Chiem v Deputy Commissioner of Taxation

[2007] FCA 1300

FEDERAL COURT OF AUSTRALIA

Chiem v Deputy Commissioner of Taxation [2007] FCA 1300

INCOME TAX – assessments following audit of business – difference of approximately $217,000 between sales invoices and bank deposits said to be gifts and loans of capital from father of appellant – only approximately $45,000 of such contributions recorded – not all sales banked – figure for purchases said to exceed figure in amended assessment by approximately $71,000 – no accounting reconciliation

Held

1.No question of law;

2.Appeal dismissed with costs.

Administrative Appeals Tribunal Act 1975 (Cth) s 44(1)
Taxation Administration Act 1953 (Cth) s 14ZZK(b)(i)

Re Taxpayer and Federal Commissioner of Taxation (2006) 64 ATR 1075 affirmed
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 applied
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 applied

HOANG HAI CHIEM v DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 1079 OF 2006

HEEREY J
29 AUGUST 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1079 OF 2006

BETWEEN:	HOANG HAI CHIEM Appellant
AND:	DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	HEEREY J
DATE OF ORDER:	29 AUGUST 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal is dismissed;

2.The appellant pay the respondent’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1079 OF 2006

BETWEEN:	HOANG HAI CHIEM Appellant
AND:	DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	HEEREY J
DATE:	29 AUGUST 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. The appellant taxpayer appeals from a decision of the Administrative Appeals Tribunal (Mr BH Pascoe, Senior Member) which affirmed an objection decision of the respondent Deputy Commissioner in respect of the 1997 and 1998 tax years: Re Taxpayer and Federal Commissioner of Taxation (2006) 64 ATR 1075. The assessments resulted from an audit of the affairs of the appellant. The issues on the appeal concern the ascertainment of gross sales and the deduction of purchases in connection with a retail business carried on by the appellant.

2. Under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) an appeal lies to the Federal Court only on a question of law.

3. In October 1995 the appellant commenced a duty free retail business in Springvale, Victoria.  In January 2002 the Australian Tax Office conducted an audit of the appellant’s affairs.  An assessment was issued for 1997 and an amended assessment for 1998.  After extensive discussions with the appellant’s then accountant, objections were allowed in part.

4. The business was financed by gifts, loans or capital contributions from the appellant’s family, and in particular his father.  The appellant admitted that he was not knowledgeable about business practices and record-keeping requirements. 

5. The appellant’s original 1997 return showed sales of $1,101,758 which he said was based on bank deposits.  When the appellant said that invoices were a more reliable basis for assessing income, the Commissioner agreed to accept a figure of $884,533 based on invoices, provided that the difference between that amount and the bank account deposits (which on the Commissioner’s calculation amounted to $1,084,705) did not represent assessable income.

6. Over several months, between May and August 2003, the appellant attempted to provide details of this amount.  He said the difference between the bank deposits and the sales invoices represented gifts or loans from his father used as working capital.  Neither he nor his father had kept any record of such gifts or loans, save for the amount referred to in [7] below.

7. In evidence before the Tribunal the appellant claimed $240,000 as the amount of his father’s contributions.  This amount was obtained from a Betterment Statement produced by the Commissioner from an earlier audit of the father’s affairs.  This amount had been included as expenditure by the father “as set up costs for the son’s business” for the 1996 year.  But no record of either father or son was produced to confirm that or any other amount, except that the appellant did produce his own banking records and a credit card statement of his father as evidence of a total of $44,800 provided by his father on 8 July 1996.

8. The Tribunal at [12] was prepared to accept that $44,800 of the bankings represented funds provided by the father, but this left some $155,000 to be explained.  However, as the Tribunal had noted at [10], the evidence of the appellant was that he used cash from sales for personal drawings and not all cash sale receipts were banked.  There was no record produced of the unbanked amounts.  In the Tribunal’s view it was quite possible that such unbanked receipts equalled or exceeded the $44,800.  As a consequence the Tribunal was not satisfied that the appellant had discharged the onus of proof to demonstrate the actual, or even reasonable, figure of gross revenue. 

9. As to purchases, the appellant produced a computer generated list of purchases for the 1997 year which totalled $943,278.  This figure exceeded the amount shown in his amended tax return ($872,117) by $71,161.  The Tribunal said at [13] (emphasis in original):

   “This list appeared to have been produced from the MYOB system and shows the name of each supplier, the date, varying from July 1996 to June 1997, and the amount.  It is assumed, although not demonstrated in evidence, that it is argued that this list calculated purchases on an accrual basis whereas the figure in the amended return was on a cash basis.  Again there is no accounting evidence to demonstrate any reconciliation between the two figures of purchases or that any amounts in the list produced do not relate to expenses other than purchases.  In addition there is no evidence that this list of purchases has been reconciled with the amounts shown as opening and closing stock to produce a correct figure for cost of sales.  Given this complete lack of appropriate accounting evidence it is not possible to be satisfied that net income has been overstated by $71,161.”

10. As to the 1998 year, the position of the appellant was simply that if his contention in relation to purchases was accepted for 1997, there would need to be a corresponding adjustment against him for the 1998 year. 

11. In his notice of appeal the appellant stated the questions of law raised on the appeal as follows:

    “2.1Whether on the evidence before the Tribunal it was reasonably open for the Tribunal to find:

    (a)that the sales income of the Appellant for the year of income ended 30 June 1997 was $1,101,758;

    (b)that the Appellant did not bring into account for taxation purposes cash sales receipts in the amount that equals or exceeds $44,800;

    (c)that the purchases for the year of income ended 30 June 107 were $872,117;

    2.2Whether on the findings of fact made by the Tribunal that $44,800 of the bankings for the year of income ended 30 June 1997 represented funds provided by the Appellant’s father it was reasonably open for the Tribunal to conclude that the Appellant has failed to discharge the burden of showing that the assessments were excessive.

    2.3Whether the Tribunal erred in law in requiring the Appellant to reconcile amounts that represented purchases for the year of income ended 30 June 1997 on cash basis with those on accrual basis.

    2.4Whether the decision of the Tribunal was one to which no reasonable decision-maker would have come.

    2.5Whether the Tribunal should have remitted the decision under review in relation to the years of income ended 30 June 1997 and 1998 for reconsideration by the Respondent pursuant to sections 42D and 43(1)(c) of the Administrative Appeals Tribunal Act 1975 (Cth).”

12. I am not persuaded that any of these questions are truly questions of law for the purpose of s 44(1) of the Act. While counsel for the Commissioner accepts that a question whether a finding was based on no evidence would be a question of law, the present case has to be considered in light of the onus of proof imposed on the taxpayer by s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth). The appellant has to prove not only a case of error, but what the correct assessment was: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88, Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623. Questions as to what were the true amount of the appellant’s gross income and purchases in the 1997 year were questions of fact. For the reasons explained by the Tribunal, the appellant did not establish any different figures from those assessed by the Commissioner on the basis of the appellant’s own financial records, such as they were.

13. The appeal will be dismissed with costs.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate:

Dated:        29 August 2007

Counsel for the Appellant:	Dr N Orow
Solicitor for the Appellant:	Felipe Tellez
Counsel for the Respondent:	Dr J Glover
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	20 August 2007
Date of Judgment:	29 August 2007