Cheung v Commissioner of Taxation

The applicant in Cheung v Commissioner of Taxation sought to challenge the Commissioner's decision to assess the applicant's taxable income for the income years between 2005 and 2015. The Commissioner had included in the applicant's taxable income approximately $33 million in receipts from bank accounts in Vanuatu. The applicant argued that the transfers were gifts from her sister and her wider family, who owned a successful supermarket business in Vanuatu, where the applicant had worked as a general manager before retiring to Australia in 2000. The applicant claimed the transfers were capital in nature and not income under ordinary concepts.

The primary legal issue before the court was whether the transfers from Vanuatu constituted income under ordinary concepts or were instead capital in nature. The court needed to determine whether the applicant's evidence that the transfers were gifts was accepted and, if so, whether these gifts should be treated as income for tax purposes. The court had to balance the applicant's evidence with the Commissioner's assessment and consider the nature of the transfers in light of relevant tax principles and precedent.

The court found that the applicant's evidence regarding the capital nature of the transfers was accepted. The court held that the transfers were not income under ordinary concepts but were instead gifts. The court accepted that the applicant had no beneficial interest in the supermarket business and that the transfers were made out of the wider family's wealth. The court also noted that the applicant's retirement to Australia and lack of ongoing involvement in the business supported the characterisation of the transfers as gifts. The appeal was allowed, and the Commissioner's objection decision was set aside. The matter was remitted for reassessment of the applicant's income for the relevant period, with the only income to be included being the interest income of $1,953,631.

The final orders included allowing the appeal, setting aside the Commissioner's objection decision, and remitting the matter for reassessment. The court also directed the Commissioner to make all necessary adjustments to penalties and interest charges. Costs were reserved for consideration after the publication of the court's reasons for judgment.