Chhua and Commissioner of Taxation (Taxation)
[2022] AATA 2593
•12 August 2022
Chhua and Commissioner of Taxation (Taxation) [2022] AATA 2593 (12 August 2022)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2014/2645
Re:KOK HEANG CHHUA
APPLICANT
AndCOMMISSIONER OF TAXATION
RESPONDENT
DECISION
Tribunal:Deputy President Ian Molloy & N Gaudion, Member
Date:12 August 2022
Place:Brisbane
The Tribunal affirms the decision under review.
....................[sgd]....................................................
Deputy President Ian Molloy & N Gaudion, Member
Catchwords
TAXATION – income tax – audit conducted – notices of amended assessments issued – penalty assessments – shortfall penalties – objection made – whether assessments excessive – evasion – jurisdiction of the Tribunal to consider validity of assessments– actual taxable income not established – objection affirmed
Legislation
Income Tax Assessment Act 1936 (Cth)
Judiciary Act 1903 (Cth)Taxation Administration Act 1953 (Cth)
Cases
Australasian Jam Co Pty Ltd v Commissioner of Taxation (Cth) (1953) 88 CLR 23
Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534
Bosanac v Federal Commissioner of Taxation (2019) 267 FCR 169
Bosanac v Federal Commissioner of Taxation [2019] HCA 41
Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation (2017) 251 FCR 40
Chhua v Federal Commissioner of Taxation [2020] AATA 832
Chhua v Commissioner of Taxation [2017] FCA 1127
Chhua v Commissioner of Taxation (2018) 262 FCR 228
Citta Hobart Pty Ltd v Cawthorn [2022] HCA 16
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148
Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566
Krew v Commissioner of Taxation (Cth) (1971) 2 ATR 230
Landcom v Federal Commissioner of Taxation [2022] FCA 510
McAndrew v Commissioner of Taxation (1956) 98 CLR 263
Nguyen v Federal Commissioner of Taxation (2018) 265 FCR 355
Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 212 FCR 483
Trautwein v Commissioner of Taxation (1936) 56 CLR 63
VNBM v Federal Commissioner of Taxation [2021] AATA 1626REASONS FOR DECISION
Ian Molloy, Deputy President & N Gaudion, Member
12 August 2022
The Applicant, Mr Chhua, applies for review of an objection decision of the Respondent, the Commissioner, made on 25 March 2014, disallowing Mr Chhua’s objection of 24 June 2013 against amended income tax assessments and penalty assessments made on 24 April 2013 for the years ending 30 June 2007 to 30 June 2011 (the “relevant years”).
BACKGROUND
Mr Chhua lodged his income tax returns (“ITRs”) for the relevant years via his tax agent Mr Ken Ngo of KC & Associates. The ITRs were prepared by Mr Pham of KC & Associates.
On 3 August 2012, the Commissioner notified Mr Chhua of his intention to conduct an audit of his ITRs for the years ending 30 June 2009, 2010 and 2011.[1] The audit was subsequently extended to include the years ending 30 June 2007 and 2008.
[1] Exhibit 1 (“T-Documents”), T12.
The Commissioner identified that Mr Chhua had received bank deposits totalling $2,092,759.00 from gaming venue operator Australian Leisure and Hospitality Group (“ALHG”) or other gaming venues over the relevant years.
On 24 April 2013, the Commissioner notified Mr Chhua of the completion of the audit and provided reasons for issuing notices of amended assessment.[2] The notification stated, amongst other things, that during the audit the Commissioner formed the opinion that there had been evasion in relation to Mr Chhua’s income tax obligations.[3] The Commissioner is recorded as having formed this opinion under item 5 of s 170(1) of the Income Tax Assessment Act 1936 (“1936 Act”).[4]
[2] T20.
[3] T20, 154.
[4] T47, 836-839.
The notices of amended assessment, dated 24 April 2013, were issued under s 167 of the 1936 Act, amending Mr Chhua’s income tax assessments for each of the relevant years to include an additional $2,325,286.00 in assessable income, calculated by taking into account bank deposits said to be receipts from gaming venues, including ALHG.[5] The calculation was by reference to the funds the Commissioner considered necessary to produce those receipts.
[5] T15-T19.
Also on 24 April 2013, the Commissioner issued a notice of assessment of additional tax, assessing Mr Chhua for additional tax by way of penalty for each of the relevant years on the basis that the tax shortfall was caused by intentional disregard.[6] The shortfall penalties were imposed under item 1 of s 284-90(1) of Sch 1 to the Taxation Administration Act1953 (“TAA”).
[6] T21.
The Commissioner declined to remit the shortfall penalty in whole or in part under s 298-20 of Sch 1 to the TAA.[7]
[7] T1, 17.
On 24 June 2013, Mr Chhua objected to the income tax and penalty assessments,[8] and as mentioned above, on 25 March 2014 the Commissioner made the objection decision disallowing Mr Chhua’s objection.[9]
[8] T24.
[9] T1, 3-4.
During the currency of these proceedings, Mr Chhua challenged in the Federal Court the Commissioner’s exercise of his power to form an opinion of evasion under s 39B of the Judiciary Act 1903[10] and then by an unsuccessful appeal to the Full Court of the Federal Court.[11]
[10] Chhua v Commissioner of Taxation [2017] FCA 1127 (“Chhua Federal Court”).
[11] Chhua v Commissioner of Taxation (2018) 262 FCR 228 (“Chhua Full Court”).
Mr Chhua’s assessable income according to his ITRs for the relevant years,[12] and as contended in his Further Amended Statement of Facts, Issues and Contentions,[13] was as follows:
[12] T2 (2007); T4 (2008); T6 (2009); T8 (2010); T10 (2011).
[13] Applicant’s Further Amended Statement of Facts, Issues and Contentions (undated) filed pursuant to direction made 23 April 2021 (“Applicant’s SFIC”), paragraphs D.4.3, 5.2, 6.5, 7.4 and 8.2.
Income year
Assessable income per ITRs
Assessable income per ASFIC
2007
$42,068.00
$42,088 ($2,816 capital losses carried forward)
2008
$47,863.00
$46,630 ($76,384 capital losses carried forward)
2009
$58,094.00
$44,000 ($11,167 capital losses carried forward)
2010
$48,106.00
$47,782 ($36,622 capital losses carried forward)
2011
$79,877.00
$86,470.15
ISSUES
The issues, in the Commissioner’s submission[14], are whether Mr Chhua has discharged his burden of establishing that:
(a)the assessments, made under s 167 of the 1936 Act, are excessive by establishing the amount of his actual taxable income for each of the relevant years (“s 167 issue”);
(b)there was no evasion within the meaning of item 5 of s 170(1) of the 1936 Act for the years of income ending 30 June 2007 to 30 June 2010 (“evasion issue”);
(c)the administrative penalty imposed is excessive (“administrative penalty issue”); and
(d)the administrative penalty should be remitted in whole or in part pursuant to s 298-20 of Schedule 1 to the TAA (“penalty remission issue”).
[14] Respondent’s Further Amended Statement of Facts, Issues and Contentions dated 11 June 2021 (“Respondent’s SFIC”), [16]; and Respondent’s Closing Submissions dated 4 April 2022 (“Respondent’s Closing Submissions”), [9].
We accept that these are the main issues. The Applicant has also raised issues concerning the validity of the amended assessments for the years of income ending 30 June 2007 to 30 June 2010, which raises questions concerning the Tribunal’s jurisdiction to deal with such issues (“validity/jurisdiction issues”).
EVIDENCE
The principal witness at the hearing was Mr Chhua. The other witnesses included Mr Chhua’s solicitor, Mr Paul Conde, who produced a Spreadsheet he had prepared setting out Mr Chhua’s financial transactions during the relevant years.[15]
[15] Exhibit K.
Some of the notations in the Spreadsheet concerning the classification (including the nature or purpose) of certain transactions reflect only Mr Conde’s opinion.[16] They are not based on Mr Conde’s personal knowledge, or on business records or other documentary evidence before the Tribunal, or on what could be considered reliable information from his client, the Applicant. Therefore, whilst some notations are based on reconciliation to certain records, others have no reliable basis, and therefore hold little evidentiary value.
[16] Applicant’s SFIC, A.2.13.
Based on the Spreadsheet, which was advanced in support of his case,[17] Mr Chhua received bank deposits totalling $2,154,038.32, comprising:
(a)22 deposits totalling $228,294.93 categorised as “Deposit – Current instructions/documents insufficient to prove BRD [beyond reasonable doubt]” under column H; and
(b)450 deposits totalling $1,925,743.39 categorised as “Deposit – Gaming receipts by the documents & or instructions” also under column H.
[17] Applicant’s SFIC, Part A.
Mr Chhua has not provided any explanation regarding the nature or source of the 22 deposits referred to in paragraph 16(a) above.
As to the deposits referred to in paragraph 16(b) above, Mr Chhua initially accepted, in cross-examination, that he received 450 gaming deposits. He was then taken to five of these transactions, being the second transaction on or after 1 July in each of the relevant years.
In respect of one of these transactions (at row 1331 in the Spreadsheet), which can be cross-referenced to a report from ALHG, Mr Chhua said it was a deposit from a gaming venue.
As to the other four transactions, which were not referenced to reports from gaming venues, Mr Chhua could not recall if they were gaming receipts. Mr Chhua said his answer would be similar for the balance of the deposits referred to in paragraph 16(b) above, that is, if a deposit is referenced to a report from a gaming venue, he accepted that it was a gaming deposit; otherwise, he could not recall the source or nature of the deposit.
Based on the Spreadsheet, 254 withdrawals were made totalling $1,697,142.00 categorised as ‘Withdrawal’ under column H. Mr Chhua was asked about five withdrawals, again being the first such transaction on or after 1 July for each of the relevant years (rows 84, 384, 806, 1326, 1850). There were references to T- documents and/or Further T-documents for each of the selected transactions, and Mr Chhua was shown the referenced and other material.
Mr Chhua could not recall the purpose of any of these withdrawalsor whether he discussed the transactions with Mr Conde for the purposes of the Spreadsheet. Mr Chhua said his answers would be similar for the balance of the withdrawals, that is, he does not recall the purpose of the withdrawals or whether he discussed the transactions with Mr Conde for the purposes of the Spreadsheet.
This evidence from Mr Chhua, concerning both the deposits and withdrawals as recorded on the Spreadsheet, convinces us that the Spreadsheet cannot be relied on as anything more than a record of transactions; not as containing accurate descriptions of the nature of those transactions. As we have said, Mr Conde does not give first-hand evidence of those matters. He relied in part on what Mr Chhua told him, but Mr Chhua had no recollection of discussing the transactions with Mr Conde for the purposes of the Spreadsheet.
We accept that Mr Conde did the best he could. There may well have been language difficulties with Mr Chhua, who is from Cambodia, and primarily speaks Khmer and some Vietnamese. His English is quite limited,[18] as was apparent when he gave evidence through an interpreter at the hearing. Be that as it may, we do not consider the Spreadsheet provides any assistance beyond what we have described, especially as Mr Chhua was quite unable to answer basic questions concerning the transactions contained within it.
[18] Applicant’s SFIC, B1.1(c).
Mr Ngo and Mr Pham, Mr Chhua’s tax agents from KC & Associates, gave evidence. Neither of them was aware that Mr Chhua received bank deposits totalling over $2 million during the relevant years.Mr Chhua did not provide KC & Associates with the relevant statements for the personal bank accounts into which the gaming deposits were made.
Mr Chhua said, “I’m not a professional gambler. So, I don’t have to declare this [gaming deposit] income to my accountant because it’s just like for fun only that I play.”[19]
[19] Transcript, P-203, lines 5-6.
The Respondent points out that Mr Chhua’s evidence in cross-examination concerning his gambling methods was different from his position as reflected in the material filed with the Tribunal. For example, whilst his witness statement indicated that he followed a system and acquired or “bought” poker machines that others were playing, it was his evidence at the hearing that he never “bought” poker machines from others, and he did not have a system for his gaming.
The significant differences between his witness statements and his evidence at the hearing gave us concern about the reliability of Mr Chhua’s evidence. Mr Chhua indicated that his statement may not have been properly explained to him by Mr Meng Bunlay,[20] who had voluntarily assisted Mr Chhua with the translation of his witness statements. Mr Bunlay states at paragraph 2.3 of his witness statement that “I don’t have Interpreter/translator NAATI Level III, but I am confident that I have interpreted properly and honestly for Kok Heang Chhuw (sic). Also I am recently a registered Interpreting contractor with Victorian Interpreting and Translating Services (VITS)”. It is possible that some minor details could get lost in a translation. However, given Mr Chhua’s witness statements went into some detail about the poker machine gambling,[21] and the extent of the inconsistencies between those statements and his evidence during the hearing, it is difficult to accept those inconsistencies would have become lost in the translations provided by Mr Bunlay.
[20] Transcript, P-91, lines 33-40 and P-121, line 17.
[21] Applicant’s witness statement filed 17 July 2015, paragraphs 7.1 to 7.19 and the Applicant’s witness statement filed on 22 March 2022, paragraphs 16.1 to 16.30.
Mr Chhua “did not keep records of his gambling”.[22] Importantly there is no documentary evidence as to the quantum of the funds (or their source) used to generate the gaming deposits.
[22] Applicant’s SFIC, [B4/4.3].
Victorian poker machine venues and the casino must return to players at least 87% of the total amount that is bet each year.[23] Mr Chhua generally attended gaming venues operated by ALHG and generally played poker machines. ALHG’s poker machines are designed to return 90% to the player over time. The more money a player gambles, the closer to 90% the return is likely to be.[24]
[23] T20/159 at footnote 1, citing the ‘Victorian Commission for Gambling and Liquor Regulation’.
[24] T46/834 David Curry, ALHG GM Govt & Corp Relations, referred to at T47/838.
During the relevant years, Mr Chhua either solely or with his wife, “purchased two cars and three blocks of land at Robinvale in Victoria and one house in Robinvale”. Mr Chhua and KC & Associates did not discuss the source of funds for these purchases,other than perhaps a mention of a windfall.
One of the motor vehicles purchased by Mr Chhua and his wife in April 2011 was a Lexus, purchased for $159,000.[25] The purchase was partially funded by a bank cheque for $52,200. Mr Chhua’s wife, Chan Thou Sok, says the funds for the bank cheque “could” be from her account with National Australia Bank,[26] but does not substantiate the claim or explain the source of the funds.
[25] Applicant’s SFIC. [B10/10.1(a)].
[26] Witness Statement of Chanthou Sok dated 14 May 2021, [4.5].
SECTION 167 ISSUE
A taxpayer who seeks to establish that a default assessment made under s 167 of the 1936 Act is excessive must establish his actual taxable income.[27] If the taxpayer’s actual taxable income is less than the amount assessed, the assessment under s 167 of the 1936 Act would be excessive within the terms of s 14ZZK of the TAA.
[27] Gashi v Commissioner of Taxation (2013) 209 FCR 301 (“Gashi”), [63]; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (“Dalco”), 621 and 631; Trautwein v Commissioner of Taxation (1936) 56 CLR 63 (“Trautwein”), 87; Bosanac v Federal Commissioner of Taxation [2019] HCA 41, [30]; Bosanac v Federal Commissioner of Taxation (2019) 249 FCR 169 , [57].
This is not a case in which the issues have been confined, for example, to certain transactions or a class of transactions, so that Mr Chhua is relieved of the burden that generally falls upon a taxpayer challenging an assessment under s 167 of the 1936 Act.
The Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment.[28] There is no burden on the Commissioner to show that the s 167 assessment was correctly made.
[28] Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19 (“Rigoli”), [25].
Evidence of witnesses who have an interest in the outcome of litigation needs to be approached critically.[29] That is not to say that a taxpayer’s uncorroborated evidence is to be regarded as prima facie unacceptable,[30] but where a taxpayer cannot recall the nature or source of transactions, the taxpayer may not be able to discharge the burden.
[29] Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149, [82].
[30] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148, [31].
As the High Court said in Trautwein v Commissioner of Taxation:[31]
“…the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself [in making a correct assessment] by the simple and relatively unskilled method of losing either his memory or his books.”
[31] (1936) 56 CLR 63 (“Trautwein”), [87].
On the Applicant’s case, based on the Spreadsheet, he received bank deposits totalling $2,154,038.32 in the relevant years. Mr Chhua could not recall the source or nature of the deposits totalling $228,294.93 referred to in paragraph 16(a) above. On his own case they are not classed as gaming deposits.
We accept the Respondent’s submission that absent any reliable evidence of the source or nature of these deposits, there is no proper basis to make any findings as to whether the deposits constitute part of Mr Chhua’s taxable income.
Mr Chhua could not recall the quantum of the funds used to generate each gaming bank deposit. As we have said, Mr Chhua did not keep records of his gambling. There is insufficient evidence to determine the quantum of funds used to generate the gaming bank deposits or reliably determine the source and character of those funds.
As the Commissioner submits, we consider that it is implausible that Mr Chhua could have consistently generated the substantial sums associated with the gaming deposits from the declared income and known financial resources available to him during the relevant years.
It is also highly improbable that the gaming bank deposits could have been generated by Mr Chhua’s winnings at gambling over the relevant years.[32] The design of ALHG’s poker machines to return 90% to the player over time alone makes that highly unlikely.
[32] Compare Krew v Commissioner of Taxation (Cth) (1971) 2 ATR 230, 236.; and VNBM v Federal Commissioner of Taxation [2021] AATA 1626, [62].
Assertions by or on behalf of Mr Chhua,[33] that the gaming deposits were generated by winnings, are unsupported by any corroborative evidence. We are far from satisfied, in all the circumstances, as to the true source or sources of the funds used to generate the gaming deposits.
[33] For example, Applicant’s SFIC, B.5.1; and Applicant’s Closing Submissions dated 4 April 2022 (“Applicant’s Closing Submissions”), [20.6].
In the Applicant’s submissions, under the heading “The funds for the Applicant’s gambling”, attention is given to the deposits to Mr Chhua’s bank accounts, including that “[t]he Respondent recognised that the source of at least 95% of the deposits in the Applicant’s accounts were proceeds of gaming”.[34] But the actual source or character of the funds for the Applicant’s gaming is nowhere properly explained.[35]
[34] Applicant’s Closing Submissions, [20.2].
[35] See Applicant’s Closing Submissions, [20.3]-[20.7].
Mr Chhua has not established, in respect of any of the relevant years, the amount upon which income tax ought to be levied. Accordingly, he has not discharged his burden of proving that the s 167 assessments are excessive.
EVASION ISSUE
During the audit, the Commissioner is recorded as having formed the opinion that there had been evasion in relation to Mr Chhua’s income tax obligations.[36] This was relevant to the years of income ending 30 June 2007 to 2010 inclusive for which the Commissioner was otherwise out of time.
[36] T20/154.
As the Full Court of the Federal Court explained in Binetter v Commissioner of Taxation,[37] the Tribunal can re-examine whether, on the evidence before it, there was fraud or evasion (in this case evasion),and can substitute its opinion for the Commissioner’s. The Applicant bears the onus of proving that there was no evasion. There is no onus on the Commissioner to show that an assessment was correctly made.[38]
[37] Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534 (“Binetter”).
[38] Ibid, [80], [92] and [93].
On the Applicant’s case, based on the Spreadsheet, he received bank deposits totalling $2,154,038.32 in the relevant years. Regarding the bank deposits referred to in paragraph 16(a) above, Mr Chhua has provided no explanation as to their source or nature.
As to the gaming deposits, Mr Chhua has provided no reliable evidence on the quantum of the funds used to generate them or any acceptable evidence as to the source or character of those funds.
We accept the Commissioner’s submission that the present case is one in which, as explained in Nguyen v Federal Commissioner of Taxation,[39] “to discharge the onus of proof regarding fraud and evasion the taxpayer would need to provide evidence as to the source of the unexplained funds, being evidence that was accepted by the Tribunal.”[40]
[39] (2018) 265 FCR 355 (“Nguyen”).
[40] Nguyen [154].
We also accept the Commissioner’s submission there is insufficient evidence to make findings, in respect of any of the relevant years, about:
a)whether the bank deposits referred to in paragraph 16(a) above constitute assessable income;
b)whether the funds used to generate the so-called gaming deposits constitute assessable income; and
c)if the funds referred to at (a) or (b) above constitute assessable income, whether the Applicant’s failure to include them in his ITRs constitutes evasion within the meaning of the term in item 5 of s 170(1) of the 1936 Act.
In the circumstances, Mr Chhua has not discharged his burden of establishing, in respect of any of the years in question, that there was no omission of income; or that if there was, the omission was not caused by evasion.
The Applicant, as we understand it, accepts that he bears this burden of proof. In his SFIC, however, he submits:
If, in respect of a financial year, the Respondent successfully establishes that he has enlivened the operation of his power to amend out of time the Applicant has the onus of establishing the facts upon which the Applicant relies to establish that there was no fraud or evasion.[41]
[41] Applicant’s SFIC, [D1.46] and Applicant’s Closing Submissions, [11.8] and [13]–[14].
What we understand the Applicant to be contending here, and elsewhere in his submissions, is that the Commissioner bears an onus of establishing by evidence that the power to amend was “enlivened” in the sense that the statutory process was followed.
This, in the Applicant’s submission, goes to the validity of the amended assessments for the years in question. It also raises questions concerning the Tribunal’s jurisdiction.
VALIDITY/JURISDICTION ISSUES
The Applicant submits that, in the absence of evidence that the Commissioner delegated his power to form the requisite opinion that there had been evasion, in this case to an ATO officer, Mr Sellayah, the power had not been “enlivened”, and the notices of amended assessment for the years of income ending 30 June 2007 to 30 June 2010 are not valid.[42]
To quote from the Applicant’s SFIC:[43]
[43] Applicant’s SFIC, D1.10-16, 1.19 and 1.41. But then compare the Applicant’s SFIC, at D1.23.
1.10 Section 8 of the ITAA 1936 confers on the Respondent the general administration of the ITAA 1936.
1.11 The Respondent may, either generally or as otherwise provided by the instrument of delegation, by writing signed by the Respondent, delegate to a Deputy Commissioner or any other person, in writing, may delegate his power to form the opinion required under Item 5 of Section 170(1).[sic]
1.12 There is no evidence of an instrument of delegation, by writing signed by the Respondent, evidencing a delegation to a Deputy Commissioner, of the Respondent’s power to form the opinion required under Item 5 of Section 170(1).
1.13 Absent evidence that the Respondent delegated his power to form the opinion required under Item 5 of section 170 of the ITAA 1936 to Ed Sellayah the NOAAs for the Years of Income ended 30 June 2006 [sic] to 30 June 2010 are not valid.
1.14 There is no evidence in writing that the Respondent delegated his power to form the opinion required under section 170 of the ITAA 1936 to Ed Sellayah.
1.15 There is no evidence that Ed Sellayah was a Deputy Commissioner.
1.16 There is no evidence in writing that Ed Sellayah is, or ever has been, a delegate of the Respondent for the purpose of forming an opinion required under Item 5 of section 170(1) of the ITAA 1936.
…
1.19 In Part IVC proceedings the Respondent has the burden of establishing that he had enlivened the power to issue an amended assessment out of time:..
…
1.41 The Respondent has not met the burden of establishing that its [sic] power to issue the amended assessments out of time was enlivened while the Respondent remains unable or unwilling to produce the records that would satisfy the Respondent’s burden.
We do not accept the Applicant’s submissions.
First, we reject the contention that “[i]n Part IVC proceedings the Respondent has the burden of establishing he had enlivened the power to issue an amended assessment out of time”.[44] There is no such burden of proof on the Commissioner.[45] In support of his contention, the Applicant cites the High Court decision in McAndrew v Commissioner of Taxation,[46] quoting an extract in that decision from the judgment of Fullagar J in Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation.[47] The Applicant, in our view, has quoted the extract out of context. The decision in McAndrew does not support his contention.
[44] Applicant’s SFIC, [D1.19] and above. See also Applicant’s Closing Submissions, [5.9] & [5.16], and Applicant’s Further Submissions dated 13 May 2022 (“Applicant’s Further Submissions”), [3.3] & [3.7].
[45] Chhua Federal Court, [14]; Chhua Full Court, [4].
[46] McAndrew v Commissioner of Taxation (1956) 98 CLR 263 (“McAndrew”), 269. See also Applicant’s SFIC, [D1.19]; and Applicant’s Closing Submissions, [5.5]-[5.7].
[47] Australasian Jam Co Pty Ltd v Commissioner of Taxation(Cth) (1953) 88 CLR 23, 32-33; Applicant’s SFIC, [D1.19].
Secondly, we do not consider the matters advanced by the Applicant arise for consideration in these proceedings. We accept the Commissioner’s submission that, even if Mr Sellayah lacked the authority to form the opinion (which the Respondent denies), any such deficiency would be protected by s 175 of the 1936 Act.
Both parties quoted from the Full Court of the Federal Court in Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation.[48] In that case Pagone J (with whom Allsop CJ and Perram J agreed) said:[49]
His Honour was correct in concluding that Mr Roberts’ lack of authority to make the determinations did not establish the assessments to be excessive. Provisions such as s 175, together with the former s 177(1) of the 1936 Act and s 350-10 of the Administration Act, assume procedural invalidity in the making of an assessment but prevent a challenge upon that basis. The combined objective of those provisions is to ensure that a taxpayer may challenge the correctness of “the amounts and particulars of the assessments” but not the procedural errors of the Commissioner. It is the substance of the amount of an assessment which a taxpayer may challenge rather than whether the Commissioner erred in the administrative process by which the assessments were made. Determinations under Division 13 were made in this case, albeit that they were made by a person lacking authority to make them. That absence of authority was a noncompliance by the Commissioner with a provision of the 1936 Act which by reason of s 175 of the Act does not affect the validity of the assessment, and was excluded from review in Part IVC proceedings as falling within the “due making” of the assessment (within the meaning of s 177(1) of the 1936 Act) and within whether the assessment “was properly made” (within the meaning of s 350-10 of Schedule 1 to the Administration Act). Mr Roberts’ lack of authority was similar to the defect considered by George v Federal Commissioner of Taxation (1952) 86 CLR 183 of an assessment being made by the Commissioner after the wrong officer had formed a view required to be formed before issuing an assessment under s 167 of the Act. In George it was said at 206 that s 177 excluded from challenge “the question whether the right officer ha[d] applied his mind to the question whether” the taxpayer’s returns were satisfactory in an assessment made under s 167 which had authorised the making of an assessment if the Commissioner was not satisfied with the taxpayer’s return.
The object of the provisions found in ss 175, 177, and now s 350-10, is to remove the Commissioner’s procedural irregularity from challenge in Part IVC proceedings and to ensure that the taxpayer’s challenge to an assessment is directed to those substantive integers upon which liability depends. A taxpayer is entitled to establish the absence of facts the existence of which may be necessary for the substantive liability to arise under an assessment. Thus, for example, the taxpayer in McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 was able to challenge the excessiveness of an assessment by establishing that the conditions required by s 170(2) had not been fulfilled. The conditions in s 170(2) upon which the assessment depended in McAndrew were not procedural. The assessing power authorised by s 170 in McAndrew’s case depended upon the existence of objective facts about which the Commissioner needed to be satisfied. The issue sought to be challenged was not whether the Commissioner was satisfied, or had erred in some internal process by which the Commissioner had become satisfied, but whether there were in existence the objective facts upon which the power depended irrespective of the Commissioner. The taxpayer was able to challenge in McAndrew the objective facts upon which the Commissioner’s state of satisfaction depended in contrast to whether the Commissioner’s state of satisfaction had regularly been reached.
[48] Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation (2017) 251 FCR 40 (“Chevron”); Applicant’s SFIC, [D1.25] and Applicant’s Closing Submissions, [4.9]; Respondent’s SFIC [77(a) & (d)].
[49] Chevron [108]-[109].
We therefore do not accept the Applicant’s submission that the Commissioner has any onus of proving the regularity of the internal procedures in making the amended assessments or, more importantly, that this issue arises for consideration at all in these proceedings. The consequence of the Applicant’s submissions, if accepted, and according to the Applicant, would be that the amended assessments for the years in question (ending 30 June 2007 to 2010) are “invalid”. This led to the Applicant’s submission that “the Tribunal has no jurisdiction in relation to any of the years of income ended 30 June 2007 to 30 June 2010 inclusive.”[50]
[50] Respondent’s Closing Submissions, [7.3].
Given this submission, and others, on the return of the matter for closing oral submissions, the parties were granted an opportunity to address, by further written submissions, the jurisdiction of the Tribunal to hear and determine the issues raised by the Applicant relating to jurisdiction. In particular, parties were to address the process or lack of process by which the amended assessments were issued for the years ending June 2007 to June 2010 and the jurisdiction of the Tribunal to determine those matters, given that on the Applicant’s case those issues go to the validity of those assessments.
We accept, as the parties appear to agree, that the Tribunal has power to determine the limits of its jurisdiction, anterior to the power to decide the Applicant’s application for review.[51] We are also satisfied, as the Commissioner contends, that the Tribunal, in these proceedings, does not have jurisdiction to determine the relevant assessments are invalid.
[51] Citta Hobart Pty Ltd v Cawthorn [2022] HCA 16, [24] and [63] (and the cases referred to therein).
The Commissioner submits:[52]
5.In Landcom v Commissioner of Taxation [2022] FCA 510, Thawley J held, ‘the Tribunal does not have power to determine validity of the assessment, or declare invalidity of an assessment … [but] the Tribunal has jurisdiction to determine excessiveness of that which purports to be an assessment even if the validity of the underlying assessment is a matter in dispute’: at [135].
6.In Landcom at [135.b], his Honour noted that the Full Court in Gashi ‘recognised that neither the Court nor the Tribunal has jurisdiction under Part IVC to determine if assessments are “invalid”, because Part IVC operates on the assumption that there is an “assessment”’.
…
10.… the Tribunal does not have power to determine the validity of the assessment, or declare invalidity of an assessment. Rather, the Tribunal has jurisdiction to determine excessiveness of that which purports to be an assessment even if the validity of the underlying assessment is a matter in dispute.
[52] Respondent’s Submissions regarding the Tribunal’s Jurisdiction lodged 13 May 2022 (“Respondent’s Further Submissions”), [5]–[6] and [10], footnotes omitted.
We accept that this states the relevant limit of the Tribunal’s jurisdiction in these proceedings. We also refer to the decision of Kenny J in Nguyen,[53] as referred to by the Commissioner. In Nguyen, her Honour quoted,[54] from the decision of the Full Court of the Federal Court in Gashi v Federal Commissioner of Taxation,[55] including:
… At the hearing of the review or the appeal under s 14ZZ, upon the production of a document matching the description of a notice of assessment, ss 175(1) and 177 of the 1936 Act precludes any argument about the “due making” or actual making of the assessment …
If the decision to issue the assessments was infected with jurisdictional error, those questions (and orders seeking to address those questions) may not be pursued under Pt IVC of the TAA. They may not be pursued under Pt IVC because the subject matter of an appeal under Pt IVC is absent – an assessment.
[53] Above n 41.
[54] Ibid [198].
[55] Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, [41]–[43], .
Her Honour continued:[56]
… it is not the role of the Tribunal to review the Commissioner’s decision-making processes in forming his opinion that there was fraud or evasion for the purposes of Item 5 of the table in s 170(1) of the 1936 Act. This is well- established by the authorities. … it is no part of the Tribunal’s function to examine the legality of the process that led to the opinion there was fraud or evasion being formed.
[56] Nguyen, [199], citing Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566, [22].
We accept the Commissioner’s submission that it is no part of the Tribunal’s function to examine the process or lack of process by which the relevant assessments were issued. The Tribunal does not have power to determine the validity of an assessment or declare invalidity of an assessment.
It was open to the Applicant to show that the objective facts did not exist to ground the opinion there was evasion. The onus of proof is on the Applicant, which he has here failed to discharge. Under s 175 of the 1936 Act the assessments are protected from challenge on procedural grounds. Moreover, it is not open to the Applicant in these proceedings to challenge the validity of the amended assessments as he has attempted to do.
ADMINISTRATIVE PENALTIES
Mr Chhua made statements to the Commissioner in his ITRs for each of the relevant years. As the Commissioner contends, the statements were false or misleading in a material particular because Mr Chhua failed to declare all of his assessable income and he has not shown otherwise. As a result of the statements a shortfall amount arose.
Mr Chhua is therefore liable for administrative penalties pursuant to subsection 284-75(1) of Schedule 1 to the TAA for having an income tax shortfall for each of the relevant years.
The Commissioner submits, and we accept, that he correctly applied an administrative penalty of 75% of the shortfall amount as the shortfall resulted from Mr Chhua’s intentional disregard of a taxation law (item 1 of s 284-90(1) of Sch 1 to the TAA) by not declaring all of his assessable income. Further, the Commissioner correctly applied increases to the base penalty amount of 20% for the periods ending 30 June 2008 to 30 June 2011 on the basis that the base penalty amount was worked out under item 1 of s 284-90: s 284-220(1)(c) of the TAA.
The Commissioner contends that Mr Chhua has not established that the funds used to generate the gaming deposits (whatever their quantum) and the unexplained bank deposits were not assessable. We accept that, and that in the circumstances, Mr Chhua has not established whether there was reasonable care or otherwise, or more serious shortcomings have not been established or disproven, as the case may be.
Mr Chhua has not established that the safe harbour pursuant to ss 284-75(6) of Sch 1 to the TAA applies. The safe harbour only applies if, among other things:
(a)Mr Chhua can show that he gave the registered tax agent or BAS agent all relevant taxation information; and
(b)the false or misleading nature of the statement did not result from intentional disregard by the agent of a taxation law, or recklessness by the agent as to the operation of a taxation law. [57]
[57] TAA, ss 284-75(6)(d) and (7).
Mr Chhua has not discharged his burden of proving that he gave to Mr Ngo (or his accounting firm KC & Associates) all relevant taxation information. Thus, the safe harbour does not apply to him.
REMISSION OF PENALTY
In Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation,[58] Griffiths J held that “the question [of the remission of penalty under ss 298-20 of Sch 1 to the TAA] is … whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part”.[59]
[58] (2013) 212 FCR 483.
[59] Ibid, [249].
Mr Chhua has not demonstrated the existence of any facts or circumstances that would warrant exercise of the discretion to remit all or part of the penalties. We do not consider the conduct of the audit, relied on by the Applicant, is a relevant factor in the imposition of the penalty or in the remission of penalty.
CONCLUSION
The objection decision under review should be affirmed.
I certify that the preceding 78 (seventy-eight) paragraphs are a true copy of the reasons for the decision herein of Ian Molloy, Deputy President, and N Gaudion, Member
......................[sgd]...............................................
Associate
Dated: 12 August 2022
Date of hearing: 15, 16, 17, 18 and 21 March 2022, and 29 April 2022
Last written submissions:
13 May 2022
Counsel for the Applicant:
Chris Wallis
Solicitors for the Applicant:
Counsel for the Respondent:
Paul Conde, Tierney Law
Angela Lee
Solicitor for the Respondent: Wayne Stewart
[42] Applicant’s SFIC, [D1.19] – [D1.45]; and Applicant’s Closing Submissions, [5.1]-[5.25].
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