW Police, including larceny and, in relation to the $76,482.50 possession of goods believed to be the proceeds of crime. The charges arose from a complaint made to the police by Mr Boian.
7.2The larceny allegations were to the effect that pharmaceuticals were stolen from Boian and sold by the Applicant.
7.3The NSW Police also obtained the statements from the Applicant’s Commonwealth Bank Account. The statements were analysed and a summary was prepared.
7.4SB5 is a copy of the summary and the bundle of statements of that bank account. The summary shows deposits to the account and the records, such as they are, of the withdrawals from the account.
7.5.1The Respondent determined that, leaving out the income obviously derived from the Applicant’s employers such as Boian and Uneedit Pty Ltd, that the Applicant derived the following income from the TSMS business:
1996
$38,561.00
1997
$133,593.00
1998
$23,217.00
Total
$195,371.00
The breakdown of this analysis is set out in the audit report, on pages T3-9 to T3-11.
7.5.2The Applicant does not dispute these figures in as to the non-declared income.
7.6.1On 2 and 3 August 1999, the Applicant was committed for trial in the District Court on the larceny counts.
7.6.2On 20 August 2002, the Applicant pleaded guilty to the charges that on or about 14 August 1997, she stole pharmaceuticals from Boian Surgical being 288 boxes of Sudafed Tablets 90, totalling $3,744. The Applicant’s plea was accepted and she was placed on a good behaviour bond. A copy of the indictment, the record of the charge, the Results Sheet, and the bond are in SB6.
7.6.3As stated above, on 27 June 2003, the Local Court found there was no case to answer in respect of the charge relating the possession of the cash.
7.7.1The Respondent may issue an amended assessment at any time if, in his opinion, there has been fraud or evasion by a taxpayer, see sec 170(2)(a) of the ITAA 36, as the section then was at the time. For the convenience of the Tribunal, a copy of the relevant section is attached hereto.
7.7.2Fraud or evasion can be established by a wilful failure to disclose income, see Barripp v C of T (NSW) (1941) 6 ATD 69 per Williams J at 72, and Denver Chemical Manufacturing Co (1949) 79 CLR 296 per Dixon J at 313.
7.7.2The Respondent is of the view that in the circumstances of the Applicant’s business activities under the name of TSMS and the nature and volume of income earned, and its association with unlawful activities as found by the District Court, viz the theft of products from Boian, that the Applicant’s failure to disclose that income in the tax returns for the periods 1996, 1997, and 1998, and the failure to mention business activity on those returns is indicative of fraud, and or evasion, of her taxation responsibilities by the Applicant in respect of those returns such as to empower, via sec 170(2)(a) of the ITAA36, the amendment of those assessments at any time.
7.8On 4 May 2004, the Respondent prepared and issued the Amended Assessments in relation to the undeclared income for the financial years 1996, 1997, and 1998.
(a)The calculations for the 1996 year is at T 4-16 and the Amended Assessment for 1996 is at T 5-19. This shows an increase of the Taxable Income by $38,561.00. That assessment also includes a penalty.
(b)The calculations for the 1997 year is at T 4-17 and the Amended Assessment for 1997 is at T 6-20. This shows an increase in the taxable income by $133,593.00. That assessment also includes a penalty.
(c)The calculations for the 1998 year is at T 4-18 and the Amended Assessment for 1998 is at T 7-21. This shows an increase of the Taxable Income by $23,217.00. That assessment also includes a penalty.
7.9.1For the relevant years, a system of tax penalties applies where a penalty is imposed on a ‘tax shortfall’. A ‘tax shortfall’ is defined in section 222A ITAA36.
7.9.2The penalties were levied at 75% of the tax shortfall in each case on the basis that the tax shortfall arose from an intentional disregard of her taxation obligations by the Applicant, sec 226J of the TAA, in failing to return the income earned from the TSMS business and including incorrect and misleading statements in her tax returns for the years 1996, 1997, and 1998.
8.1Neither at the time of the Amended Assessments, nor since, has any evidence of the incidents or the amounts of any allowable deductions in respect of the Applicant’s business been provided to the Respondent to establish that any figures other than those in the Amended Assessments represent the Applicant’s taxable incomes for the relevant periods.
8.2The onus is on the Applicant, as taxpayer to establish the amount of any deductions properly claimed. To date, the Applicant has claimed that allowable deductions should be taken from the assessable income figures, and that her taxable income for each year is less than that in the Amended Assessments, but the Applicant has not set out any figures for allowable deductions for any of those periods, nor indicated how she proposes to substantiate those deductions.
8.3The Applicant disputes the Respondent’s amended assessments, but she bears the onus of proving the assessments to be wrong, and if wrong, how they are wrong and what figure should have been assessed instead, see secs 14ZZK(b) of the TAA53.
8.4Furthermore, following the analysis of the bank account in SB5, it is not possible to re-construct the transactions so as to identify what possible allowable deductions there could have been, much less in what amounts.
9.1On 16 June 2004, the Applicant lodged an objection against the Amended Assessments, see T 8-22. That objection relevantly referred to:
(a)funds being drawn from the Commonwealth Bank account to pay for medical supplies that were sold;
(b)there were various cash cheques from Boian deposited into the account. These cheques were to pay for printing and other purchases in cash.
(c)other business expenses including car, mobile phone, phone faxes etc.
(d)After taking all my expenses into account, TSMS made no profit.
9.2No figures are provided, or are discernable to relate to the cost of medical supplies sold. Nor is there any detail to substantiate car expenses, mobile phone expenses, telephone charges or faxes.
9.3The suggestion that the amount of allowable deductions would eclipse the $195,371 income cannot, with respect, be accepted without some substantiation or calculation.
9.4The implication that, in any event, the eclipsing of the assessable income with allowable deductions such as to lead to a $nil taxable income figure, does not remove the difficulty arising from the failure to refer to the business activity at all in the 1996, 1997, or 1998 tax returns.
10.On 11 August 2004, the Commissioner replied to the Applicant’s then tax agent requesting further information relating to the claimed deductions etc within 28 days of that letter. Some material was produced, but none satisfying the requirements of proving any figures for allowable deductions.
11.On 3 November 2004, the Respondent disallowed the objection, see T 11-28.
12.On 28 April 2005, the Respondent issued the result of an internal review of the decision imposing the amended assessments and the penalties and maintained them, see T 20-66.
13.In 4 May 2005, the Applicant’s tax agent told an officer of the Respondent, that the Applicant did not have assets to meet the debt arising from the Amended Assessments. Following that telephone call, an internal decision was made to the effect that the debt arising from the Amended Assessments was not economical to recover. In a telephone conversation by Mr Noye of the Respondent, as much was communicated to the Applicant.
14.On 7 October 2005, the Respondent discovered that the Applicant in fact owned real property at T/Reference 3/SP67519 which was purchased for $345,000 and over which there was a mortgage of $130,000 from the St George Bank. The documents at SB7 set out the known details of this property.
15.Pursuant thereto, the Respondent decided to pursue the outstanding debts arising from the Amended Assessments.
16.On 7 November 2005, the Applicant commenced these proceedings.
…”
The Respondent at the hearing provided the additional T documents pursuant to s.37 of the AAT Act. As the Respondent explained to the Tribunal, the additional T documents in question were produced, as a matter of some considerable urgency and there was thus not sufficient time within which to paginate them either sequentially after the documents referred to in clause 3 above, or at all. The relevant documents are contained in a large tabbed folder, the tabs in respect of which run from SB1 to SB7. The additional T documents referred to in this clause 6 are referred to by reference to their respective tab numbers. Some of the tabs in question contain a number of documents and where relevant the precise document referred to is indicated in these reasons.
It was clear from the outset that the Applicant did not dispute the fact that she received undisclosed income; see in this context clause 1 of Exhibit A2. In addition she made it clear (and see Tab SB1) that she disputed only that the amounts derived constituted profit. In a letter dated 13 July 2006 (contained in Tab SB1) she said: “No I am not disputing the amount of income, I am disputing the profit component, as per my statement”.
The Tribunal admitted into evidence, apart from the T documents and supplementary T documents referred to in clause 3 above and the additional T documents referred to in clauses 4 and 6 above, exhibits as follows:
Exhibit A1:Letter by Murphy’s Lawyers dated 29 May 2006;
Exhibit A2:Statement by the Applicant dated 12 July 2006 referred to in clause 4 above;
Exhibit A3:Statement by Uneedit Supplies Pty Ltd dated 2 June 2006;
Exhibit A4:Statement by Vivenne Roditis (Beauty Warehouse) dated 23 February 2006;
Exhibit A5:Further statement by Vivenne Roditis (Beauty Warehouse) dated 4 June 2006;
Exhibit A6:Statement by Ken Boyden dated 5 June 2006;
Exhibit R1:Statement (tendered by the Respondent) by Robin Noye dated 17 July 2006. (Since this witness was not required for cross-examination that statement can, to the limited extent that it is relevant, be accepted).
A not inconsiderable part of the documentation before the Tribunal relates to the fact that an amount of $76,482.50 found in the possession of the Applicant was seized by the police and subsequently garnisheed by the Respondent. It is convenient in this context to include clause 5 under the head of “Preamble”, in the Respondent’s Statement of Facts and Contentions as follows:
“…
5.1On 30 September 1997, the Applicant was charged with a number of offences by the NSW Police following a complaint by Mr Boian to them. The circumstance and outcome of these charges are dealt with below.
5.2In the course of a police search of her home, the police seized some $76,482.50 in cash found there. One of the charges laid against the Applicant was to the effect that this cash was the proceeds of crime. An allegation the Applicant contested.
5.3On 27 June 2003, Mr Lyon LCM found the Applicant to have no case to answer on the charge that the cash was the proceeds of crime, see T17-59.
5.4On 5 May 2004, the Respondent issued a notice under sec 260-5 of the TAA 1953, see a copy at SB2, being in effect a garnishee order holding the cash with a view to it being used to satisfy the Applicant’s debt to the Respondent pursuant to the Amended Assessments.
5.5The Applicant disputes the right of the Respondent to hold this cash and apply it to the debt arising from the Amended Assessments. This dispute features in paras 3 to 12, 17, 19, 28, 32, 35, and 36(1) of the Applicant’s Statement of Facts & Contentions.
5.6This Tribunal has no jurisdiction to hear an appeal in respect of the sec 260-5 notice, a matter acknowledged by the Applicant in para 32 of her Statement of Facts & Contentions. The dispute relating to this notice is presently the subject of internal review. Any further dispute in respect of it must be dealt with in some other place.
6.1…”
It is relevant to note that it is quite clear that any question of whether or not the amount of $76,482.50 was properly seized or garnisheed is not within the jurisdiction of this Tribunal and so that it is unnecessary for the Tribunal to refer to this aspect, or the documentation before the Tribunal which is referable to it.
PART B - the evidence of the applicant
The Applicant said that the contents of Exhibit A2 are true and correct. The content of Exhibit A2 has been included in Part A above.
It will be noted in particular that a considerable part of Exhibit A2 deals with the amount of $76,482.50 referred to in clauses 9 and 10 above and which is not relevant for the purposes of the applications before this Tribunal. There are other aspects of Exhibit A2 which are of distinctly dubious validity. I intend to revert to Exhibit A2 in Part C below.
The Applicant completed her HSC in Maroubra in 1983, and where she obtained a mark of about 350. She then went on to attend Sydney Tech in order to study pathology. The term “pathology” in this context means training sufficient to qualify the Applicant for work in a pathology laboratory.
In the years which followed the Applicant held various positions. From 1992 to 1994 she was the New South Wales State Manager for Frankcom Hospital Supplies (“Frankcom”) which has its head office in Canberra.
There were difficulties (the nature of which was not disclosed) as between Frankcom and Boian each of whom, according to the Applicant, supplied product to the other. The term “Boian” refers to two brothers; Dan A Boian and Dimitru S Boian (and the latter is also known as James Boian) who together, according to the Applicant, own a pharmacy, a surgical supply company and a number of private nursing homes. Tab SB3 of the additional T documents contains a contract, dated 2 September 1994, between Dan A Boian and Dimitru S Boian of Boian Surgical as principals and the Applicant (of Totally Supplied Medical & Surgical of 1381 Botany Road, Botany) as contractor; clauses 4 to 7 inclusive of the schedule in respect of that contract read as follows:
3.…
4.The work is: To provide office management service at Boian Surgical
5.The contractor’s remuneration shall be calculated as follows:
Contract Price of $1733.00 per month + Performance Bonus
6.The payment is: Monthly on presentation of invoice
7.The Agreement may be terminated by either party giving to the other one (1) month’s notice in writing.
8.…
It will be noted that the relationship between Boian and the Applicant was that of principal and contractor. The Applicant said that it was Boian who advised her to contract in this manner and in consequence of which she received, in addition to commission, $433 per week. Because she was a contractor and not an employee no tax was deducted. Her rate of commission on sales was originally 15 percent but that rate was subsequently reduced to 7 percent.
The Applicant said that while she was working for Frankcom she started her own business, styled; “Totally Supplied Medical & Surgical” and referred to in these reasons as “Totally”. She said that if customers needed medical supplies which could not be obtained from Frankcom she obtained them from suppliers in Sydney and sold them for her own account. The was no evidence before the Tribunal as to whether Frankcom either knew or approved of the Applicant conducting, while employed by Frankcom, a business (in a similar field) for her own account.
The Applicant also said that she commenced her own business (Totally) after she entered into her contract with Boian. (Since she had previously said that she started Totally while working for Frankcom it is conceivable that she might have meant that she continued her own business of Totally after commencing with Boian). As to whether Boian knew and approved is a question which is open to some doubt, more particularly having regard to the content of some parts of Exhibit A2. The Applicant said that her own business activities did not interfere with her duties to Boian and that Boian did not object. (The truth of this statement is questionable having regard to the scale of the activities of Totally). She said (on more than one occasion) that she had her own customer base. She said also that there were times when through her sources she could supply medicines on a cheaper basis. She cited as one example Panadol; she was able to supply Panadol, so she said, at between $3.80 and $4.20 per packet of 24 tablets which was a cheaper price than was otherwise generally available. She said also that she sold at cost plus a mark up. The Applicant said, furthermore, that the Boian pharmacy was an altogether separate entity, and in particular separate from the Boian surgical business with which she contracted.
It may be noted that at the start of the hearing Mr Papaspiros commenced by furnishing the Tribunal with what amounted to or was perhaps meant to amount to an opening statement. That opening statement consisted, to a considerable extent, of evidence and of which Mr Papaspiros could not possibly have had any personal knowledge. By way of one example he said that Mr Michael Stassos, who had previously been the Applicant’s tax agent, had advised the Applicant, in respect of Totally, that it was unnecessary for her to reflect its financial results if Totally was not in fact deriving profits. After it been pointed out to Mr Papaspiros (and repeated) that statements of this nature amounted to evidence which should come from the Applicant, the Applicant was sworn in and gave oral evidence. Mr Stassos was not called to give evidence.
The Applicant confirmed that in respect of the relevant years she filed tax returns which were prepared by Michael Stassos who was then her tax agent. The Applicant, in cross-examination, said that she did not bring any action against Mr Stassos arising from his alleged advice to her that she need not reflect the financial results of Totally. The supplementary T documents (T pp72-86) indicate that her returns for the relevant years did not include the financial results of Totally during the relevant years.
Tab SB4 of the additional T documents contains invoices the first of which is dated 22 May 1996 addressed by Totally to Boian Surgical. It reflects a claim of $7,480 made as to:
(a)Contract price from 3 March 1996 to 20 May 1996 – 11 weeks at $440 = $4,840;
(b)Bonus commission for the same period amounting to $2,640.
The Applicant said that the invoice was not in her handwriting and that she did not sign it; she said that it was in fact written by Boian. (Tab SB4 of the Additional T documents contains other invoices of a similar nature.) The reference to $440 is presumably the amount referred to as $433 per week referred to in clause 16 above and which is the amount referred to in her contract with Boian.
The Applicant said in her evidence that her own business dealings (ie, those of Totally) were to a considerable extent with Ms Roditis (Beauty Warehouse) (Exhibits A4 and A5) and Uneedit (Exhibit A3).
Tab SB5 of the additional T documents contains a large bundle of accounts obtained by the Respondent and including documents obtained from Commonwealth Bank of Australia (“CBA”). The first page is a detailed summary containing financial information referrable to CBA Botany in respect of account 212510028227 in the name of Totally. It indicates that substantial deposits were made during various periods; $76,737.49, $90,250.61, $93,087.38 and $48,128.60 were deposited during the periods 1 to 30 June 1996, 1 July to 31 December 1996, 1 January to 30 June 1997 and 1 July to 22 December 1997 respectively. The aggregate of all deposits during the period 1 January 1996 to 22 December 1997 was $308,204.08.
The same summary under the head of Sundry Payments indicates that during the same period $132.82 was paid to Uneedit and $218.95 was paid to Beauty Warehouse. Having regard to her evidence that Totally was supplying goods to Uneedit and Beauty Warehouse it is not clear why payments were made to them; in respect of goods supplied to customers payments would come from them.
The Applicant referred during her evidence to lengthy criminal proceedings against her and in which she was represented by Murphy’s Lawyers. She furnished the names of individual solicitors at Murphy’s and also barristers who at various times were involved. Those criminal proceedings resulted in a finding of guilty on one count (and the imposition of a good behaviour bond) and the abandonment or discharge of the other counts. I refer in this context to clauses 7.5.1 to 7.6.3 of the Respondent’s Statement of Facts and Contentions quoted previously. The Applicant said that when the criminal proceedings were completed Murphy’s destroyed all of the papers. This statement is not at all in accord with Exhibit A1 (tendered by the Applicant) which reads as follows:
29th May, 2006
The Australian Taxation Office,
TO WHOM IT MAY CONCERN
RE: VASSILIA CACHLIOS
We advise that we acted on behalf of the abovenamed in Court Proceedings wherein the charges in this matter were dismissed and as it was quite some time ago the only documentation we were holding regarding same was forward to Ms. Cachlios.
We further advise that this office does not hold any further documentation relating to this matter.
We trust this information is of some use to you.
Yours faithfully
MURPHY’S LAWYERS INC.
(The Tribunal does not think it likely that Murphy’s Lawyers would upon conclusion of the court proceedings have destroyed the Applicant’s documents. As a matter of law documents must be retained for periods which differ depending on the nature of the documents concerned.)
In cross-examination the Applicant said that she now knows (but did not know then) that under the Therapeutic Goods Act 1989, records must be kept in respect of supplies of pharmaceutical products.
The Applicant said that as a contractor to Boian she took orders on a notepad which was then keyed into the computer, sometimes by her, but more usually by others in Boian’s employ.
The Applicant agreed in cross-examination that she owns a unit in Kogarah. She said that it is worth $340,000 against which she owes St George Bank by way mortgage an amount of $300,000. She said that when applying to St George Bank for a mortgage she told them that her earnings on an annual basis were between $40,000 and $50,000. She said also that the unit was purchased at a cost of $345,000 and that her father contributed $200,000 towards its cost of purchase. It would follow then that the mortgage debt was originally somewhat less than $150000. (The Respondent’s enquiries would suggest that the mortgage debt was no more than $130000; see clause 14 of the Respondent’s Statement of Facts and Contentions part of which is quoted earlier in these reasons) When asked then how her mortgage debt could amount then to $300,000, (and there was no document of any kind establishing the amount actually owing, and notwithstanding the fact that such a document would have been easy enough to obtain) she said that she had to borrow to pay for her father’s funeral and for the “court ordeal” (As to what she meant by a “court ordeal” was never explained; it may be noted that as appears from Exhibit A2, the Applicant’s legal costs in the criminal proceedings were funded by Legal Aid). The evidence as regards the unit is not credible. A bank would not generally lend $300,000 to a person on earnings of $40,000 to $50,000 per annum because the mortgage could not be serviced out of earnings of this size. Assuming that the mortgage was much lower to begin with, the cost of a funeral would not account for the substantial difference. And in any event, Exhibit A2 indicates (as did her own oral evidence) that her father was a man of means and so that her statement that she had to pay for his funeral cannot be true. Certainly there was no evidence in support of that statement.
As regards the earnings of her own business during the relevant years the Applicant could not produce any records of any kind. There were no invoices or vouchers of any kind for goods purchased and similarly there were no invoices or vouchers of any kind for goods sold. There were no books and records of any kind. As to other expenses there was no substantiation of any kind whatever.
The Applicant’s evidence was that neither Frankcom nor Boian was concerned that she was running her own business while contracted to them. There was no evidence to this effect by either entity. Exhibit A2 would tend to suggest that Boian was the complainant in respect of the criminal proceedings; the finding of guilt against the Applicant on one count related to the theft of goods from Boian. .
There was no evidence by Mr Stassos of the nature stated and in particular that he advised the Applicant that business earnings can be ignored if profits are not derived, and the fact that this is so is hardly surprising. The only evidence by Murphy’s Lawyers is Exhibit A1 which belies the Applicant’s own evidence that the records were destroyed. On the assumption that there were business dealings with others, why could copies of documents not be obtained from those other companies and concerns?
PART C - analysis of the evidence
As I have indicated, the Applicant’s previous tax agent, Mr Stassos, is alleged to have advised her that she need not include the financial results of a business unless that business was profitable. That evidence cannot be credible. For a qualified tax agent to give evidence of this nature would expose him to claims for damages. No action has been taken by the Applicant against him.
As I have also indicated there was no evidence that either Frankcom or Boian knew of or consented to the Applicant operating her own business and involving the supply of medical products and perhaps similar to those supplied by them. Exhibit A2 would appear to suggest that the Applicant is not on friendly terms with Boian and particularly Mr James Boian. (See in particular clauses 14, 15 and 16 of Exhibit A2).
Clause 17 of Exhibit A2 sets out that the charges were dismissed. That statement is untrue. The Applicant’s oral evidence was that in respect of one charge she pleaded guilty to stealing supplies from Boian.
The Applicant’s evidence as regards the unit cannot be true; I need not elaborate in this context on the comments contained in clause 27.
Exhibits A3, A4, A5 and A6 were hardly referred to during the course of the hearing but they were tendered on behalf of the Applicant. In none of those Exhibits are there any references of any kind to specific transactions.
Exhibit A3 is a statement by Uneedit by whom the Applicant is currently employed. Mr Stuart McClelland, the director of Uneedit, stated that he has found that the Applicant is always honest and ethical. He said that Uneedit purchased supplies from the Applicant; the summary in Tab SB4 refers to a payment to and not from Uneedit.
Exhibits A4 and A5 are in terms which are similar to Exhibit A3. Beauty Warehouse says it purchased goods from the Applicant (and that it also purchased goods from Boian). It is necessary then to ask why the summary in Tab SB4 refers to payments by the Applicant to Beauty Warehouse and not vice versa.
Exhibit A6 is no more than a reference by Ken Boyden as to the Applicant in a very general sense
As I have indicated the Applicant produced no books or records or ledgers of any kind as to Totally’s business dealings during the relevant years. She said in oral evidence that Murphy’s Lawyers destroyed all her records but at the same time tendered Exhibit A1 in which Murphy’s Lawyers said that they returned the business records to her.
It will be noted that oral evidence was given by the Applicant only and not by any others. On any basis the evidence of the Applicant is not worthy of any credit. As just one example, Exhibit A2 contains numerous references to the Applicant’s father. She said in oral evidence said that he contributed $200,000 to her unit purchase. The fact that it was necessary for her to pay for his funeral cannot be accepted and in any event the amount so expended could hardly amount to anything like the alleged increase in her debt arising from the re-borrowing to which she referred. She admitted that she stole from Boian, although her admission was confined to the count on which she was found guilty.
PART D - conclusion
In the course of closing submissions Mr Papaspiros said that although no books or records of any kind had been produced it was logical to assume that in order to sell products it was necessary to buy them, and this being so the amount taxable should be the profit factor. (He made no suggestion as to what the profit factor was or how the profit could or should be calculated or indeed what it was and in effect confined his submission to a statement that the profit must have been less than the amounts deposited; given that he is a qualified tax agent that statement made in the absence of anything resembling substantiating evidence was surprising). It was suggested also, but without foundation, that the fact that most of the charges against the Applicant had been dismissed must reinforce this view. He contended moreover that it was logical to infer that there must have been some expenses such as, for example, motor expenses incurred in order to deliver product. The first of these contentions ignores the fact that in criminal cases guilt must be proved beyond a reasonable doubt and it is conceivable that the onus could not in many cases be discharged. As to motor or any other expenses there was absolutely no attempt to substantiate anything at all. This was so, of course, in a more general sense in relation to all of the business activities of Totally during the relevant years.
There are numerous cases dealing with the nature of the onus which the Applicant must discharge under s.14ZZK of the Taxation Administration Act 1953 (“the Act”). Trautwein and the Federal Commissioner of Taxation (1936) 56 CLR 63 will serve as just one example. The Applicant must establish not only that the assessments are wrong but also what the correct assessments would be. It will be clear that the Applicant has not discharged the onus and moreover that she has made no attempt to do so. During the course of the hearing the Applicant’s advisers said nothing at all as to the penalties which have been assessed. Mr Bambagiotti referred the Tribunal to cases dealing with evasion and including Barripp v Commissioner of Taxation (NSW) (1940) ATD 58 decided by the Full Court of the Supreme Court. It is unnecessary for me to refer in any detail to that case or any other cases. That there was deliberate evasion is all too clear and the level of penalty imposed is in the view of the Tribunal appropriate.
In all the circumstances the objection decision under review must be affirmed.
I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of JULIAN BLOCK, DEPUTY PRESIDENT
Signed: Associate
Date/s of Hearing 19 July 2006
Date of Decision 3 August 2006Tax Agent for the Applicant John Papaspiros
Counsel for the Respondent Mr Bambagiotti
Solicitor for the Respondent ATO Legal Services
Key Legal Topics
Areas of Law
-
Taxation Law
Legal Concepts
-
Tax Assessment
-
Tax Evasion
-
Penalties
-
Deductions
-
Income from Business
-
Tax Return
0