CJYB and Commissioner of Taxation (Taxation)
[2024] AATA 2640
•29 July 2024
CJYB and Commissioner of Taxation (Taxation) [2024] AATA 2640 (29 July 2024)
Division:TAXATION AND COMMERCIAL DIVISION
2020/7029-7032
2021/0499-0504File Numbers:Re:CJYB
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member R Olding
Member N GaudionDate:29 July 2024
Place:Melbourne
The decisions under review are affirmed.
...............................[SGD]..................................
Senior Member R Olding
Member N GaudionCatchwords
TAXATION – INCOME TAX – burden of proof – whether PAYG credits form part of assessment under review – where applicant did not give evidence – decisions affirmed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth), ss 2A, 42D
Income Tax Assessment Act 1997 (Cth), ss 3-5, 6-5, 4-10, 13-1, 63-10, 995-1
Income Tax Assessment Act 1936(Cth), ss 6(1)(a), 166, 167, 175A
(Cth), ss 10-5, 18-15, 14ZZK, 8AAG
Taxation Administration Act 1953Cases
Bosanac v Commissioner of Taxation [2019] HCA 41
Browne v Dunn (1893) 6 R 67
Buzadzic v Commissioner of Taxation [2024] FCAFC 50
Commissioner of Taxation v Ross [2021] FCA 766
FCT v Cassaniti [2018] FCAFC 212
Haritos v Commissioner of Taxation [2015] FCAFC 72
Imperial Bottleshops Pty Ltd v Commissioner of Taxation [1991] FCA 276; (1991) 22 ATR 148
Liang v Federal Commissioner of Taxation [2024] FCA 535
Ma v Federal Commissioner of Taxation 92 ATC 4373, 4377Wang v Commissioner of Taxation [2024] FCA 585
REASONS FOR DECISION
Senior Member R Olding
29 July 2024
This case concerns the liability of the applicant, an individual natural person, for income tax and associated penalties and shortfall interest charges relating to the 2008 to 2017 income years.
It is a troubling matter.
On the one hand, the applicant faces considerable challenges in proving his taxable income for the periods under review due to the effluxion of time and because for some of the relevant periods his records, and/or records of the business that provided the applicant with income, were seized by police and returned only after the issue of a summons. More particularly, the documents were returned in a form that seems to have left them unable to be interrogated without considerable expense and even then not fully as some electronic documentation was corrupted. Further, the applicant was incarcerated at the time of the hearing and had been for some time.
Additionally, the Commissioner’s estimates for the purpose of making default assessments for some of the periods under review (those in the Second Period as described below) appear to have been arrived at by treating amounts considered to be gross receipts of a service business (‘the Business’) as income without allowing for operating expenses. No reason was proffered by the Commissioner for this approach.
Of course, to succeed it is not sufficient for the applicant to prove the premise of the Commissioner’s estimate is flawed. As the High Court has pointed out, for all we know there may be other income.[1] Because the applicant did not give evidence, and having regard to other contextual factors, it is difficult to be satisfied, as the applicant asserts, that he had no income beyond the amounts he has returned or now concedes that he received.
[1] Bosanac v Commissioner of Taxation [2019] HCA 41, [30] extracted at paragraph 36 below.
On the other hand, the applicant:
(a)did not maintain a bank account from 2009;[2]
(b)did not lodge tax returns for several of the income years under review even though on his own admission he derived significant income in those years;
(c)claims to have been paid in cash, but did not produce any record of the amounts he says he received;
(d)declined to give evidence before the Tribunal; and consequently:
(e)was not able to have put to him in cross examination statements apparently made on his behalf or other evidence inconsistent with propositions put to this Tribunal – in particular, regarding whether he was the true owner of the businesses in respect of which the Commissioner attributed income to him.
[2] Because, it is said on his behalf, his bank accounts were frozen, and the applicant did not provide an explanation as to why any new bank accounts were not opened after his bank accounts were frozen.
The Commissioner is, of course, entitled to present the assessments and put the applicant to proof of his income. Whether that is an appropriate administrative course in a particular case is a matter for the Commissioner’s judgement. It is not for this Tribunal to rule on that judgement entrusted to the Commissioner as administrator. The Tribunal’s only role is to determine whether the applicant has proved the relevant assessments are excessive and what amounts should have been assessed.
There is always a risk of injustice to a taxpayer who has derived less income than has been assessed by the Commissioner but, for whatever reason, is unable to prove the amount of the taxpayer’s actual income. That difficulty may be substantially of a taxpayer’s own making if, for example, they transact in cash and fail to keep proper records. There is an element of that dimension in this case. However, the applicant’s predicament is compounded by his records having been seized by police and, according to unchallenged evidence, returned in an unsatisfactory state.
So troubled were we by the risk of injustice to the applicant in this case that we contemplated taking the unusual course of remitting the applications to the Commissioner for reconsideration to enable the Commissioner to reflect upon, in particular, the appropriateness of maintaining (some of) the assessments apparently based on an estimate of business income without allowing in the estimate for expenses. Ultimately, given the Commissioner’s response to that prospect, and the unsatisfactory evidentiary position both the Commissioner and the Tribunal are confronted with, we concluded to do so would be futile and only serve to further delay finalisation of the reviews, contrary to the statutory objects of the Tribunal.
In the end, on the evidence before the Tribunal, we found ourselves unable to reach a state of satisfaction regarding the applicant’s income for the relevant income years (nor that, in respect of the 2008 and 2009 income years, any shortfalls did not arise out of fraud or evasion, thus permitting assessments to be made outside the usual time limits for amending assessments). Additionally, while various assertions were made on his behalf, the applicant put forward no evidence relevant to the assessments of administrative penalties, nor any explanation for his failure to lodge returns for five years, from which we could be satisfied those penalty assessments were excessive.
In those circumstances, our duty is clear: we must affirm the decisions under review in respect of the primary tax assessments and associated administrative penalties. That is so even if the applicant proves ‘the Commissioner formed a judgement about the taxpayer’s taxable income on a wrong basis’.[3]
[3] Commissioner of Taxation v Ross [2021] FCA 766, [46]-[48]; Wang v Commissioner of Taxation [2024] FCA 585, [50].
The applicant also challenged the assessment of shortfall interest charge (‘SIC’) and the disallowance of claimed PAYG withholding credits. For the reasons that follow, we have decided the Tribunal has no jurisdiction to consider those matters in the circumstances of this case.
THE ISSUES – IN SUMMARY
The ultimate issue for determination in this case is whether, in respect of each income year under review, the applicant has discharged the burden of proving assessments of income tax and associated penalties and SIC are excessive and, if so, what the assessments should have been.
The assessments relate to two periods:
(a)the years ended 30 June 2008 to 2011 (‘the First Period’);
(b)the years ended 30 June 2012 to 2017 (‘the Second Period’).
For both periods, the Commissioner issued the assessments under s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). Unlike s 166, which requires the Commissioner to make an assessment from returns and other available information, s 167 applies where a person has defaulted in lodging a return and the Commissioner has reason to believe the person has derived taxable income or the Commissioner is not satisfied with the return lodged. In these circumstances, the Commissioner may make an assessment ‘of the amount upon which in his or her judgement income tax ought to be levied’, which is taken to be the person’s taxable income.
In respect of the First Period:
(a)the taxpayer lodged tax returns; but
(b)the Commissioner:
(i)issued amended assessments treating what he considered to be unexplained deposits in the 2008 and 2009 income years as assessable income; and
(ii)disallowed claimed PAYG credits for each of the four income years.
In respect of the Second Period:
(a)the applicant did not lodge income tax returns; and
(b)the Commissioner issued assessments based on an estimate derived by attributing income of a business, which the applicant denies was operated on his behalf, to the applicant.
The case put by the applicant raises a number of issues, including:
(a)the nature of the burden of proof borne by taxpayers before the Tribunal;
(b)relatedly, whether an opinion could be formed that the alleged shortfalls in the amounts returned for the 2008 and 2009 income years, which would otherwise have been out of time for amendment, were due to fraud or evasion;
(c)whether a taxpayer may contest disallowance of PAYG credits in an application for review of an objection decision;
(d)application of the principles underlying the rule in Browne v Dunn;[4] and
(e)whether, in the circumstances of the case, the Tribunal is empowered to review the Commissioner’s decision not to remit SIC.
[4] (1893) 6 R 67.
ASSESSMENTS AND OBJECTION DECISIONS – FIRST PERIOD
The Commissioner issued amended assessments increasing the applicant’s taxable income by substantial amounts in respect of the 2008 and 2009 income years, as set out in the table below. No such adjustments were made for the 2010 and 2011 income years.
Additionally, the Commissioner disallowed PAYG credits claimed by the applicant in his returns for each of the four years in the First Period.
The Commissioner assessed a base penalty at the rate applicable for intentional disregard of the law – that is, 75% of the shortfall for each year - and applied the statutory uplift of 20% for the second, third and fourth years. These percentages were applied to the shortfall between the amended assessments and the returned taxable income as well as the PAYG credits denied.
At objection, the Commissioner decided:
(a)to disallow the applicant’s objection against the 2008 and 2009 primary tax assessments in full;
(b)to allow the objection against the penalty assessments to the extent that the Commissioner conceded the base penalty percentage and 20% uplift should not be applied to the PAYG credits denied. That resulted in a reduction in the penalty for the 2008 and 2009 income years and no penalty for 2010 and 2011 because there was no adjustment to the taxable income returned by the applicant for those years;
(c)that PAYG credits do not form part of an assessment. On this footing, the Commissioner treated the purported objections relating to the 2010 and 2011 income years – where the only adjustment was to deny the claimed PAYG credits – as not being valid objections.
This history is summarised in the following table:
| Income year | Taxable income returned | PAYG credits claimed in return & denied by Commissioner | Taxable income per amended “assessments”[5] | Taxable income per objection decision | Further tax payable | Penalty assessed | Penalty per objection decision |
| $ | $ | $ | $ | $ | $ | $ | |
| 2008 | 90,000 | 23,100 | 994,748 | 994,748 | 427,236.60 | 337,391.45 | See footnote 6[6] |
| 2009 | 90,000 | 22,000 | 219,993 | 219,993 | 75,996.85 | 71,332.00 | See footnote 6 |
| 2010 | 90,000 | 21,650 | 90,000 | 90,000 | n/a | 19,485.00 | 0 |
| 2011 | 151,500 | 45,850 | 151,500 | 151,500 | n/a | 41,265.00 | 0 |
[5] On the Commissioner’s view, there would be no amended assessments for 2010 and 2011 where the only change is denial of the claimed PAYG credits.
[6] As noted above, at objection the Commissioner maintained the rate of penalty but reduced the shortfall by deducting the PAYG credits denied. We have not been able to locate, in the materials filed in the Tribunal, copies of notices of assessment of amended penalties reflecting this change.
ASSESSMENTS AND OBJECTION DECISIONS – SECOND PERIOD
For this period, the Commissioner attributed income of the Business to the applicant, in the amounts indicated in the table below.
In respect of the alleged shortfalls in each income year arising out of that treatment, the Commissioner assessed penalties for the applicant’s failure to lodge a return at the rate of 75% of the tax assessed, uplifted by 20% for the second, third, fourth and fifth income years in this period.
The Commissioner wholly disallowed the applicant’s objections against the primary tax and penalty assessments.
These decisions are reflected in the following table:
Income year
Taxable income per assessments/
& following objection
$Tax payable
$
Penalties per assessments/
& following objection$
2012
434,358
183,463.60
137,597.70
2013
434,358
182,038.80
163,834.95
2014
434,358
182,038.80
163,834.95
2015
798,212
373,044.05
335,739.65
2016
1,055,204
502,825.00
452,542.50
2017
752,735
349,763.15
314,786.85
SOME PRELIMINARY ISSUES
Burden of proof
Under s 14ZZK of the Taxation Administration Act 1953 (Cth) (TAA 1953), a taxpayer applying for review of an objection decision relating to an assessment has the burden of proving the assessment is excessive and what the assessment should have been.[7]
[7] Under a previous iteration of s 14ZZK, the requirement for the taxpayer to prove what the assessment should have been was not explicit. However, the applicant accepted that, under both versions of s 14ZZK, to prove an assessment is excessive it is necessary for the taxpayer to prove what is the taxpayer’s taxable income for the income year.
Unless the Commissioner agrees to confine the issues in dispute, this means the applicant must prove the actual amount of his income. The Commissioner explicitly and consistently declined to confine the issues in dispute in this case. Dr Orow, who appeared for the applicant, accepted that his client bore the burden of proving the amount of his taxable income for each income year.
However, in written submissions, Dr Orow stated that:
31. The identification by the Commissioner as the sole substantive issue in both applications as “whether the Applicant has discharged his burden of proving” that the assessments are excessive conflates the source of liability with the burden of proof.
32. The Applicant’s liability to taxation depends on the operation of the charging provisions (which in this instances (sic) is section 6-5 [of the Income Tax Assessment Act 1997(Cth)]) and not the burden of proof. Before section 14ZZK is engaged, there must be facts, circumstances and events that warrants (sic) or sustains (sic) the assessments. In this instance, unexplained deposits and amounts derived by others must in the first instance be assessable income on ordinary concepts before section 14ZZK comes into play to require the Applicant to show that, on the facts, they are not assessable to him.
Dr Orow elaborated upon this in oral submissions, as follows:
One of the issues that, with respect, is kind of difficult to comprehend to my mind it does present a distinction. There is a difference between a liability and a provision that creates a liability and the process of discharge of the burden of proof. So if we say, well, hang on, unexplained deposits are not income on ordinary concepts. The Commissioner says you haven’t proved that. We say, but hang on a minute, before you are able to assess an unexplained deposit, it must, in the opinion of the Commissioner, possess the character of income on ordinary concepts... Once it’s then included in the assessable income as income on ordinary concepts, then, and only then, does the burden to discharge the burden of proof come into play. The burden of proof otherwise wouldn’t have arisen that way.
The problem with a case like this is the Commissioner will keep saying, ‘But hang on I have assessed you and now you must prove it’s not income.’ So they’re able to conflate the two and say that it is really more about the burden of proof. This is another way that I ask the tribunal to look at. Let’s say a taxpayer is sitting with their spouse and they look at their bank account statements that date back six years, six years only, and say that one person looks and say, ‘Look, there is $3000, what is that? I don’t know.’ The other one says, ‘I don’t know.’ There is no way of explaining it. There is no reference to where it comes from. Is there an obligation on that taxpayer to go to their tax accountant and file an amended return to pay tax on the $3000? Is there? If there is no obligation on the taxpayer to then go and include that in their assessable income, then unexplained deposits are not assessable unless the Commissioner explains why they are assessable.
For example, I have dealt with cases involving unexplained deposits and they deal with situations where someone’s carrying a cash business and the Commissioner says, ‘Hang on, instead of declaring some of that cash you put it in your accounts and now you haven’t explained that.’ So the unexplained deposits really are income from business, which is ordinary income, that has gone into your bank account. The unexplained deposit itself is not a taxable amount but because it’s assumed its character of income by reason of its relation to a business activity, then it becomes assessable. That argument makes sense, then it will engage the burden of proof.
But to simply say, ‘Look, I can see an amount in your bank statement, what is it?’ And if the taxpayer says, ‘I don’t know’, then it’s assessable. Why? That’s actually a presumption of taxation, is it not? There is a presumption that an amount unexplained is taxable and then it creates this circular self-sustaining logic, which to my mind is false. The logic is this, that six years ago the taxpayer, what is it? Doesn’t know what it is. Well, it was income.
Because it was income, you haven’t declared it. Because you haven’t declared it, the conduct is wrongful or blameworthy in the relevant sense and consequently the Commissioner is able to form the opinion there was fraud or evasion so as to reach back beyond the two or four year limitation period to the six year period and tax the taxpayer on it. That hasn’t been resolved.
With respect, that’s an argument that has been advance on a number of occasions but it hasn’t been seized because probably it presents significant obstacles but I do suggest that there is a way for the tribunal to decipher between a simply unexplained deposit as taxable income and an unexplained deposit in a context where suggests that it has the character of an amount received from a taxable activity, big difference between the two. . .
(Emphasis added.)
We understand the highlighted portion of the final paragraph of this extract to submit that, before s 14ZZK is engaged in a case where the Commissioner has assessed an amount as income because there were deposits to a bank account that he regards as unexplained, there must be something in the context to suggest the deposit is income. The example posited earlier in this extract suggests that will be so where there is an unexplained deposit in the context of a taxpayer who carries on business.
So far as Dr Orow points out the task is to, in effect, prove a negative – that is, that the taxpayer has not derived a contested amount as income – we accept the submission. However, the cases have dealt with that circumstance, for example, in the context of an assessment based on an “assets betterment” basis – comparing a taxpayer’s increase in wealth against their disclosed income – it has been said that:
if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved.[8]
[8] Ma v Federal Commissioner of Taxation 92 ATC 4373, 4377.
Similarly, in this case, if the applicant denied the deposits attributed to him were income and provided a credible explanation of the deposits, in the absence of conflicting evidence and assuming the evidence was not inherently implausible, his evidence may be accepted. It is not uncommon for a controversy regarding whether a deposit to an account is income or, for example, a loan or repayment of a loan, to fall to be resolved by the Tribunal on the basis of the taxpayer’s testimony and other evidence. It is usually desirable, but certainly not mandatory, for such evidence to be corroborated. The difficulty for the applicant in this case is not that any explanation is implausible or inconsistent such as to put the honesty of his testimony in doubt. It is that he has not provided any testimony at all.
Dr Orow did not identify any case in which the principle he espoused had been accepted by a court or this Tribunal.
Nettle J stated the applicable principle and its rationale, in Bosanac v Commissioner of Taxation [2019] HCA 41, in this way at [30]:
. . . But where, as here, an appeal proceeds on the basis that not all of the material facts are known, either because the taxpayer has been less than forthcoming in making disclosures to the Commissioner or for some other reason, the taxpayer cannot succeed by showing only that the basis of the Commissioner's assessment was in some respect erroneous; since for all that can be told, unless and until the taxpayer proves to the contrary, there may be other income of which the Commissioner was not aware and which the Commissioner has not taken into account. In order to succeed in such a case, the taxpayer must discharge the burden of demonstrating on the balance of probabilities the true amount of the taxpayer's taxable income and thus that the amount determined by the objection decision is excessive.
In written submissions, the applicant maintained that:
The burden of proof does not mandate an all or nothing approach. Rather, it is open for the Tribunal to find that the Applicant has discharged the burden of proof in relation to one or more of the years of income and/or to some of the assessed deposits/attributed amounts.
We accept that the Tribunal may, if so satisfied, find the applicant has discharged the burden of proof in relation to one or more income years but not others. If the applicant did so, he would be entitled to succeed in respect of that income year or those income years.
We also accept that the applicant may prove that some of the amounts the Commissioner treated as income are not income without proving the same in respect of other amounts. But that does not mean he would necessarily prove the assessment is excessive. As Nettle J indicated in the passage extracted above, there may be other income of which the Commissioner and the Tribunal are not aware.
Dr Orow responded to his Honour’s comments in this way:
The reference to what was said by Justice Nettle is with respect cannot be right. In a quoted passage by Justice Nettle he says since for all that can be told unless and until a tax payer proves to the contrary there may be other income of which the Commissioner was not aware and which the Commissioner has not taken into account.
Even if the tax payer explains 100 per cent of the deposits it is possible that there are some other income that the Commissioner is not aware of. You could say that about every tax payer in Australia. They may have income that the Commissioner is not aware of.
So that statement is really – has no basis – and it is, with respect, objectionable.
We confess to some difficulty understanding Dr Orow’s submissions regarding burden of proof. To the extent it is submitted, s 14ZZK is not engaged because the context is not such as to suggest the amounts assessed are income, the submission has no support in authority. If it is suggested the applicant can succeed to any extent by proving some or even all of the deposits are not income, that seems inconsistent with the applicant’s express acceptance that he must prove his actual income.
It is also inconsistent with the principle that, unless the Commissioner confines the issues in dispute, a taxpayer cannot succeed by “chipping away” at an assessment, as established by authorities that bind this Tribunal and for the reasons stated by Nettle J as extracted above.[9] To the extent the applicant relies on the judgement of the Full Federal Court in Haritos v Commissioner of Taxation,[10] we do not accept that case is authority for the applicant’s proposition; in Haritos, unlike this case, the Commissioner had confined the issues in dispute.
[9] The extracted comment by Nettle J is a considered statement by a justice of the High Court of Australia. We did not understand Dr Orow to say this Tribunal should disregard it, although that would seem to be the consequence of adopting his submissions.
[10] [2015] FCAFC 92.
Additionally, a Full Court of the Federal Court has now rejected a similar submission: Buzadzic v Commissioner of Taxation [2024] FCAFC 50.
In summary, we approach whether the applicant has discharged the burden of proving the assessments are excessive having regard to the following principles:
(a)There is no threshold requirement of the kind submitted by the applicant for s 14ZZK to be engaged.
(b)It is not sufficient for the applicant to “chip away” at the assessments by, for example, proving that particular deposits are not income. The applicant must prove his actual income for each income year to succeed in respect of that income year.
(c)That does not mean that gaps in the direct evidence in relation to, for instance, some of the allegedly unexplained deposits, may not be filled by inferences appropriately drawn from relevant factual findings.
(d)Facts may be proved by oral evidence alone. Corroboration by reference to contemporaneous documents or records, or the evidence of other witnesses, is not essential.
(e)To discharge the burden of proof, it is sufficient if the taxpayer “tips the scales ever so slightly” in his favour.[11]
(f)In assessing the evidence adduced by the applicant, the evidence is to be considered through the lens of the evidence which it was reasonably within the power of the applicant to adduce. In that regard, we take into account the difficulties confronted by the applicant mentioned earlier.
(g)Ultimately, the task of the Tribunal is to determine whether the evidence provides an appropriate basis on which to be satisfied the applicant has proved the assessments are excessive and what amounts should be assessed.
[11] For this and the preceding propositions, see, for example: Imperial Bottleshops Pty Ltd v Commissioner of Taxation [1991] FCA 276; (1991) 22 ATR 148, 155; and FCT v Cassaniti [2018] FCAFC 212.
Failure of the applicant to give evidence
When directions hearings were held leading up to the substantive hearing of the applications for review, the applicant was incarcerated but attended the directions hearings by telephone and he attended the substantive hearing of the review by video link from the jail at which he was held. We do not know why the applicant was incarcerated. We were advised that he was awaiting trial on serious offences but do not know the nature of any convictions or alleged offences. We do not draw any adverse inference from his incarceration in respect of the issues before the Tribunal.
Before the substantive hearing, a witness statement for the applicant was filed in accordance with a direction requiring witness statements for all witnesses upon whose evidence the applicant proposed to rely. However, when the hearing resumed for the final day of evidence, Dr Orow advised the applicant would not be giving evidence.
Accordingly, the witness statement was not put into evidence. No medical or other evidence was provided regarding why the applicant would not be giving evidence in the applications for review relating to his own personal income tax liabilities and substantial penalty assessments. Nor was any explanation provided in written closing submissions filed before the final day of the hearing.
In the course of oral closing submissions, we raised with Dr Orow our concerns about how the applicant could discharge the burden of proof without giving evidence. To be clear, we did not and do not say it would be impossible for an applicant to do so.
In response to the Tribunal’s questions, Dr Orow advised that the applicant:
…has criminal charges pending against him, fairly serious criminal charges. And as you would know, I’m not his criminal barrister, but in criminal matters defendants aren’t required to give evidence of any kind. So it would be a very unusual step to call him to give evidence in this kind of proceeding, when he won’t be required to give it in the other proceeding. So a decision was made - - -
Dr Orow went on to say:
Would it be of assistance to the tribunal – we cannot call [the applicant] to give evidence for whatever reason. I don’t think it is right to say this is a different proceeding and therefore he can give evidence in it. Unfortunately, the fact that he has other serious criminal charges pending against him, is a factor that could inhibit someone from giving evidence in any tribunal, in relation to any matter. But nevertheless, that is a matter for his criminal lawyers.
The point I am making is this, if the tribunal thinks it’s of assistance, my instructor can obtain instructions from him, essentially, have you earned any other income, yes or no, and when did you cease to be the owner of the [Business]? X date, and that’s it. And will have that filed by early next week.
Not surprisingly, the prospect of the applicant re-opening his case on the final day of closing submissions to file further evidence – some weeks after the close of evidence - was opposed by the Commissioner. We declined to ask for or permit any further evidence at that point.
Dr Orow had earlier made detailed submissions regarding the evidence he submitted the Tribunal could rely upon to find in the applicant’s favour as discussed below. In any case, it was clear that, if a further statement were to be admitted into evidence, the applicant would not be made available for cross-examination. In the circumstances, we considered that any such late statement, if admitted, could be afforded little weight and would therefore not be likely to assist the Tribunal in its task of determining whether we should be satisfied as to the amount of the applicant’s taxable income in respect of each year under review.
Aside from the reference to serious criminal charges pending, and that advice not to give evidence in these proceedings came from the applicant’s lawyers in the criminal proceedings, we were not given any explanation of why the applicant could not give evidence. It is open to a witness in proceedings before the Tribunal to decline to answer questions on the basis of the privilege against self-incrimination. Indeed, the Tribunal had, at Dr Orow’s urging, given a witness in the proceeding warnings about the risk of self-incrimination and advice regarding how to claim the privilege. Nor had there been any application to delay the hearing of this matter pending resolution of criminal charges.
Additionally, both during oral closing submissions as already mentioned, and later in submissions regarding whether the matter should be remitted to the Commissioner for reconsideration as discussed below, Dr Orow offered to provide a sworn statement from the applicant deposing as to his income during the relevant periods. Thus, it seems that it is not giving evidence regarding the amount of his income for the income years that the applicant has been advised not to do but, we can only assume, that he should not expose himself to cross-examination.
The fundamental issue in this case is whether the Tribunal should be satisfied the applicant’s income for the relevant years is as he claimed through his counsel and in his notices of objection against the assessments. Because of the limited explanation provided, it is not clear to us how the applicant giving truthful evidence in support of the assertions made by his counsel on his behalf and in his objections could give rise to concern in relation to his criminal proceedings. However, judgements regarding evidence to be adduced are matters for the applicant and his advisers. The Tribunal can only decide the reviews on the evidence adduced.
We are, though, mindful of the recent judgement of Logan J in Liang v Federal Commissioner of Taxation [2024] FCA 535. His Honour found error in the Tribunal which had rejected the evidence of the taxpayers for reasons of credibility, but failed to consider whether, on the other evidence before the Tribunal and taking into account the Commissioner’s concessions, the taxpayer had nevertheless discharged the burden of proving the relevant assessments were excessive. In this case, we do not approach the matter from the position that the applicant’s case is necessarily doomed by his decision not to give evidence and accept that he may, through other evidence, and inferences drawn from proven facts or uncontested evidence, nevertheless discharge the burden of proof.
Of course, that will almost always be more difficult where, as in this case, the assessments under review are default assessments made under s 167 of the ITAA 1936. The Commissioner made the assessments under review in Liang under s 166, expressly confined the issues in dispute, and made other concessions regarding the character of the contested amounts.
PAYG credits
The applicant purported to object against the Commissioner’s disallowance of PAYG credits said to have been deducted by the applicant’s employer in the 2010 and 2011 income years, and to apply for review of what were said to be objection decisions relating to that issue.
The Commissioner says the applicant did not have a right to object against the disallowances. If that is correct, it follows that the applicant did not lodge a valid objection and there can be no objection decision relating to disallowance of the credits that may be the subject of an application for review by the Tribunal. In other words, on the Commissioner’s view, the Tribunal does not have jurisdiction to review the Commissioner’s decision to disallow the claimed PAYG credits. Nor would the applicant’s purported objection grounds relating to disallowance of PAYG credits claimed for the 2008 and 2009 income years be valid grounds of objection.
The starting point is s 175A of the ITAA 1936 which provides that a taxpayer “who is dissatisfied with an assessment made in relation to the taxpayer may object against it. . .” The term “assessment” is defined in s 6(1)(a) of the same Act to include the ascertainment:
(i)of the amount of taxable income (or that there is no taxable income); and
(ii)of the tax payable on that taxable income (or that no tax is payable); and
(iii)of the total of a taxpayer’s tax offset refunds for a year of income (or that the taxpayer can get no such refunds for the year of income); or…
From this agreed foundation, the applicant argues in written submissions, as follows:
57. Section 3-5 of the ITAA 1997 provides that the Act answers the question, inter alia, “how do you work out how much income tax you must pay.”
58. Section 4-10 of the ITAA 1997 provides a method statement which
states in step 3 “work out your tax offsets for the income year. A tax offset reduce (sic) the amount of income tax you have to pay.”
59. Once tax offsets are subtracted then the result would be how much
income tax a taxpayer owes for the financial year – that is the amount of “tax payable” within the meaning of “assessment” in section 6(1)(a).
60. Section 995-1 of the ITAA 1997 provides that the expression “tax offset”
has the meaning given by section 4-10. Section 4-10 defines tax offset to
mean an offset that “reduces the amount of income tax you have to pay.”
61. The Applicant contends that answers this issue against the
Commissioner because it is clear that the legislative purpose is to include
within the definition of tax offset any amount that reduces the amount of
income tax payable – that must extend to PAYG credits. Nevertheless,
section 13-1 contains a list of tax offsets which expressly includes
“withholding credits”.
There are a number of difficulties with this submission:
(a)Section 6(1)(a) plainly distinguishes between ‘tax payable on that taxable income’ (s 6(1)(a)(ii)) and ‘the total of a taxpayer’s tax offset refunds’ (s 6(1)(a)(iii)).
(b)Section 6(1)(a)(iii) provides for ascertainment of ‘tax offset refunds’ not tax offsets.
(c)The expression ‘tax offset refund’ is defined in s 995-1(1) of the ITAA 1997 as ‘a refund you can get as mentioned in item 40 of the table in subsection 63-10(1) (refundable tax offsets)’. Nothing in item 40 could conceivably cover PAYG credits.
(d)While the applicant’s submissions quote the method statement in s 4-10 – ‘A tax offset reduces the amount of income tax you have to pay’ – that is a description of the effect of a tax offset, not a definition. What the submissions do not quote is that the method statement goes on to say, ‘For the list of tax offsets, see section 13-1’.
(e)Although the applicant’s submissions suggest that s 13-1 contains a list of tax offsets ‘which expressly includes “withholding credits”’, we are unable to locate any such item in s 13-1. The expression ‘withholding payments’ is listed but refers to payments made by companies to Australian seafarers.
In any case, s 6-10 in Schedule 1 to the TAA 1953 which discusses how the amounts collected are dealt with, makes it clear that the PAYG system provides for credits against ‘your tax debts’ – that is, against your tax payable. Further, s 18-15(1) in Schedule 1 provides:
An entity is entitled to a credit equal to the total of the *amounts withheld from *withholding payments made to the entity during an income year if an assessment has been made of the income tax payable, or an assessment has been made that no income tax is payable, by the entity for the income year.
These provisions indicate PAYG and other withholding payments, as defined for this purpose in s 10-5(1) of Schedule 1, are credited against the tax assessed as payable rather than forming part of the ascertainment of the tax payable.
It is perhaps for these reasons that the applicant was unable to cite a single instance in which it had been held that the Tribunal has jurisdiction to review a decision to disallow claimed PAYG credits or it had purported to exercise such jurisdiction.
The Commissioner did not make a decision allowing or disallowing the purported objections for 2010 and 2011 income years but rather took the position that, no valid ground of objection being raised, the purported objections to the assessments were not valid. On the premise that PAYG credits do not form part of an assessment, and there is no separate objection right in respect of decisions relating to such credits, there is no objection decision for those years before the Tribunal for review.
For completeness, we note that there is no evidence before the Tribunal that PAYG deductions were in fact withheld by the applicant’s employer, which was asserted to be owned and controlled by the applicant, other than the applicant’s assertion in his objection. The Commissioner advised that the employer company did not lodge income tax returns or activity statements recording the withholding of PAYG deductions. We make no findings regarding these matters since, on the view we take, decisions regarding the alleged PAYG withholding credits are not before the Tribunal for review.
THE EVIDENCE BEFORE THE TRIBUNAL
Background
It is necessary to provide some further context for the description of the evidence that follows below. We understand this information, drawn mainly from the parties’ Statements of Facts, Issues and Contentions, to be uncontroversial.
The First Period
The applicant lodged income tax returns for these income years disclosing income and claiming PAYG credits in the amounts indicated earlier.
After issuing a notice requiring production of documents, the Commissioner obtained from the applicant’s bank copies of bank statements for the 2008 and 2009 income years. These revealed deposits in the sums of $997,686 and $220,994 respectively. The deposits were generally by way of internet transfers and the descriptions were not meaningful.
The Commissioner formed the view that the deposits to the account were income. In that regard, the applicant had been a director and/or shareholder of a number of companies. The Commissioner also determined that withdrawals from the account were for the applicant’s living and other private expenses, apart from some items treated, in effect, as deductions (generally for bank charges and the like).
The Commissioner also formed the view that the applicant had engaged in fraud or evasion, thus allowing the Commissioner to issue amended assessments for 2008 and 2009, even though the standard time for amending assessments had expired.
The Commissioner determined the taxable income for the applicant should be adjusted by increasing the taxable income by the substantial amounts indicated in the table at paragraph 23 of this decision for the 2008 and 2009 years. The Commissioner also disallowed the claimed PAYG credits across all four years in this period on the basis that there was no evidence that the claimed amounts had been withheld and remitted to the Tax Office.
For the reasons indicated above, there is no valid objection in relation to the 2010 and 2011 income years. For the 2008 and 2009 income years, the applicant maintained that deposits the Commissioner considered to be unexplained were not income and that his taxable income did not exceed the amounts returned.
As the Commissioner amended the applicant’s assessments for the 2008 and 2009 income years, the applicant is liable for SIC on the resulting shortfall. The Commissioner decided not to remit this SIC in whole or in part.
Witnesses who gave evidence
In addition to documents produced by the Commissioner, the Tribunal had the benefit of witness statements and oral testimony from four witnesses:
(a)the applicant’s solicitor;
(b)the applicant’s father;
(c)an associate of the applicant (‘the Associate’);
(d)an expert witness (‘the Expert’).
Evidence of the applicant’s solicitor
The solicitor gave evidence that multiple search warrants had been executed at the applicant’s residence and on associated persons and businesses he had worked at or had been associated with, and as to the difficulties in obtaining return of or access to the documents and devices seized by the police. She also referred to evidence of the Associate in these proceedings that he expected return of some 50,000 documents previously seized which he considered were relevant to these proceedings.
Although the documents and devices seized by the police were ultimately returned, the solicitor deposed that they were ‘all mixed so that it was not possible to identify a class of documents or a date or relevance to a specific [business] or location or person’.[12]
[12] Solicitor’s Supplementary Statement dated 3 April 2023, paragraph 6.f.
The solicitor went on to explain that an IT specialist was eventually engaged to assist with access to the documents and confirmed that all of the retrieved material and devices were provided to the Expert.
The Commissioner accepted and we agree there is no reason to doubt the solicitor’s evidence which we accept and find accordingly.
Evidence of the applicant’s father
The applicant’s father gave evidence that he lent the applicant money at various times to purchase a house and for business equipment. He could not specify the precise amounts or dates but was able to identify from the applicant’s bank statements that he lent the applicant $50,000 in October 2007 and $37,000 in January 2008. He was also able to identify from the applicant’s bank statements various amounts repaid to him from July 2007 to October 2008 by the applicant. We accept the applicant’s father’s evidence in that regard.
In the course of his oral evidence, the following exchange between the Tribunal and the applicant’s father occurred:
MEMBER: I do have a couple of questions for Mr CJYB [applicant’s father]. Mr CJYB, you said that you sighted the bank statements at CJYB’s [Business] in [suburb omitted], I think that’s what you said. Can you tell me, when you’re referring to CJYB, that’s referring to your son?---Yes.
When you say his [business] in - so when did you sight those bank statements?---It would have been - well, we had a meeting there, prior to Christmas of last year.
So sometime November, December, 2021?---That’s right.
And when you say his [Business] in [suburb omitted], what do you mean by that?---Well, CJYB has a [Business] in [suburb omitted], on the main road there. [business name omitted].
Do you know how long he’s had that [Business]?---Yes, well, started off in another address just around the corner in [location omitted] back in about early 2002, 2001, 2002, and then membership increased and then, the move was made around into [location omitted].
Okay?---(Indistinct) that I was talking about, that new address, yes.
That evidence contradicts the case put on the applicant’s behalf that he was not the owner of any such businesses. However, it is relevant that, as the applicant’s father stated and we accept, the applicant and his father had been somewhat estranged.
Evidence of the Associate
The Associate gave evidence that:
(a)He met the applicant in 2010.
(b)Between 2010 and 2014, the Associate assisted with administrative duties and promoted and conducted advertising for the Business.
(c)The Business was owned by the applicant before 2008 but from about 2009, the applicant was employed as the general manager and was paid a salary of ‘about $2,000-$3,000 per week’.
(d)The applicant took directions from a third person, not the Associate.
(e)The Associate had an entitlement to some income from the Business which he brought to account in his own income tax returns for the 2015-2017 income years.
(f)There had been various owners of the Business although in cross-examination he clarified that:
You know, I’m just talking in a general sense, ‘owner’ but it might be, ‘partner’, ‘investor’, or ‘stakeholder’. Stakeholder’s probably a better word.[13]
[13] Transcript P-14, lines 44 to 46.
Evidence of the Expert
The Expert is an insolvency practitioner and is qualified as a Chartered Accountant and Certified Practising Accountant and has many years of experience. We accept the Expert is qualified to give expert evidence regarding his examination of the financial records made available to him. The summary of the Expert’s evidence set out below is largely drawn from the applicant’s closing submissions.
In respect of the First Period, the evidence of the Expert is that he traced information obtained from the applicant’s bank to available records. On the basis of that exercise, the Expert concluded that, of the $1,218,680 deposited to the applicant’s account in the 2008 and 2009 income years:
(a)$79,272 represented business expenses and allowable deductions;
(b)$902,777 was returned to associated businesses;
(c)$146,690 represented loans used for a house purchase;
(d)$89,939 remained unexplained due to lack of records or time.
In respect of the Second Period, the Expert gave evidence that:
(a)The amount of documentation obtained made it impractical to examine all the available information and many files were corrupted or could not be opened.
(b)However, from a random sample of documentation, the Expert concluded that:
(i)none of the documents in the random batch contained any reference to the applicant; and
(ii)the documents demonstrate that the [Business] was ‘run with numerous other personnel responsible for significant business activities’, and that this conflicted with the Commissioner’s conclusion that the Business was conducted on behalf of the applicant.
(c)On the basis of his review of cash books, the applicant received a wage of $1,000 per week along with other benefits, ultimately concluding the applicant received for each of the income years 2012-2017:
(i)cash payments of $85,108; and
(ii)benefits in kind of $88,206.
(d)He examined the Associate’s tax returns for 2011-2017 and concluded the income and expenses of the Business were brought to account in those returns, in the following amounts:
(i)2011: Business income: $35,244
(ii)2012: Business loss: ($93,750)
(iii)2013: Business loss: ($540)
(iv)2014: Business loss: ($71,891)
(v)2015: Business income: $82,041
(vi)2016: Business income: $101,043
(vii)2017: Business income: $163,655.
Rule in Browne v Dunn
In closing submissions, the applicant emphasised that the Commissioner’s cross-examination of the Associate and the Expert was largely confined to clarification of their evidence and did not put to the witnesses that their evidence was not truthful. On this foundation, the applicant submitted the evidence of those witnesses must be accepted on the basis of the rule in Browne v Dunn.
Even if this submission were accepted, it would not address the difficulty arising out of the absence of direct evidence from the applicant regarding the amount of his taxable income in the years under review as discussed further below. Nevertheless, we make the following observations.
Of course, a submission to the effect that the Tribunal would breach a principle of law by not taking into account a failure by the Commissioner to cross examine a witness on a particular point would be rejected as an imposition of curial principles upon an administrative decision-making body.
Further, we do not consider that application of the principles of fairness underlying the rule support the view that the Tribunal must necessarily accept every opinion expressed by the Expert based on the material produced to him for review. In this case, the Expert accepted in cross-examination that the factual conclusions he reached, which formed the basis of his opinions – such as the nature of bank account entries – were informed by discussions with the applicant. That occurred, of course, in circumstances where the applicant was not made available for cross-examination.
We accept the Expert’s evidence regarding the nature of the enquiries and examination of records that he undertook. However, it does not follow that, in the absence of specific cross-examination on a matter, it would necessarily be unfair not to accept all of the Expert’s conclusions or inferences drawn by the Expert from the outcome of his investigations. Any determination on such issues would properly take into account the entirety of the relevant evidence and the nature of the inference to be drawn.
The Expert initially gave evidence that he had no relationship with the applicant other than being a liquidator for a company of the applicant’s in the late 1990’s.[14] However, the Expert was later taken to an ASIC search annexed to his first report for a company that was registered in 2001 and of which the applicant was the sole director from 2001 to 2010 and a former shareholder. The Expert was appointed as a liquidator of that company from February 2006 to October 2009 and then from the same day in October 2009 until the company was deregistered in 2014[15]. The Expert acknowledged that his schedule analysing the bank transactions of the applicant’s bank account included payments listed as being to and from the company for which he was a liquidator at that time[16].
[14] Transcript P-62, lines 10 to 24.
[15] Transcript P-68, lines 10 to 34.
[16] Transcript P-64, line 30 to P-65, line 12.
When asked if he was aware of these transactions whilst he was a liquidator, he advised he was not and was not aware of why he was not, as he would have caused searches with the major banks for bank accounts of the company to be undertaken. The reason why there is a number of transactions between the applicant’s bank account and a bank account believed to be in the name of that company whilst in liquidation is not explained[17].
[17] Transcript P-68, lines 36 to 44.
The Expert also acknowledged in his evidence that when conducting his analysis of the bank transactions there were errors, such as:
(a)“Where there was no match we then had to try to guess who the account was and then confirm with the bank ….And if I’ve transposed this incorrectly, just got the wrong instant name there, probably just the fullness of time and the tedious nature of the process”[18]
(b)When the Expert was asked “So the source account name and what you’re now saying is where it may appear in your schedule, it may be incorrect if there is an inconsistency with the trace documents?” his response was “Yes. The trace documents are gospel”[19];
(c)“I must have made an error then actually. That should be …”[20].
(d)“One thing I did – I know I did earlier and I may have copied it incorrectly, but I had – once I’d confirmed a bank account with Westpac I copy and pasted across all of them to do the same thing. So I may have made an error and just done a copy and paste”[21]
(e)The Expert was asked “So therefore, could there be some anomalies in your report? Is that what you are saying to me?” to which the Expert responded, “Yes, there could be because it’s not an exact science. …. So it’s a bit of a educated guess for a lot of those transactions. Yes”[22].
[18] Transcript P-98, lines 8 to 12.
[19] Transcript P-98, lines 34 to 36.
[20] Transcript P-96, lines 39 to 40.
[21] Transcript P-97, lines 6 to 9.
[22] Transcript P-67, lines 4 to 9.
Therefore, there are questions regarding the accuracy and credibility of the conclusions the Expert reached regarding the nature of transactions evidenced by various bank entries. Even if those conclusions were to be accepted notwithstanding being based at least in part on explanations provided by the applicant that have not been tested in cross-examination, it would not follow that the Tribunal must draw the inference that the remaining unexplained amount of $89,939 was not income or that it would be unfair to do so without putting the matter to the Expert. Whether such an inference should be drawn is not a matter on which an expert is better placed than the Tribunal which is well accustomed to fact finding based on direct evidence and inferences drawn from such evidence.
SHOULD THE MATTER BE REMITTED TO THE COMMISSIONER FOR RECONSIDERATION?
As indicated above, we considered whether remission to the Commissioner for reconsideration under s 42D of the Administrative Appeals Tribunal Act 1975 (Cth) might be appropriate in light of, in particular, the apparent basing of the assessments on an estimate derived by applying the tax rates to the alleged gross business income without any allowance for expenses. This approach troubles us where, if the objective is to estimate the taxable income of a business, the Commissioner disregards any expenses that might have been incurred in circumstances, particularly where, as in this case, the Commissioner has published benchmarks for businesses where it recognises average levels of expenditure that would be incurred for the relevant type of business.
The issue concerning the assessments being based on an estimate derived from gross income without allowance for expenses is, of course, not a basis on which the Tribunal could set aside the assessments, without being satisfied as to the actual income of the applicant in the relevant years. As has been stated recently and repeatedly:
It is insufficient to discharge the burden under s 14ZZK(b)(i) in relation to an assessment under s 167, whether based on the asset betterment method or otherwise, to merely demonstrate that the Commissioner formed a judgement about the taxpayer’s taxable income on a wrong basis and that the amount assessed far exceeded the taxpayer’s taxable income.[23]
[23] Commissioner of Taxation v Ross [2021] FCA 766, [46]-[48]; Wang v Commissioner of Taxation [2024] FCA 585, [50].
Although it would have been unusual to remit the matter for reconsideration, particularly so late in the proceeding, that course might have provided the Commissioner with an opportunity to revisit the assessments in light of the evidence which emerged in the course of the hearing and issue amended assessments on a basis that might be considered more appropriate in the circumstances.
However, the Commissioner’s opposition to that course has made it clear that any such remission would likely be futile. As such, to do so would only further delay finalisation of this matter contrary to the objective of providing an expeditious review of reviewable decisions.[24] Accordingly, we decided to proceed with determination of the reviews.
HAS THE APPLICANT PROVED THE INCOME TAX ASSESSMENTS FOR THE FIRST PERIOD ARE EXCESSIVE AND WHAT SHOULD HAVE BEEN ASSESSED?
[24] Having reached this conclusion, it is not necessary for us to embark upon a discussion of the cases concerning s 42D and whether, in the circumstances of this matter, it would otherwise be an appropriate exercise of the power to remit the matter for reconsideration by the Commissioner.
As indicated earlier, the applicant, to succeed, must prove the amount of his taxable income for the 2008 and 2009 income years.
The applicant did not file any affidavit or witness statement attesting as to his income. The only evidence to which we were directed is his tax returns for these income years and his objection against the assessments. The objection states that the applicant correctly reported his taxable income and did not omit any amount. The objection is dated 1 June 2020 and is signed by the applicant.
We have given anxious consideration to whether this evidence is sufficient for the Tribunal to be satisfied that the applicant’s income did not exceed the amounts returned in the absence of direct evidence from the applicant.
The applicant has provided detailed evidence from the Expert which sets out the basis for his opinion that the deposits to the applicant’s bank account were not income. However, that evidence, even if accepted, leaves unexplained credits totalling almost $90,000. The Tribunal is asked to accept an inference that, because the other credits were explained to the satisfaction of the Expert, these too must have a non-income character.
Even making full allowance for the difficulties the applicant faces in obtaining documentary evidence, it would be a significant leap for the Tribunal to accept that the applicant has positively proved that deposits of nearly $90,000 are not income in the absence of any direct evidence to that effect. In particular, in the absence of evidence from the applicant himself and in circumstances where the applicant’s decision not to give evidence was not appropriately explained. That decision was certainly not explained by evidence – such as an affidavit by the applicant or his advisers – and the explanation provided by his counsel was limited.
Further, we are asked to draw that inference in circumstances where the applicant has a demonstrated history of non-compliance with taxation obligations – he did not lodge income tax returns for any of the years in the Second Period even though, on his own case, he concedes he derived significant income in each of those years.
In the normal course, in a case such as this, the taxpayer would file a witness statement attesting as to his income which would be adopted under oath or affirmation. The Commissioner would then cross examine the applicant as to his income. That is the normal procedure before the Tribunal in taxation reviews which would be well known to the applicant’s counsel who is experienced in taxation litigation. Here, the applicant has provided no sworn or affirmed evidence regarding his income.
Nor has he given evidence regarding the instructions or explanations he provided to the Expert regarding the entries to his bank account on which the Expert relied in compiling his report. Most significantly, he has not been exposed to cross-examination to allow these matters to be tested. Nor has a full explanation for the applicant not giving evidence and submitting to cross-examination or supporting evidence been provided.
In any case, even if the Expert’s opinion were to be accepted, including the inference that the remaining unexplained deposits must also not have the character of income, that would only establish that the deposits were not income. It would not establish the actual income of the applicant for 2008 and 2009.
Much of the focus of the hearing and the evidence was in respect to the income of the Business on which the Commissioner had based his assessment of income. However, there was also evidence of the applicant having interests in other companies associated with business activities in a different industry. The Expert included a schedule at Appendix E of his first report, which noted the applicant’s involvement as a director and/or shareholder in a number of entities during the First Period. The Exhibit to the Expert’s report dated 4 April 2023, included a number of agreements commencing at page 647 of that Exhibit. The Expert was asked questions about these agreements and whether they indicated the applicant had an interest in businesses in both industries at dates after 1 July 2007 (being at least November 2007 and April 2008). The Expert accepted that it could be inferred that the applicant did have ownership interests in the businesses after 1 July 2007[25].
[25] Transcript dated 24 July 2023, P-24, line 20 to P-25, line 20.
The Expert also attached a schedule of the transactions in the applicant’s bank account which was annexed to his report dated 17 December 2021. The comment under the heading “PURPOSE OF RECEIPT” for 27 deposits totalling $184,634 during the year ended 30 June 2008 is “[Name omitted] sale of business repayments” of “[Same name omitted] sale of business repayment”[26]. The transcript records the following questions put to the Expert and his responses:
“You mentioned earlier that you read the statement of [Name omitted]?- - -A while ago, yes.
So you are aware that the statement refers to the sale of the [type of business omitted] business?- - - Yes.
That sale occurred on 1 July 2007? - - - That seems familiar.”
[26] The Expert was referred to these transactions at Transcript P-66, line 37 to P-67, line 2.
Therefore, it is also possible that there could have been a CGT event during the year ended 30 June 2008.
These are matters which, had the applicant given evidence, might have been explored in cross-examination.
Having regard to these circumstances, we are unable to be satisfied that the applicant’s taxable income for the 2008 and 2009 income years was no more than the amounts included in his income tax returns. Those circumstances, including the absence of any explanation by the applicant of the circumstances surrounding the filing of his returns, also lead us to conclude there is insufficient evidentiary basis for us to be satisfied the fraud or evasion exception to the time limit on amending assessments does not apply.
HAS THE APPLICANT PROVED THE INCOME TAX ASSESSMENTS FOR THE SECOND PERIOD ARE EXCESSIVE AND WHAT SHOULD HAVE BEEN ASSESSED?
As indicated above, the Expert’s review did not reveal any documentation suggesting the Business is conducted on behalf of the applicant. However, the Commissioner’s reasons for decision in respect of the objection to the assessments for the Second Period set out a number of factors which, at face value, cast doubt on the proposition that the Business was not owned by, or conducted for the benefit of, the applicant, after 2008.
For example, reference is made to an affidavit by the applicant’s solicitor in April 2014, in support of a bail application, which refers to the Business as operated by the applicant and his wife. Another example is a reference, in an outgoing passenger movement card in July 2016, to the applicant as the owner of a business of the type from which the income was derived.
There may, of course, be explanations for these matters. Again, because the applicant did not give evidence, these matters were not addressed in evidence before the Tribunal and were not able to be explored in cross-examination.
During the hearing, it appeared to be an accepted fact that the applicant had been an owner of the Business[27]. As noted above, the Expert accepted that the Applicant had an ownership interest in one business until at least November 2007 and another until at least April 2008. However, there was no clear evidence of whether the Applicant sold part or all of his ownership interest and if so, when and how that occurred. In particular, the applicant never gave evidence of the period during which he did or did not have an ownership interest in any business.
[27] The statement of the Associate dated 17 December 2021, states that the owners of the business included the applicant “pre 2008”.
Further, as with the First Period, there is no direct sworn or affirmed evidence from the applicant regarding the amount of his taxable income for the income years under review. The evidence on which the applicant relies comprises assertions in his objection and the Statement of Facts, Issues and Contentions filed on his behalf. These contentions were also unable to be tested. There are references in the Commissioner’s reasons for the objection decision to expenditure of various amounts which might raise questions regarding how such expenditure could be funded with the limited income the applicant asserts that he derived. Again, these matters were not able to be explored because the applicant chose not to give evidence.
Having regard to these matters, we are unable to be satisfied that the applicant’s income did not exceed the asserted amounts. As with the First Period, we simply do not have a sufficiently complete picture to enable us to reach such a state of satisfaction.
PENALTIES
Beyond asserting that there was no shortfall to which penalties could be applied, and an assertion that it would be ‘fair’ in the circumstances to remit any penalties, the applicant did not make any substantive submissions regarding penalties.
So far as the base penalty amounts are concerned, that leaves the Tribunal in a position where there is no evidential foundation upon which we could determine that the taxpayer’s conduct is such that a lesser or no base penalty applies. Additionally, we are unable to identify, and the applicant did not direct us to, any circumstances that would make it appropriate for penalties to be wholly or partly remitted.
Further, there were a number of agreements included in the annexure to the Expert’s report dated 4 April 2023 (from page 647) which the applicant entered into with other persons. Of note is that a number of those agreements included statements such as “THIS AGREEMENT IS STRICTLY A CASH AGREEMENT. NO RECORDS ARE TO BE SUBMITTED TO ATO OR ANY OTHER FINANCIAL INSTITUTIONS”. As the applicant did not give evidence, there was no opportunity to explore any reasons for such statements which, at face value, do not inspire confidence in the applicant’s attitude to transparency and compliance with taxation obligations.
SHORTFALL INTEREST CHARGE (SIC)
Dr Orow submitted in oral closing submissions that, if SIC applies, the Tribunal has jurisdiction to review it.
In support of this submission, Dr Orow noted that the applicant’s objections referred to remission of interest. However, the only ground of objection relevant to interest referred to s 8AAG of the TAA 1953. That provision is concerned with remission of the general interest charge, not SIC.
In any case, we were not directed to evidence of any request by the taxpayer to remit SIC nor any decision by the Commissioner not to remit SIC wholly or in part against which an objection could be lodged. Nor were we directed to evidence of any decision of the Commissioner purporting to disallow an objection decision relating to SIC.
Accordingly, we have proceeded on the basis that the Tribunal does not have jurisdiction to review the applicability of SIC in this case and have not considered SIC further.
DISPOSITION OF THE REVIEWS
We have concluded that the applicant has not discharged the burden of proving the assessments of primary tax and penalties are not excessive and what amounts should be assessed. It follows that the decisions under review must be affirmed.
I certify that the preceding 128 (one hundred and twenty-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding and Member N Gaudion
..................................[SGD]..................................
Associate
Dated: 29 July 2024
Dates of hearing: 29-31 August 2022
24, 26 July 2023
22 September 2023Date final submissions received:
Counsel for the Applicant:
1 May 2024
Dr N Orow
Solicitors for the Applicant:
[omitted]
Counsel for the Respondent:
Mr G Coveney
Solicitors for the Respondent: HWL Ebsworth Lawyers
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