CMYT JDRJ and Commissioner of Taxation (Taxation and business)
[2025] ARTA 551
•9 May 2025
CMYT JDRJ and Commissioner of Taxation (Taxation and business) [2025] ARTA 551 (9 May 2025)
Applicant:CMYT
Respondent: Commissioner of Taxation
Tribunal Numbers: 2021/7549-52
Decision:The Tribunal varies the penalty decisions under review to reflect the corrected penalty amounts for CMYT for the relevant years, which are set out at Annexure A to these reasons and remits these to the Respondent for the issuing of the requisite further amended penalty assessments for the relevant years.
The Tribunal otherwise affirms the decision under review.
Applicant:JDRJ
Respondent: Commissioner of Taxation
Tribunal Number: 2021/7556, 2021/7557, 2021/7558, 2021/7559, 2021/7560, 2021/7561
Decision:The Tribunal varies the penalty decisions under review to reflect the corrected penalty for JDRJ for the relevant years, which are set out at Annexure A to these reasons and remits these to the Respondent for the issuing of the requisite further amended penalty assessments for the relevant years
The Tribunal otherwise affirms the decisions under review.
Tribunal:Senior Member Lye
Place:Brisbane
Date:9 May 2025
Catchwords
TAXATION – income tax – ordinary income - taxpayer burden of proof – consideration of all or nothing approach - sale of silver bullion – capital gains tax where date of acquisition unknown – characterisation of transactions as loans - consignment of high-end jewellery and watches – hobby - administrative penalties – statutory interest charge
Legislation
Income Tax Assessment Act 1936 (Cth) – s 166; s 167; s 170
Income Tax Assessment Act 1997 (Cth) – s 6-5; s 6-10; s 85-45; s 104-(4); s 104-10; Sub-division 110-A; s 110-25; s 112-20; s 115-5; s 115-10; s 115-15; s 115-20; s 115-25; Division 121; s 121-20; s 121-25; s 855-45; s 900-10; s 900-s 15; s 900-20;s 900-115; s 900-125; s 900-130Taxation Administration Act 1953 (Cth) – s 14ZZE; s 14ZZK; s14ZZJ; Schedule 1 – s 284 – 20; s 284-25; s 284-27; s 284-75; s 284-90; s 280 – 100; s 280 – 160 (1); s 284-10; s 284-75; s 284-220; s 289-90; s 298-20
Cases
Bosanac v Commissioner of Taxation [2019] FCAFC 116
Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212
Case Z7 92 ATC 131
Commissioner of Taxation v Bazzo [2024] FCA 452 at [142]
Commissioner of Taxation v Liang [2025] FCAFC 4 at [25]
Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199
Condon v Commissioner of Taxation (2021) 174 ALD 77
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, 296 ALR 497, [2013] FCAFC 30
George and McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263
Haritos v Commissioner of Taxation (2015) 233 FCR 315
Hart v Commissioner of Taxation [2018] FCAFC 61
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148
Kimche v Federal Commissioner of Taxation (2004) 57 ATR 28 at [30]
Ma v Federal Commissioner of Taxation (1992) 37 FCR 225; 23 ATR 485
Martin v Federal Commissioner of Taxation (1993) 27 ATR 282
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
New Aim Pty Ltd v Leung [2023] FCAFC 67
QQRK and Commissioner of Taxation (Taxation) [2023] AATA 3493 (27 October 2023)
Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753
Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716; (1993) 93 ATC 4037
Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243
Richard Walter v Federal Commissioner of Taxation (1995) 31 ATR 95
Ross v the Commissioner of Taxation [2021] FCA 766
Russell v Federal Commissioner of Taxation [2009] FCA 1224
Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50
Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1
Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459
Tanumihardjo v Federal Commissioner of Taxation 97 ATC 4817
Trautwein v Commissioner of Taxation; ex parte Trautwein [1936] HCA 77; (1936) 56 CLR 63
Wang v Commissioner of Taxation [2024] FCA 585
Youssef v Federal Commissioner of Taxation [2024] FCA 1154Secondary Materials
Australian Taxation Office Law Administration Practice Statement (PS LA) 2012/5
Taxation Determination TD 2017/11
Statement of Reasons
1.CMYT and JDRJ are spouses. Both migrated to Australia in the 1990s and both work in the family jewellery business (the family business) which deals in the manufacture and sale of precious jewellery. The family business is run by CMYT’s father and brother, who also migrated to Australia in the 1990s.
2.In addition to working in the family business, CMYT runs his own company which deals in precious jewellery and high-end watches. He also has bought silver bullion privately, and privately sells watches, jewellery and precious metals for special customers. CMYT claims all these private activities are hobbies.
3.The Commissioner of Taxation (‘the Respondent’) became concerned that both CMYT and JDRJ were harbouring unexplained and unreported wealth. He conducted covert audits and decided that they had failed to disclose all their assessable income given unexplained deposits recorded in their bank accounts. He issued amended assessments to both CMYT and JDRJ, as well as applying administrative penalty interest to the resulting tax shortfall.
4.CMYT and JDRJ objected to these amended assessments and have applied for independent review of the Respondent’s Objection Decisions by the Tribunal.
5.For the reasons which follow, both CMYT and JDRJ have largely been unsuccessful on review.
The issues to be determined
6.The primary tax issue to be determined in these proceedings is whether the Applicants have each demonstrated on the balance of probabilities that the amended assessments issued to them by the Respondent for each of the financial years in dispute are excessive as well as their correct taxable income for each year and what the assessments should have been.[1]
[1] As required by Taxation Administration Act 1953 (Cth) s 14ZZK (‘TAA’).
7.The penalty tax issues are twofold. First, whether the Applicants are each liable for administrative penalty including whether it should be applied at the base rate of 75% for each year[2] and uplifted by 20% for the financial years in dispute.[3] Second, whether the discretion to remit any penalty should be exercised[4] in respect of either or both Applicants.
[2] Ibid sch 1 s 284-90(1).
[3] Ibid sch 1 s 284-220(1).
[4] Ibid sch 1 s 298-20(1).
8.Three secondary issues also arose in the proceedings:
(a) whether the Tribunal is permitted to take an ‘all or nothing approach’ when determining whether the Applicants have discharged their burden of proof on the primary tax issue;
(b) whether there is reason to find on the facts that JDRJ did not share equally with CMYT any monies deposited into their joint primary bank account (NAB4857); and
(c) if CMYT’s ‘hobby activities’ are assessable, whether the Respondent was correct to assess him on gross profits of the sales.
Preliminary matters
The decisions which are before the Tribunal
9.The decisions which are the subject of these reasons are the Respondent’s Objection Decisions dated 13 August 2021[5] in respect of:
[5] Hearing Book, tabs 7 and 8.
(a)CMYT’s tax and penalty assessments for the financial years ended 30 June 2015 to 2018; and
(b)JDRJ’s tax and penalty assessments for the financial years ended 30 June 2013 to 2018.
10.Given the common issues between them, CMYT and JDRJ’s applications were heard together. I will collectively refer to CMYT and JRDJ in these reasons as ‘the Applicants’.
The Tribunal’s authority to hear and determine the applications
11.The Applicants lodged their applications with the Administrative Appeals Tribunal (AAT) on 12 October 2021. On 14 October 2024, the AAT became the Administrative Review Tribunal (the Tribunal). Under the transitional provisions in the Administrative Review Tribunal (Consequential and Transitional Provisions No. 1) Act 2024 (Cth) (the Transitional Act), proceedings in the AAT that were not finalised before 14 October 2024 are to be continued and finalised by the Tribunal. Anything done in relation to the joint proceedings before 14 October 2024 is taken to have been done by the Tribunal.
The statutory framework
What is assessable income?
12.Section 6.5(1) of the Income Taxation Assessment Act 1997 (Cth) (‘ITAA 97’) provides that a taxpayer’s assessable income includes ordinary income. The term ‘ordinary income’ is not defined in the ITAA 97 but it is stated to include the ordinary income ‘derived directly or indirectly from all sources, whether in or out of Australia, (by a taxpayer) during the relevant year’.[6]
[6] Income Tax Assessment Act 1997 (Cth) s 6.5(2) (‘ITAA 97’).
13.Ordinary income is ‘derived’ by a taxpayer as soon as it is applied or dealt with in any way on their behalf or as they direct.[7]
[7] Ibid s 6.5(4).
14.The following may indicate a payment is ‘ordinary income’:
(a)where a payment is periodic or recurring to a recipient;[8]
[8] Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540, 557, per Dixon CJ and Williams J (‘Dixon’); Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199, 215.
(b)where a payment is made for a service rendered;[9] and
[9] See, for example, Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716; (1993) 93 ATC 4037.
(c)where evidence can be led to show a person is reliant on a payment or that they derived some benefit from a payment.[10]
[10] Dixon (n 8) 557.
15.Ultimately, the question of what constitutes ‘ordinary income’ in a particular case must be determined with reference to the caselaw and the facts.
16.Section 6-10 of the ITAA97 provides for other income (called statutory income) to also be assessable.
17.In this case, the Respondent relied on both ss 6-5 and ss 6-10 of the ITAA97 in the amended assessments issued to the Applicants.[11]
[11] Hearing Book tab 8, 59-60.
The Respondent’s power to issue default assessments to the Applicants
18.Where the Respondent is not satisfied with an income tax return lodged by a taxpayer, he is authorised by s 167 of the Income Tax Assessment Act 1936 (Cth) (‘ITAA 36’) to make an assessment of the taxable income he thinks should be taxed and the assessment will become the taxpayer’s taxable income for the purposes of s 166 of the ITAA 36.[12]
[12] Income Tax Assessment Act 1936 (Cth) ss 166-167 (‘ITAA 36’).
19.A taxpayer is then entitled to object to that assessment and, if dissatisfied with the Objection Decision of the Commissioner of Taxation, is entitled to seek external review of that decision by this Tribunal.[13] The grounds of such reviews are limited to the grounds stated in the taxpayer’s objection.[14]
[13] TAA s 14ZZ.
[14] TAA s 14ZZK(a). During the hearing, the Tribunal granted leave to CMYT by consent of the Respondent to amend his original grounds of objection to include the following ground, “CMYT is not assessable on the reimbursement of expenses incurred by a third party “MJ” on American Express cards issued in his name in respect of the accounts ending #91009 and #92007.
Capital gains tax provisions
20.An issue arising in these proceedings concerns the capital gains tax owing on the proceeds of two sales of silver bullion in 2016 by CMYT.
21.Section 104 -10(4) of the ITAA 97 provides that a taxpayer will make a capital gain if the capital proceeds from disposal of an asset are more than the asset’s cost base.
22.The term ‘cost base’ is defined in subdivision 110-A of the ITAA 97. There are five elements to this definition:[15]
[15] ITAA 97 s 110-25. NB: there are exceptions to some of these elements.
(a)The money paid or required to be paid to acquire the asset and the market value of any other property given or required to be given to acquire it;
(b)The incidental costs of acquiring the asset;
(c)The costs of owning the asset incurred (if acquired after 20 August 1991) (e.g. the cost of insuring it);
(d)The capital expenditure incurred to increase or preserve the asset’s value or that relates to installing or moving the asset; and
(e)The capital expenditure incurred to establish, preserve or defend a title to or right over the asset.
23.Division 115 of the ITAA 97 provides for discounts on capital gains. These only apply in certain circumstances, namely:[16]
[16] Ibid s 115-5.
(a)the taxpayer is an individual;[17]
[17] Ibid s 115-10.
(b)any capital gain was made after 21 September 1999;[18]
[18] Ibid s 115-15.
(c)that capital gain does not have an indexed cost base;[19] and
[19] Ibid s 115-20.
(d)the taxpayer held the relevant asset for at least 12 months.[20]
[20] Ibid s 115-25.
24.CMYT migrated to Australia in 1990. Section 855-45 of the ITAA 97 provides for the costs base for any assets a taxpayer owns prior to becoming an Australian resident to be determined according to their market value at the time they become an Australian resident.
25.Where an asset is gifted to a taxpayer, s 112-20(1) of the ITAA 97 provides that the market value at time of acquisition is the cost base for the purpose of calculating any capital gain or loss.
A taxpayer’s obligation to keep records
26.Another issue in the proceedings concerns CMYT’s failure to keep sufficiently detailed and contemporaneous records to adequately explain his various activities.[21] As Steward J observed in Bosanac v Commissioner of Taxation:
[21] Transcript 56, lines 37-39.
Where a taxpayer fails to retain records which evidence the course of a business, or fails to create such documents, he or she may well face a great difficulty in demonstrating excessiveness.[22]
[22] Bosanac v Commissioner of Taxation [2018] FCA 946, [9].
27.As Latham CJ also observed in Trautwein v Commissioner of Taxation; ex parte Trautwein:[23]
[23] Trautwein v Commissioner of Taxation; ex parte Trautwein [1936] HCA 77; (1936) 56 CLR 63, 87 (‘Trautwein’).
In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. the assessment would necessarily be a guess to some extent. And almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.
28.It was also alleged that CMYT had failed to comply with his statutory obligation to keep particular records. These obligations are summarised below.
A taxpayer’s statutory obligation to keep records for assets – capital gains
29.Division 121 of the ITAA 97 imposes record keeping obligations on taxpayers in respect of every act, transaction, event or circumstance relevant to working out whether they have made a capital gain or loss on the sale of an asset.[24]
[24] ITAA 97 (n 6) s 121-20.
30.Section 121-25 of the ITAA 97 obliges a taxpayer to keep these records until the end of 5 years after it becomes certain that they are no longer relevant. An offence against this provision is a strict liability offence.[25]
[25] Ibid s 121-20(6).
A taxpayer’s statutory obligation to keep records for deductions (work related expenses)
31.Division 900 of the ITAA 97 sets out the requirements for a taxpayer to substantiate expenses to be deducted as losses or outgoings.[26]
[26] Ibid s 900-10.
32.Sub-Division 900-B of the ITAA 97 provides for substantiation of work expenses (including travel expenses). Section 900-15 requires a taxpayer to substantiate work-related expenses by getting written evidence of the expense, while s 900-20 of the ITAA 97 specifically requires a taxpayer to keep travel records for any travel which keeps them away from their ordinary residence for six or more nights in a row. Section 900-25 obliges a taxpayer to keep those records for at least five years from the due date for lodgement of their tax return for the relevant income year.[27]
[27] Ibid s 900-25(3).That obligation is extended where the taxpayer is involved in a dispute with the Commissioner of Taxation.
33.Sub-Division 900-C of the ITAA 97 provides for substantiation of car expenses and similarly imposes an obligation upon a taxpayer to retain records of such expenses for at least five years from the due date for lodgement of their tax return for the relevant income year.[28] Sections 900-115, 900-125 and 900-130 of the ITAA 97 provide detailed information about the written evidence required for these expenses.
[28] Ibid s 900-75. That obligation is extended where the taxpayer is involved in a dispute with the Commissioner of Taxation.
Administrative penalties for false and misleading statements
34.CMYT and JDRJ have each challenged the Commissioner’s findings that they are liable to administrative penalty and penalty uplift for the years in dispute.
35.Section 284-75(1) of Schedule 1 to the TAA makes provision for penalties to be applied for, amongst other things, the making of false or misleading statements[29] to the Respondent. The stated object of the penalty regime is to ‘provide a unform administrative penalty regime for all taxation laws to enable administrative penalties to apply to entities that fail to meet their obligations under those laws’.[30]
[29] TAA sch 1, ss 284-25-284-27.A statement may include a written or oral statement, including an electronic statement and relevantly may include a statement made on behalf of a taxpayer by their tax agent For penalty to apply the statement must be false or misleading in a material particular.
[30] Ibid sch 1, s 284-10.
36.The Respondent, in considering whether to impose penalty, is required to consider the individual circumstances of each case.[31]
[31] Australian Taxation Office, Law Administration Practice Statement 2012/5, [3A] (‘PSLA’).
37.The Applicants used a tax agent for lodgement of their income tax returns for each year in dispute but did not suggest that the safe harbour exception[32] applies in this case.
[32] TAA sch 1, s 284-75 Subparagraph (d) provides relevant exceptions where all relevant information is provided to a tax agent and any false or misleading statement by the tax agent did not result from intentional disregard or recklessness.
38.Another exception arises where a taxpayer is objectively found to have taken reasonable care.[33] CMYT and JDRJ submit this exception should apply in their case.
[33] Ibid s 284-75(5).
39.Penalty amounts apply at different rates based on the Respondent’s level of satisfaction:[34]
[34] Ibid s 289-90.
(a) 25% of tax shortfall for failure to take reasonable care to comply with a tax law or for taking a position which was not reasonably arguable;
(b) 50% where the false or misleading statement was the result of recklessness as to the operation of a tax law; and
(c) 75% where it resulted from intentional disregard of a tax law by the taxpayer or their agent.
In this case, the Respondent assessed the penalty at 75% for both CMYT[35] and JDRJ.[36]
[35] Hearing Book tab 7, [183].
[36] Ibid tab 21, [221].
40.The Applicants have contended that, should they be liable for penalty, it should be imposed at a lower level.
41.The Respondent may increase the penalty applied in certain circumstances, including where a previous base penalty has been applied.[37] In this case, the Respondent increased the base penalty applied for the financial years ended 30 June 2016 to 30 June 2018 by 20%.[38]
[37] TAA sch 1, s 284-220(2).
[38] Hearing Book tab 7, [184]-[188], tab 21, [222]-[226].
42.The Applicants also contend that any penalty imposed should be remitted in whole or part. Section 298-20 of Schedule 1 to the TAA 53 gives the Respondent a broad discretion to remit any penalty imposed in whole or in part. In considering whether to apply that discretion, the Respondent must consider the particular taxpayer’s particular circumstances and has a great degree of flexibility in how it does so.[39] In this case, the Respondent did not remit any penalty.[40]
[39] Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 213 FCR 483; [2013] FCAFC 50, per Greenwood J at [157] and [192], and per Griffith J at [249].
[40] Hearing Book tab 7, [189]-[194] and tab 21, [227], [232]..
The Applicants’ burden of proof before the Tribunal
43.The Applicants, in seeking review by the Tribunal, are required to discharge a statutory burden.[41] As was recently observed by the Federal Court in Youssef v Federal Commissioner of Taxation,[42] this requires them to demonstrate two things. First, that the assessments issued by the Respondent are excessive, and second, the correct amount of taxable income for each tax period in dispute by showing how each assessment exceeded their taxable income.
[41] TAA 14ZZK(b).
[42] Youssef v Federal Commissioner of Taxation [2024] FCA 1154, [7], per Perram J with reference to s 14ZZK(b)(i) of TAA . As was acknowledged by the Tribunal in Mulherin v Commissioner of Taxation [2013] FCAFC 115, [31]; (2013) 96 ATR 835.
44.The Applicants must establish both these matters to the civil standard i.e., on the balance of probabilities.[43] Their evidentiary burden is significant but not impossible to meet. It was described by the Federal Court in Federal Commissioner of Taxation v Cassaniti in the following way:[44]
[43] McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284, 303 per Gibbs J; George andMcAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263.
[44] Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212, 88(1) (‘Cassaniti’).
“first, where the onus is on the taxpayer (whether pursuant to s 14ZZO of the TAA or otherwise) the degree or standard of proof required is that which ordinarily applies in civil proceedings. The direction given to a jury in civil cases aptly describes that onus by reference to a pair of scales and to the arguments of each party being placed at each end. As Hunt J said in Allied Pastoral:
… if the plaintiff succeeds … in weighing down those scales ever so slightly in his favour then he has discharged the burden he carries”.
45.The principles which govern the way in which the Applicants must discharge that evidentiary burden, particularly where the asset betterment methodology has been applied by the Respondent, were addressed in detail by his Honour Justice Derrington in Commissioner of Taxation v Ross (‘Ross’).[45] I have summarised those relevant principles as follows:
[45] Commissioner of Taxation v Ross [2021] FCA 766; (2021) 85 AAR 194, [48].
(a)assessments undertaken by the Respondent using the asset betterment method must necessarily involve guesswork and almost certainly will be inaccurate. The Respondent is not obliged on review to justify how he formed his judgment in making such assessments;
(b)it is not the Tribunal’s job on review to examine the facts that the Respondent used to make his assessment and whether they disclose assessable income;
(c)it is not enough for the Applicants on review to show that the Respondent formed a judgment on a wrong basis and that the amount assessed far exceeded their taxable income;
(d)in order to succeed on review, the Applicants must positively prove their ’actual taxable income’ and, in doing so, must demonstrate that the amount of tax assessed exceeds their true tax liability;
(e)where the asset betterment method has been used, the Applicants must show that any unexplained wealth comes from non-income sources – they must show the source of their income, how they spend their time and explain how they acquired assets or increased their assets, showing the sources were not taxable;
(f)the Applicants will not succeed on review by simply showing that particular items in an asset betterment statement were wrong or should not have been included. That is to say, they cannot pick and choose parts of the asset betterment assessment to attack. They need to explain the source/s of any unexplained wealth, supported by evidence.
(g)If the Applicants cannot establish on review what their income actually was, the default assessment will stand; and
(h)There is no burden on the Respondent on review to show his assessments were correctly made. Unless an agreement is reached which confines the issues on review (which has not occurred in this case), the Respondent is entitled to rely on any deficiency in the Applicants’ cases when seeking to uphold the assessment and the scope of the dispute between the Respondent and the Applicant/s is not confined or reduced.
46.In this case, CMYT and JDRJ sought to discharge their evidentiary burden by leading affidavit evidence from themselves as well as corroborating affidavits from third parties to explain monies received and in particular, deposits to NAB4857. They also produced some records of transactions- bank records - as well as analyses of transactions prepared by their accountant with reference to bank records.
Are the Applicants required to corroborate their evidence to discharge the evidentiary burden?
47.As Steward J observed in Cassaniti v Commissioner of Taxation,[46] while it will usually be prudent to corroborate the evidence of a taxpayer, there is no requirement that evidence can only be accepted if corroborated. Further, a tribunal of fact is free to accept the evidence of the taxpayer alone if it finds the taxpayer to be truthful.
[46] [2018] FCAFC 212 at [88]. Cassaniti [88].
48.As the Tribunal also observed in QQRK and Commissioner of Taxation:[47]
[47] QQRK and Commissioner of Taxation [2023] AATA 3493, [11]; and as was noted in Armirthalingam v Federal Commissioner of Taxation (2012) 90 ATR 204, [117].
The sworn evidence of a taxpayer certainly qualifies as evidence, although it is a matter for judgment in each case whether that evidence is sufficient to persuade without corroboration. The Tribunal will look carefully at self-serving testimony that is not corroborated in circumstances where one would ordinarily expect records or other documentation or testimony from another witness to be available, or where the taxpayer’s testimony is unusual or unlikely on its face or inconsistent with other probative evidence. The Tribunal might also prefer corroboration where the taxpayer’s evidence has been impeached in some respect. Ultimately, though, common sense must prevail: on the balance of probabilities, is the Tribunal persuaded by the applicant’s explanation having regard to the evidence, or not.
49.In these reasons, where I have formed a view that I cannot safely rely on a witness’s evidence without corroboration, I have explained why I have formed that view.
Background
The income tax returns and concessions
In this case, the Respondent undertook covert audits of the income tax returns lodged by CMYT and JDRJ for the years in dispute.
CMYT had reported taxable income as identified in column 2 of Table 1 below in his income tax returns for each of the financial years ended 30 June 2015 to 2018. In these returns, CMYT disclosed his wage received from the family business as well as his earnings from his employment by a former company (for the financial year 2015) and his current company (‘the company’) (financial years 2016 to 2018).
JDRJ had reported taxable income as identified in column 2 of Table 2 below in her income tax returns for each of the financial years ended 30 June 2013 to 2018. In these returns, JDRJ disclosed her wage from the family business.
The Respondent’s Audit and the Objection process
Using the asset betterment method, the Respondent determined on audit[48] that both CMYT and JDRJ had significantly understated their income for the years in dispute. As the audits were undertaken covertly, the Respondent did not provide CMYT or JDRJ with an opportunity to respond to a Position Paper prior to issuing default assessments against each of them for the years in dispute on 2 August 2019, including penalty and uplift.[49]
[48] Hearing Book tabs 55-57, 288-290.
[49] Ibid tabs 1-5, 12-19.
On 30 September 2019, CMYT and JDRJ objected to the assessments.[50]
[50] Ibid tabs 6, 20.
On 13 August 2021, the Respondent issued his Objection Decisions to the Applicants.[51] He allowed their Objections on the primary assessments in part and disallowed their Objections to the Penalty Assessments and declined to remit any penalty. He issued further Amended Assessments for each of the years in dispute.[52]
[51] Ibid tabs 7, 21.
[52] Ibid tabs 77-80, 319-323.
The taxable income assessed for CMYT and JDRJ following objection are shown in column 3 of Tables 1 and 2, below.
On 12 October 2021, CMYT and JDRJ lodged applications with the AAT seeking review of the Objection Decisions.[53]
[53] Ibid tabs 9, 259.
In affidavits lodged with the Tribunal,[54] both CMYT and JDRJ conceded that the income they had originally declared in their income tax returns was incorrect. Column 4 of Tables 1 and 2 below sets out the assessable income conceded by CMYT and JDRJ for each of the financial years in dispute.
[54] Ibid tabs 85, 118 and 160.
Table 1 – CMYT taxable income
Year Ended 30 June
Taxable income declared by CMYT in his income tax returns[55]
Taxable income assessed by the Commissioner at Objection[56]
Taxable income as conceded by CMYT in his affidavits[57]
2015
$105,923
$198,741
$194,141
2016
$136,481
$353,085
$179,885
2017
$152,028
$364,161
$156,272
2018
$160,486
$533,179
$180,086
Total
$554,918
$1,449,166
$710,384
[55] Ibid tab 8, [17].
[56] Ibid tab 11, 18 – with reference to the Respondent’s amended ITRs for CMYT at tabs 73-76.
[57] Ibid tab 85, [50]-[58].
Table 2 – JDRJ taxable income
Year ended 30 June
Taxable income declared by JDRJ in her income tax returns[58]
Taxable income assessed by the Commissioner at Objection[59]
Taxable income as conceded by JDRJ in her affidavits[60]
2013
$38,128
$99,821.23
$87,321.23
2014
$38,075
$186,366.66
$183,190.87
2015
$38,075
$206,191.68
$200,318.74
2016
$38,350
$344,036.72
$75,184.80
2017
$38,350
$221.770.73
$96,032.18
2018
$38,350
$288,355.36
$170,694.59
TOTAL
$229,328
$1,186,542.38
$812,742.41
[58] Ibid tab 289, [9].
[59] Ibid tabs 319-323.
[60] Ibid tab 160, where, in her first affidavit, JDRJ stated her income for each year was ‘approximately’ the amounts in column 4.
In the course of these proceedings, the Respondent conceded that there are calculation errors in the penalties presently imposed for both CMYT and JDRJ which require correction. By consent of the parties, I have set out those corrections at Appendix A to these reasons and addressed them in my orders for the penalty proceedings.
The basis for the amended assessments
In making the amended assessments,[61] the Respondent identified various unexplained deposits into the Applicants’ bank accounts and characterised these as income in the hands of CMYT and JDRJ.
[61] ITTA 36 s 167.
The parties broadly agreed that these transactions could be categorised as follows across the proceedings and for the years in dispute:
Category 1
Deposits into the Applicant’s joint bank account (NAB4857) which CMYT contends are either loans to him from a third party or repayments of loans he made to third parties.
Category 2
Proceeds from two sales of silver bullion in 2016 by CMYT and banked to the joint mortgage account and NAB4857 for which CMYT agrees capital gains tax must be paid but alleges a particular cost base should be applied.
Category 3
Deposits (primarily into NAB4857) which the Applicants say relate to CMYT’s ‘hobby’ of buying and selling gold, jewellery and high-end watches for friends.
Category 4
AMEX payments, many of which CMYT contends were business expenses made on behalf of the company (including payments he claimed as business expenses incurred by his former colleague MJ, using CMYT’s credit card).
The Tribunal applications
The proceeding was conducted in private
The Applicants elected to have their applications heard and determined in private.[62] Consistent with the operation of s 14ZZJ(2) of the TAA , the names of CMYT and JDRJ as well as those of individuals and entities associated with them that could reveal their identities,[63] are not disclosed in these reasons, including where their names appear in quotations.
[62] TAA s 14ZZE.
[63] Only the name of the Applicants’ accountant Ms Huang has been disclosed in these reasons.
Who is CMYT?
63.CMYT swore five affidavits[64] and was cross-examined before the Tribunal. He migrated to Australia on or around 1990[65] and married JDRJ in 1996.[66] English is CMYT’s second language.[67]
[64] Hearing Book tabs 85, 118, 132, 144-145.
[65] Hearing Book tab 185, [4].Transcript page 28, line 35.
[66] Hearing Book tab 185, [4].
[67] Transcript page 28, lines 32-38..
64.At all relevant times, CMYT was employed as a sales and marketing manager in the family business.[68] Since 2019, CMYT has also been a 50% shareholder and director of the company[69] and is also employed by the company, which is in the business of creating and selling luxury jewellery and watches. [70]
[68] Hearing Book tab 185, [6].
[69] Ibid tab 86.
[70] Ibid tab 185, [10]-[11].
65.The company has operated as a business since 2015.[71] It conducts business from the same shopfront as the family business.[72] CMYT told the Tribunal that he started the company to continue his family’s tradition of creating the highest calibre diamond jewellery and watches. The company’s vision involves providing uniquely handcrafted jewellery and customised timepieces to satisfy customer needs.[73]
[71] Ibid tab 185, [6].
[72] Ibid.
[73] Ibid tab 185, [10].
66.CMYT also engaged in his two other profit-making activities in the years in dispute, activities which he described as ‘private’ i.e. separate from his work for the family business or the company. The first related to the procurement of watches, gold bullion and jewellery for special customers (friends) and third parties.[74] The second related to his dealings in silver bullion.[75]
[74] Ibid tab 85, [25].
[75] Ibid tab 85, [22]-[24].
67.During the tax years in dispute, CMYT operated the following bank accounts and credit cards which are relevant to the issues in dispute in these proceedings:[76]
[76] Ibid tab 85, [27].
REF Account Name Account type NAB4857 CMYT and JDRJ Joint primary account NAB1319 CMYT and JDRJ joint home loan AMEX01000 CMYT credit AMEX92007[77] CMYT credit AMEX91009 CMYT credit AMEX81007 CMYT credit Citi7677 CMYT credit Citi9379 CMYT credit Mercedes Benz CMYT loan [77] CMYT contends that this account and AMEX91009 were used predominantly for company purchases. Hearing Book tab 85, [15]-[17].
68.Despite speaking English as a second language, CMYT demonstrated good command of English when giving evidence to the Tribunal. He presented as an intelligent and proud man with practical experience in his chosen trade but with limited formal education and particularly, in commercial matters such as tax, accounting and record keeping.[78]
[78] Hearing Book tab 144, [3]-[7]. See, for example, Transcript 30-31, lines 16-20.
69.CMYT repeatedly referred to long-standing customers in his evidence as ‘friends’.[79] I infer from these references that CMYT did not distinguish between customers and friends. I have not assumed all CMYT’s customers were ‘friends’ simply because he described them as such and instead have looked at a range of facts to characterise his relationships with the third parties who gave evidence on his behalf.
Who is JDRJ?
[79] See, for example, Transcript 40, lines 15-16.
70.JDRJ swore two affidavits[80] and was cross-examined at the hearing. In her evidence she sought to address matters pertaining to both her husband’s activities and her own applications.
[80] Hearing Book tabs 160, 186.
71.JDRJ migrated to Australia in around 1997.[81] English is also her second language[82] but she commenced learning English from around year 4[83] and she appeared to have no difficulty in giving evidence in English.
[81] Ibid tab 160, [4].
[82] Ibid tab 160, [3].
[83] Transcript 117, lines 26-28.
72.JDRJ stated she married CMYT in 1997[84] and has worked for the family business for more than ten years. Significantly, JDRJ and CMYT have worked out of the same shop since it opened in 2002.[85]
[84] Hearing Book tab 160, [5].
[85] Transcript 119, line 3.
73.JDRJ operated (either alone or together with the Applicant) three bank accounts, one home loan account and five credit cards during the years relevant to this dispute:[86]
[86] Hearing Book tab 160.
REF Account Name Account type
NAB4857 CMYT and JDRJ Primary joint account NAB1319 CMYT and JDRJ Joint home loan AMEX61004 JDRJ Credit CBA4084 JDRJ Credit CBA8611 JDRJ Credit CBA2552 JDRJ Primary CBA9464 JDRJ Credit CBA7138 JDRJ Credit CBA0535 JDRJ Primary 74.At all relevant times, JDRJ’s salary from the family business was paid into NAB4857.[87]
[87] Transcript 120, lines 24-46.
JDRJ disavows her affidavit evidence
75.Under cross-examination, JDRJ withdrew the concessions she had made in her affidavits about her additional taxable income.[88] JDRJ then told the Tribunal that her affidavits had been prepared by someone else and presented to her to sign.[89] She maintained that her correct taxable income was what had been returned in her original income tax returns.
[88] Ibid 123-127.
[89] Ibid 24, lines 17-29.
76.Given JDRJ’s allegation that her affidavit evidence was prepared by a third party, I have regarded them with extreme caution, on the basis that they may not represent her views or understanding.[90] Additionally, I have placed little weight on JDRJ’s written evidence about CMYT’s individual transactions because she also conceded in oral evidence she did not have first-hand knowledge of them.[91]
[90] See New Aim Pty Ltd v Leung [2023] FCAFC 67, [119], per Kenny, Moshinsky, Banks-Smith Thawley and Cheeseman JJ, which points out the risk when a legal practitioner takes responsibility for the drafting of a witness’s evidence.
[91] Transcript 125-128.
Should JDRJ be treated as having an equal interest with CMYT in monies deposited into NAB4857?
77.Despite working full time and earning an independent income, JDRJ told the Tribunal that CMYT controlled NAB4857 and that she tended not to access the account via internet access or a keycard.[92] She told the Tribunal that she would tend to ask her husband for money when she needed it (for example, to pay for their children’s school expenses) and that he would then pay her in cash and she would deposit the cash into one of her bank accounts.[93] She did not suggest all payments were made to her in cash.[94] There was no contemporaneous evidence to support this evidence and JDRJ had not mentioned the arrangement for cash payments in her affidavit evidence.
[92] Ibid 119, lines 27-28.
[93] Ibid 122-123.
[94] Ibid 122, lines 12-24.
78.Under cross-examination, JDRJ conceded she was aware that cash deposits were also made into NAB4857 during the years in dispute, but told the Tribunal she could not explain their source.[95] This was contrary to JDRJ’s affidavit evidence where she had addressed each of CMYT’s various ‘activities’ in detail.[96] In terms of how much JDRJ knew about CMYT’s activities, she gave contradicting evidence initially stating, “I don’t put my nose in his business” and then “I don’t put myself in his business” before finally stating, “Yes. I think he passed by me or, you know, vaguely, but as I don’t question him, he knows what he’s doing. I – fully support him”.[97]
[95] Ibid 121, lines 9-14.
[96] See for example Transcript page 125, lines 9-46, page 127, lines 6-33 and 41-47 and page 128, lines 1-24.
[97] Transcript pages 125-126, lines 29-3 referring to the alleged loans to CMYT from SC and from CMYT to RI.
79.The Applicants submitted that as JDRJ did not personally access or manage NAB4857, she had established that any deposits to that account by or for CMYT were for his sole benefit and were not assessable to her. The Applicants pointed to Taxation Determination TD 2017/11 and contended that a rebuttable presumption of beneficial ownership in equal shares arises in the case of joint bank account holders which can be shifted by evidence to the contrary.[98]
[98] TD 2017/11 | Legal database at [4].
80.In support of this submission, the Applicants referred to Tanumihardjo v Federal Commissioner of Taxation (‘Tanumihardjo’)[99] and Case Z7[100] (‘Z7’). They argued that the Respondent had not demonstrated that JDRJ had a beneficial interest in the amounts deposited into NAB4857 from CMYT’s activities that did not comprise her salary.
[99] Tanumihardjo v Federal Commissioner of Taxation (1997) 97 ATC 4817.
[100] Case Z7 92 ATC 131.
81.For the reasons which follow, I do not accept this submission.
82.I accept the position expressed in TD 2017/11 but do not agree that the Respondent has an obligation to establish that this presumption should operate in the case of JDRJ. To the contrary, it is for JDRJ to persuade the Tribunal that such a presumption should not operate in her case.
83.Turning to the cases, the dispute in Tanumihardjo concerned a series of term deposits established by a non-resident parent for her child who had come to Australia from Indonesia to study. These produced interest and funds which were demonstrably used to purchase assets for the benefit of both parent and child. Z7 concerned the question of whether a husband should be solely or partially assessed for interest earned on a longstanding joint account which he demonstrated was solely managed by his wife and which had been reported by her many years in her income tax returns. The Respondent sought to distinguish both cases on their facts and given that both concerned the question of apportionment of the interest earned on the respective joint accounts.
84.In contrast to these cases, I am not persuaded that JDRJ has led evidence in these proceedings which shows that she did not share in the benefit of monies deposited into NAB4857. First, it was not disputed that JDRJ used NAB4857 as the account to which her salary was paid.[101] Nor did JDRJ dispute that she used funds from NAB4857 for household expenses. Finally, the bank statements showed that monies were withdrawn from NAB4857 for the periodic joint loan repayments to NAB1319, the couple’s joint home loan account.
[101] Transcript 120, lines 43-46.
85.JDRJ told the Tribunal that CMYT ‘looked after NAB4857’ and that he was the only person who used the account and had access to it.[102] While I have viewed JDRJ’s affidavit evidence with caution, I would observe in passing that this contradicted her evidence where she had purported to describe in detail a variety of transactions conducted by CMYT on NAB4857.
[102] Hearing Book tab 118, [9].
86.JDRJ told the Tribunal that when she needed money, CMYT would withdraw it from NAB4857 and give it to her in cash so she could deposit it into another of her accounts and use it.[103] She insisted, but I do not accept, that each of these cash payments were only drawn from her income in NAB4857. As the Respondent pointed out, this explanation was implausible because CMYT could have transferred any such monies directly from NAB4857 into one of JDRJ’s other accounts. Further, there was no evidence of the source of these alleged cash payments to JDRJ or any evidence led which showed that JDRJ’s salary was quarantined in any way in NAB4857.[104] Once again, if JDRJ’s evidence that she did not access NAB4857 was correct, it was difficult to see how she could state with authority that these payments all came from her salary.
[103] Transcript 122, lines 19-24.
[104] Ibid 120, lines 30-36.
87.Finally, JRDJ only raised this evidence for the first time under cross-examination at the final hearing. She also conceded under cross-examination that she was aware of both cash and cheque deposits to NAB4857.[105]
[105] Ibid 125, lines 9-46; 127, lines 6-33 and 41-47; 128, lines 1-24
88.JDRJ’s own evidence under cross-examination persuaded me that it was more likely that she had access to, and benefited from, funds from NAB4857 in both regular use and by virtue of the repayment of her joint mortgage.
89.On balance, there is also evidence to suggest that JDRJ was generally kept informed by CMYT of his activities and trusted and supported him in his endeavours.[106]
[106] Ibid 125-126, lines 29-3 referring to the alleged loans to CMYT from SC and from CMYT to RI.
90.Accordingly, I am not satisfied on the evidence that JDRJ did not share equally in the monies deposited into NAB4857.
The primary tax issues
91.I have addressed below each of the categories of transactions which were the subject of the Applicants’ evidence.
Category 1 transactions – the purported loans between CMYT and third parties
92.CMYT and JDRJ contended that various unexplained deposits into NAB4857 comprised loan payments or repayments from loan arrangements between CMYT and ‘friends’. The Respondent had assessed both CMYT and JDRJ on these transactions.[107] The Applicants bore the burden of satisfying the Tribunal on the balance of probabilities that the transactions bore the character of loans and therefore the resulting deposits were not income in the hands of CMYT or JDRJ.[108]
[107] Payments relating to all three transactions are recorded in NAB4857.
[108] Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243, 258-259 per Hill J (‘Richard Walter 2’ ); Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614,624, per Brennan J.
93.The only contemporaneous records of these transactions were bank statements showing various deposits/withdrawals from NAB5847 and, in some cases, bank statements produced by the third parties.
94.In the absence of loan documentation, CMYT filed witness statements from third parties to corroborate his evidence.
95.JDRJ conceded in cross-examination that she had no direct and contemporaneous knowledge of the loan transactions. I have therefore had limited regard to her affidavit evidence describing the purported loans.
What are the essential features of a loan transaction?
96.The Respondent argued that the lack of documentation for each of the purported loans between CMYT and the third parties was fatal.[109] CMYT contended that the evidence of the third parties to the transactions overcame any lack of written terms/records for each of the transactions.[110]
[109] Commissioner of Taxation, ‘Closing submissions’, [40] (‘Respondent’s closing submissions’).
[110] Applicants’ ‘Closing submissions’, [32] (‘Applicants’ closing submissions’).
97.In Commissioner of Taxation v Rawson Finances Pty Ltd (‘Rawson’),[111] his Honour, Justice Edmonds, identified as the essential feature of any loan transaction the mutual expectation by the parties that the amount/s given will be repaid.
[111] Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753, [20] per Edmonds J, referring to Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300, 313 per Sackville and Lehane JJ and Commissioner of Taxation v Firth (2002) 120 FCR 450, [73] per Sackville and Finn JJ (‘Rawson’).
98.The following characteristics were also identified by his Honour Justice Tamberlin in Richard Walter v Federal Commissioner of Taxation[112] and were referred to with approval by the Full Court of the Federal Court in Hart v Commissioner of Taxation[113] as assisting in the determination of whether a purported loan was a sham:
(a)the lack of written evidence of any agreement to pay;
(b)a lack of written or oral evidence of the terms and conditions on which the money was lent and to be repaid;
(c)the fact that interest did not appear to have been charged;
(d)whether treatment of the liability occurred in a manner which is inconsistent with the interest of one or both parties; and
(e)whether the debt was actually repaid and whether the purported borrower objectively had capacity to repay.
[112] Richard Walter Pty Ltd v Commissioner of Taxation (1995) 95 ATC 4440; (1995) 31 ATR 95, 108 (‘Richard Walter 1’).
[113] Hart v Commissioner of Taxation [2018] FCAFC 61,[33], per Robertson, Wigney and Steward JJ (‘Hart’).
I have had regard to these features, as well as the principles identified in Rawson, when evaluating each of the three purported loans.
The purported loan from SC to CMYT
99.CMYT contended that a $25,000 deposit into NAB4857 in 2013 was a loan from SC to him.
100.SC currently works for the family business and has previously worked directly for CMYT. He described his relationship with CMYT as ‘family friend’ and told the Tribunal he had known CMYT for over 25 years. CMYT also described SC as a ‘family friend of more than 25 years’[114] but under cross-examination admitted SC was also an ongoing ‘business client’. He also conceded that SC had bought jewellery from him, but maintained SC had not made any purchases during the years in dispute.[115]
[114] Hearing Book tab 85, [18].
[115] Transcript 33-34.
101.The terms of the purported loan were not documented by either SC or CMYT and both conceded that no terms such as interest or repayment or any security were discussed by either party at the time of the transaction. The deposit itself was effected by an electronic transfer of $25,000 on 20 May 2013 from a bank account jointly held by SC and his wife to NAB4857[116] and the contemporaneous statements for both bank accounts recording the transfer/deposit were before the Tribunal.
[116] Hearing Book tabs 85, 196. Note: CMYT’s first Affidavit at tab 85, [21] contains a record that he or his accountants prepared.
102.None of the $25,000 had been repaid by CMYT, despite the transaction having occurred more than eleven years ago.[117] This was despite CMYT having earned $25,000 since the amount was paid to him[118] and, on his own evidence, having loaned money to other parties and having other loans repaid to him.[119] There was also evidence that CMYT had other funds since 2013 which might have allowed him to repay the amount (for example, from the sale of silver bullion in 2016 which is discussed below).
[117] Hearing Book tabs 85 [21], 196 [20].
[118] Transcript 33, lines 9-10.
[119] Ibid 35, lines 14-22.
103.When asked about the failure to repay, CMYT told the Tribunal that he was ‘just waiting for the right time’.[120] I cannot accept this as an adequate explanation given the considerable time which had passed without any repayment and the independent evidence suggesting he had the means to repay some or all of the amount during the intervening period.
[120] Ibid 33, lines 12-13.
104.Further, there were inconsistencies in both CMYT and SC’s evidence about the transaction. Under cross-examination, and contrary to both his own and SC’s[121] affidavit evidence, CMYT told the Tribunal that he had originally borrowed the $25,000 from CS so he could loan money to RI.[122] He did not explain why he had not previously mentioned this in his affidavit. Nor did he explain why alleged repayments he later received from RI had not been used to repay SC. In such circumstances, I do not accept this statement as correct.
[121] Hearing Book tab 85, [21].
[122] Transcript 35, lines 11-18.
105.I also cannot accept SC’s evidence under cross-examination that he had asked CMYT for repayment a few times.[123] This statement was not consistent with CMYT’s affidavit evidence and there was no reference in SC’s affidavit to requests for repayment. There were also no contemporaneous records to support the assertion.
[123] Ibid 152, lines 8-10.
106.SC was shown his income tax returns under cross-examination and he conceded that he and his wife had reported very small assessable amounts of income in the 2013 financial year and the years following.[124] I am satisfied that it was unlikely in such circumstances that SC either could have afforded to lend $25,000 to CMYT in 2013, or allowed such a large loan to remain outstanding for eleven years. This, plus the fact that SC admitted he had continued to buy and pay for jewellery from CMYT in circumstances where the alleged loan remained unpaid, added to my doubts about the correctness of CMYT’s and SC’s evidence about the transaction. It gave rise to the possibility that the $25,000 could have been payment for goods, rather than a loan.
Evaluation of the transaction with SC
[124] Ibid 153, lines 35-46.
107.For the reasons given, having evaluated CMYT’s and SC’s evidence I am not persuaded that this transaction meets the essential features of a loan in circumstances where the only contemporaneous records of the transaction are bank statements. All these prove is that SC deposited $25,000 into NAB4857 in 2013.
108.In the circumstances, I find that the Applicants have not discharged their onus of demonstrating on the balance of probabilities that the deposit of $25,000 into NAB4857 on 20 May 2013 was a loan and did not bear the character of income.
The purported loans from CMYT to RI
109.CMYT and RI each gave evidence about these transactions which were described as a series of purported loans from CMYT to RI. Once again, there were no contemporaneous records of any terms for the loan/s between them. There were some bank records of transactions in evidence but these showed nothing more than amounts paid by RI or his then wife into NAB4857. As will be seen, the evidence of the witnesses was contradictory and made me doubt that the two had identified all the transactions which had occurred between them.
110.RI told the Tribunal that he was initially a customer of the Applicant and has been a family friend since.[125] He also told the Tribunal that he had a gambling problem.[126]
[125] Hearing Book tab 195, [5]-[6].
[126] Ibid tab 195, [8]-[9].
111.CMYT told the Tribunal that RI was a family friend of more than 15 years. CMYT had stated in his affidavit that in 2013 he agreed to loan RI the money to fund his gambling habits but then conceded under cross-examination that he had not originally known what the loans were for.
112.Under cross-examination, CMYT acknowledged RI was also a client of the jewellery business. He also acknowledged that RI had bought jewellery from him but contended this only occurred once the purported loans were fully paid.[127]
[127] Transcript 34, 38.
113.CMYT said the $11,000 he lent to RI was paid in cash in ‘bits and pieces’ and repaid ‘by small payments through the years’.[128] Neither he nor RI produced any record of any agreement or a tally or report on these payments to show how they had been tracked by either party. CMYT conceded under cross-examination that he had not kept records of amounts paid or received.[129] Despite this, CMYT maintained that the total amount he loaned to RI was $11,000. He had created and relied on a summary of alleged repayments from RI, which I infer was recreated from his bank statements for NAB4857. He conceded under cross-examination that there were typographical errors in this summary.[130]
[128] Hearing Book tab 85, [19].
[129] Transcript 38, lines 23-26.
[130] Ibid 35-37.
114.RI contended that the amounts he deposited into NAB4857 did not relate to jewellery purchases. However, he could not identify when any of the original monies had been loaned to him.[131] When asked about the complete lack of records for the loans, he suggested (contrary to CMYT’s evidence) that individual amounts were loaned and repaid before further moneys were lent, telling the Tribunal: ‘In my memory, we didn’t write any records because he says he trust me, he lend me the money. That’s how I borrow money, I returned, then he lend me again, that’s how he built – we built trust.’[132]
[131] Ibid 160, lines 12-14.
[132] Ibid 161, lines 2-4.
115.In his affidavit, RI also contradicted CMYT’s evidence saying that he made the payments by a mixture of cash and bank transfers[133] when he had available funds. This suggested that not all the transactions had been identified in their tallies of what was allegedly loaned and repaid between them.
[133] Ibid 160, line 24.
116.RI contended his debt was fully repaid in 2018, but then further contradicted CMYT’s evidence[134] by stating that he had borrowed further funds from CMYT since the periods in dispute.[135]
[134] Ibid 38, lines 1-21.
[135] Ibid 160, lines 34-45.
117.CMYT also told the Tribunal that at the time he lent the money he did not think RI would repay him.[136] This is potentially significant given the requirement for the parties to demonstrate a mutual intention that the amounts would be repaid. It is also significant because, on his own evidence, CMYT was already indebted to SC at the time of the loans and he told the Tribunal that he had borrowed from SC so he could loan money to RI.[137] CMYT was asked but did not explain why he would put his loan with SC at risk by on-loaning money to RI without any expectation of repayment.[138] CMYT said that he followed up on the loans with RI in about 2014-15 when they were not repaid[139] but there were no contemporaneous records that he had done so and he had not mentioned this fact in his affidavit evidence.
[136] Ibid 35, lines 36-37.
[137] Ibid 35, lines 36-37.
[138] Ibid 35, lines 17-37.
[139] Ibid 34, lines 30-39.
118.In the circumstances, I am not persuaded by the contradictory evidence of CMYT and RI and absent any corroborating records that the transactions were loans. Once again, I am not confident, in light of the evidence, that the transactions were not for goods. I am also not confident, given RI’s evidence, that both men had identified all the transactions which occurred between them.
119.Accordingly, I find that the Applicants have not discharged their onus of demonstrating on the balance of probabilities that the various deposits into NAB4857 which are attributed to RI comprised repayments of loans to RI and did not bear the character of income.
The purported loan from CMYT to SA
120.CMYT and SA each gave evidence about this transaction.
121.SA is a commercial painter. He told the Tribunal he had first met CMYT as a customer of the family business in 2007. He told the Tribunal that in 2016 he was working for a painting business that I shall call SVP. His employer, and the director of SVP, was VS and SA told the Tribunal that VS asked him to arrange a loan as the business was in financial difficulty.[140] He said he then approached CMYT for the loan.
[140] Hearing Book tab 200, [13]-[15].
122.Once again, there was no written record of any loan or terms, such as interest or repayment. The bank statements for NAB4857 recorded a withdrawal of $70,000 from NAB4857 by electronic bank transfer on 4 August 2016.[141] There is no narration on the bank statement recording the recipient of these funds. The bank statements also show deposits by SVP totalling some $90,225 were made between August 2017 to April 2018 to NAB4857. These were narrated as ‘[SVP’], [SVP], interest and repayment [SVP]’ and ‘Watch [SVP]’.[142] CMYT contended these were each repayments of the loan.
[141] Ibid tab 90.
[142] Ibid.
123.Under cross-examination, SA and CMYT each contradicted their affidavit evidence about the purported loan. They also contradicted each other’s evidence.
Who were the parties to the purported loan?
124.SA told the Tribunal that CMYT had insisted the $70,000 be loaned to him and not to SVP or to VS because ‘he trusted me and was prepared to lend me the money’.[143] SA then told the Tribunal that, despite this, CMYT insisted the loan be repaid from the bank account of SVP.
[143] Ibid tab 200, [17].
125.CMYT told the Tribunal in his affidavit that he loaned the money to SA and initially contended it was for his business.[144] However under cross-examination, he admitted he knew of VS and his business but contended that there was no difference between SA and ‘his company’. CMYT ultimately acknowledged that he knew it was VS repaying the loan. Despite all this, he maintained his dealings were with SA, telling the Tribunal that he chased SA for repayment by VS.[145]
[144] Ibid tab 85, [20].
[145] Transcript 75, lines 27-40.
126.CMYT then conceded under cross-examination that in February 2017 he had incorporated a company with VS and discussed engaging in a potential business venture with him, at the same time as this purported loan remained unpaid.[146] This was curious given CMYT’s supposed refusal to deal with VS when negotiating the purported loan. Also curious was the fact that CMYT had not fully disclosed this business relationship with VS in his affidavits.
[146] Ibid 75-76.
Were there repayment terms and was interest charged?
127.According to SA, he and CMYT had agreed that the loan would be repaid by monthly repayments of $10,000 to $15,000 to CMYT’s account[147] and that interest would be paid on the loan.[148] However, he could not tell the Tribunal what interest rate had been agreed.[149] His evidence was not corroborated by the bank statements for NAB4857, which recorded deposits from SVP that were irregular in both size and frequency.[150]
[147] Ibid 175, lines 23-26.
[148] Ibid.
[149] Ibid 175, lines 30-32.
[150] Refer to CMYT’s summary of these deposits at Hearing Book tab 85, [20(b)].
128.CMYT contradicted SA and insisted that no interest had been charged.[151] Instead, he told the Tribunal that the discrepancy between the amount allegedly loaned and the total amount returned was interest and said that SA felt bad about the delay and insisted on paying interest when repaying the loan.[152]
[151] Ibid tab 85, [20].
[152] Ibid tab 85, [20(b)].
Would a loan have operated to the detriment of either party?
129.CMYT conceded under cross-examination that he could only afford the purported payment to SA/SVP because he had funds available from the sale of the silver bullion (discussed below) and had used these to fund the transaction. In the circumstances, I found it difficult to accept that CMYT would loan $70,000 of those proceeds unsecured, to a business in financial difficulty, at the same time as he allegedly had an outstanding loan with SC for $25,000 and was chasing payment from RI for the $11,000 paid to him. Further, on his own evidence, CMYT had sold the silver bullion to provide funds for his own company (see below).
130.Having told the Tribunal that he was a party to the loan, SA then changed his evidence under cross-examination to say that he only agreed to guarantee the loan to SVP. He insisted he was aware of his obligations as guarantor but, when presented with his income tax return for that year, he ultimately conceded it was unlikely that he could have afforded at that time to act as guarantor for an unsecured loan of $70,000. I accept this concession because it seemed implausible that, given his financial circumstances, SA would agree to guarantee an unsecured loan for a business for which he otherwise did not have financial responsibility, knowing it was in financial difficulty.[153]
[153] Ibid tab 200, [8]-[9], [13]-[14].
Evaluation of the transaction
131.The witnesses’ evidence about the purported loan for SVP/SA was contradictory and/or lacking in essential detail. I could not safely rely on it without corroboration from the available records. Once again, all the bank statements showed was a payment of $70,000 to someone and a series of deposits the following year by SVP into NAB4857. The various narrations for these did not give me confidence that they were loan repayments.
132.The person who might have assisted the Tribunal to better understand these transactions and any connection to the failed business arrangement was VS. Unfortunately, he was not called to give evidence. I infer from his absence that his evidence would not have assisted the Applicant.
133.Having considered the available evidence, I was not persuaded either that CMYT had loaned the money to SA or SVP or VS, nor that the deposits were repayments of that loan.
134.In the circumstances, I find that the Applicants have not discharged their onus of proving the relevant transactions between CMYT and SA/VS/SVP comprised repayments of a loan and were not income.
Category 2 – the sales of silver bullion on 5 and 12 May 2016
135.This issue concerned how capital gains should be calculated for the proceeds of two sales of silver bullion by CMYT.
136.Over a number of decades,[154] CMYT had acquired silver bullion, sometimes receiving it as a gift and other times by purchasing it.[155] He could not say how much silver bullion he had acquired over the years and he could not estimate its value.[156] He said there were no records of any gifts or purchases to allow calculation of a cost base for any sales because he had not realised records needed to be kept, but he could recall buying silver bullion from Johnson Matthey and other retailers.[157] He also could recall a gift of silver bullion from his father in 1996, for his wedding to JDRJ.
[154] Ibid tab 85, [22].
[155] Ibid.
[156] Transcript 30, lines 26-30.
[157] Hearing Book tabs 85, 118; Transcript 16, lines 26-30.
137.It was not disputed that CMYT owned silver bullion as early 1990. CMYT told the Tribunal that when he migrated to Australia in 1990, he arranged for the silver bullion already in his possession to be transported to Australia in shipping containers. He had no records of the containers or the shipments and there was no other evidence available to the Tribunal of how much silver bullion he brought to Australia.[158]
[158] Hearing Book tab 85, [22]; Transcript 30, lines 32-47.
138.CMYT said he ceased to acquire silver bullion in 2013. There was no evidence to corroborate this statement. In 2016, he sold silver bullion on two occasions to Maurice and Watson Australia Pty Ltd. The contemporaneous records of those sales show that on 5 May 2022, 216.521 kg of silver bullion was sold for $158,341.81 while on 12 May 2016, 299.344 kg was sold for $222,355.72.[159] CMYT gave conflicting evidence about whether he sold ‘most’ or ‘all’ of his bullion in those two sales. [160]
[159] Hearing Book tab 85, [33].
[160] Transcript 68, lines 14-47, which refers to Hearing Book tab 85, [24].
139.With the exception of the 2016 sales, CMYT had not produced records of and had not declared any sales of silver bullion for capital gains purposes in his tax returns for the years in dispute. He was silent in his affidavit evidence about prior sales of silver bullion.
140.CMYT described his acquisition of silver bullion as a hobby but admitted under cross-examination that he was aware that the price of silver fluctuated over time and that it was possible to profit from the buying and selling of silver.[161]
[161] Transcript 29, lines 4-5.
141.CMYT also conceded that some of the silver bullion he sold in 2016 had been purchased by him.[162]
[162] Ibid 71, lines 14-15.
142.In the absence of any records, [163] the Respondent had assessed CMYT for a 50% share of the entire proceeds of the sales resulting in substantial capital gains of $79,920 and $111,177.86 for the two transactions on the basis that the Respondent could not determine when the relevant silver had been purchased or obtained.
[163] ITAA 97 s 121-20.
143.CMYT contended that the Tribunal did not need records of purchase or acquisition to identify the date/s of acquisition and hence the cost base for these two transactions. He did not definitively tell the Tribunal that the silver gifted to him at his wedding in 1996 comprised the silver sold in 2016, but he relied on the evidence of his witnesses as proof of the date of the relevant acquisition. He submitted that a cost base should be applied representing the average spot price for silver bullion 2006 (the mid-point for his bullion activities).[164] This, he conceded, made him assessable for capital gains of $15,998.47 and $26,150.62 for the two transactions. In the alternative, he submitted that the cost base could be determined using 1990 as the year of acquisition.[165]
[164] Hearing Book tab 85, [53].
[165] Applicants’ closing submissions [32].
144.On either of these two bases, CMYT contended he was entitled to the statutory 50% discount on the capital gain.[166]
The gift of silver bullion to CMYT in 1996
[166] Hearing Book tab 10, [39].
145.CMYT, JDRJ, CMYT’s father (JS) and CMYT’s brother (RS) all told the Tribunal that JS had gifted silver bullion to CMYT in 1996 as a wedding gift. There were no contemporaneous records of this gift and the witnesses contradicted each other in their evidence about the gift. Given the contradictions, I prefer the evidence of JS to that of CMYT or RS, because he had gifted the silver bullion and demonstrated better recall of the detail around the bullion and the gift. He also demonstrated by his answers that he was prepared to make concessions against his sons’ interests.
146.CMYT’s evidence about the gift was vague. He described receiving a relatively small amount of silver bullion as gifts at his wedding.[167]
[167] Ibid tab 85, [23].
147.JDRJ conceded under cross-examination that she was unaware of the gift of silver bullion from JS at the time of her wedding and was not personally aware of the transactions in 2016.[168] For this reason, I am unable to give much weight to her evidence about the bullion.
[168] Transcript 118, lines 3-43.
148.RS told the Tribunal in his affidavit that his father gifted ‘a large amount’ of bullion to the Applicant at his wedding.[169] He then changed his evidence a number of times under cross-examination, first recalling a gift of 100 kg, then later 200kg and then alluded to jewellery stock also possibly being given with the bullion, but was unable to quantify the amount.[170] He said the remainder of his father’s stock of silver bullion was gifted to him at his wedding at a later time.[171] He exhibited a photo to his affidavit showing a great many individual bars of bullion which he described as a “photo of my current holding of silver”.[172]
[169] Hearing Book tab 188, [8].
[170] Transcript 139-140.
[171] Hearing Book tab 188, [9].
[172]. Ibid tab 188.
149.JS contradicted the evidence of both CMYT and RS. He was an elderly man who gave evidence through an interpreter. He was also the head of the family and the family business. JS told the Tribunal that he brought approximately 700kg of silver bullion to Australia when he migrated and which he had hidden in shipping crates and not declared to the authorities.[173] There were no records of the shipment. JS stated that in around 1996 he gifted around 500kg[174] of that silver bullion to CMYT for his wedding, but physically retained custody of the bars at his workshop where it was insured.[175] He said that the remaining stock of 200kg was gifted to his other son (RS) for his wedding, at a later time.[176] He told the Tribunal (contrary to RS’s evidence) that RS’ share of quantity of the bullion was subsequently melted into a single bar and was currently being used by the jewellery business to create precious jewellery.[177]
[173] Transcript 188, lines 23-32.
[174] Ibid 188, lines 34-39. JS did not have records of the exact weight of the silver bullion he gifted to the Applicant.
[175] Ibid 193, lines 9-21.
[176] Ibid 189, lines 1-5.
[177] Ibid 190, lines 26-29.
150.The insurance records JS mentioned might have assisted CMYT to corroborate the witnesses’ evidence and might even have pinpointed the year when the gifted bullion to CMYT was sold, but these records were not produced to the Tribunal. I infer that they would not have assisted him.
151.JS could not recall exactly when CMYT sold this share of the gifted bullion. To the extent he could place the sale date, he thought it could have been earlier than 2016 “- I don’t know the dates. It could be 15 years, 18 years, 20 years, I don’t know.”[178] I am inclined to accept his recollection even though it was not precise, and it caused me to doubt whether the gifted bullion had been sold in 2016, because JS recalled he was overseas at the time CMYT sold the silver, selling particular property in his home country. This was what caused him to think the sale of the silver bullion may have occurred long before 2016. He expressed frustration that his son had sold the bullion when left in charge of the business while JS travelled overseas,[179] suggesting he well remembered the sale, if not the year.
[178] Ibid 193, lines 33-34.
[179] Ibid 192, lines 16-18.
152.In light of the evidence, I was not persuaded the silver gifted in 1996 was the same silver bullion CMYT sold in 2016. The combined weights from the two transactions are close to but do not match the amount JS says he gifted to CMYT in 1996. Even if they had matched, on CMYT’s own evidence, he admitted he had acquired more bullion over the years (both prior to and after that gift)[180] and JS placed the sale of this stock much earlier than 2016.
[180] Ibid 71, lines 11-34.
153.I was also not satisfied on the evidence that the silver sold in 2016 had been acquired more than twelve months prior to sale or that it was the silver CMYT had brought to Australia in 1990. I was not prepared to rely without corroboration on CMYT’s bare assertion that he last bought silver bullion in 2013. The evidence left unanswered the question of whether there had been other sales during the period in dispute but CMYT conceded he had bought silver bullion.[181]
[181] Ibid.
154.Despite the apparent scale of his acquisitions over many years, CMYT appears to have made no effort to keep a single record of these activities. Given the size of his endeavours, I find it implausible that there was not a single record about the acquisitions, other than the two sales receipts from 2016. Further, as I have already noted, CMYT had a statutory obligation to keep records of these transactions.
155.It seems that CMYT made no effort to consult his tax agent about this ‘hobby’ and his explanation, which I cannot accept given the size of the endeavour, was that he did not disclose the 2016 sales to him or include them in his income tax return saying he did not think he had to disclose gifts.[182]
[182] Ibid 71, lines 19-27.
156.Given the absence of records and the contradictory evidence, I cannot find any statutory or evidential basis to use either 1990 or 2006 as the cost base year for the silver bullion sold in 2016. In such circumstances, I am not persuaded there is a basis to disturb the Respondent’s assessment in respect of the sales of the silver bullion in 2016.
Treatment of the proceeds of the sales of silver bullion
157.CMYT contended that the proceeds of the sales of silver bullion should be wholly assessable to him (and not JDRJ) given they related to his hobby. JDRJ was not assessed on the capital gains but was jointly assessed on the proceeds.
158.CMYT told the Tribunal that he had sold the silver bullion in 2016 to fund the company. However, the bank records show he deposited the proceeds from the sale on 5 May 2016 into the joint home loan account (shared with JDRJ).[183] They also show the proceeds from the sale on 12 May 2016 were deposited into NAB1319 (the joint home loan account shared with JDRJ.[184]
[183] Tribunal Book, tab 161 at p 3533. See also Transcript 70, lines 40-45 and 41, lines 1-2.
184 Hearing Book tab 161; Transcript 71, lines 102.
159.CMYT also suggested under cross-examination that $70,000 of the funds from the second sale of silver bullion were subsequently paid from NAB4857 to SA on 4 August 2016 – the alleged loan to SA/SVP.[185] I have addressed that transaction above but note that CMYT’s own evidence about this transaction contradicted his contention that the proceeds from the sales were used for the company.[186]
[185] Transcript 72, lines 20-42.
[186] Hearing Book tab 85, [24], [35].
160.In such circumstances, I am not persuaded on the evidence that the proceeds of the sales of the silver bullion should not have been treated as income in both CMYT and JDRJ’s hands.
Category 3 – the payments purportedly incurred on behalf of the company
161.In this category were a number of transactions incurred on AMEX91009 and AMEX92007 (‘the credit cards’) for each of the years in dispute. CMYT identified among these transactions which he said were expenses of the company incurred by him or his former colleague, MJ.
162.CMYT told the Tribunal that the company applied for the credit cards but that they were issued in his name.[187] There was nothing on the statements for the credit cards to identify them as company cards because they were addressed to CMYT at his residential address. Further CMYT conceded, and I accept, that the credit cards had been used for both personal and business expenses and consequently the alleged company expenses did not represent the total charges incurred on the credit cards.[188]
[187] Transcript 72, lines 20-21.
[188] Hearing Book tab 118, [8].
163.CMYT had identified the following categories of business expenses for the credit cards for the years in dispute:[189]
[189] Ibid tab 201, [19]-[20].
Category
Amount contended for by the Applicants
ATO payments made on behalf of the company[190]
$115,797.86
Cost of sales on items purported to be incurred on behalf of the company
$51,269.02
MJ expenses ($29,742.25+$123,822.20)
$153,564.45
Work-related travel expenses
$40,166.21
Other miscellaneous purported business expenses
$39,747.17
[190] The Respondent did not dispute the payment of had been made but contended the Applicants had failed to establish the deposits from the company were in fact reimbursements for payment of the company’s tax liabilities.
164.With the exception of one category of expenses (the ATO payments), CMYT’s contentions about all the alleged company expenses were only partially supported by contemporaneous records (such as receipts). CMYT conceded that no company ledgers had been produced to the Tribunal (despite the Respondent having summonsed them), and he also conceded that travel diaries had not been kept as required to support alleged work related travel expenses incurred by both himself and MJ.[191] CMYT’s evidence about the company’s records was difficult to follow but my impression was that he did not understand what a general ledger was, had not maintained one and therefore could not produce one in response to the summons issued at the Respondent’s request. [192] Instead, I infer from CMYT’s evidence that he had run the company using the credit card statements as a proxy for a ledger.[193] It certainly was not disputed that CMYT used these statements, together with those receipts he had been able to gather, to reconstruct the expenses he claimed were incurred for the company on the credit cards.[194]
[191] Transcript 58, 60-61.
[192] Ibid 60-61.
[193] Ibid 61, lines 11-20.
[194] Ibid 58, lines 36-43, 61, lines 11-20.
165.The difficulties with CMYT’s reliance on the credit card statements were that, in many cases, the narrations did not contain sufficient information to properly characterise a transaction as a business expense, and they did not comply with his statutory record keeping obligations.
(c)the evidence from the deposits into NAB4957 disclose that even on conservative analysis, CMYT engaged in these activities frequently[282] and over a number of years;
(d)CMYT consistently referred to the jewellery and watches he procured for these special orders to be ‘stock’, which suggests a level of planning or a businesslike approach to the transactions; [283]
(e)CMYT’s evidence suggests that he did not keep proper records of these transactions.[284] However CMYT’s poor record keeping practices extended to his company activities, and so this evidence cannot alone determine whether these activities were or were not business activities;
(f)CMYT told the Tribunal that what he was essentially doing for these buyers was (to) ‘look after them’.[285] However, he also told the Tribunal that one of his main objectives with these transactions was ‘I was hobby. Learning’.[286] I infer from this that CMYT was using these transactions to learn how to buy and sell watches and jewellery at a profit. He told the Tribunal that he did not necessarily profit or make large profits on some/all the transactions.[287] As I have observed above, small profits or even loss-making transactions do not prevent a finding that a business is being conducted. Ultimately, CMYT admitted[288] that he intended to make a profit from selling watches. However, he could not necessarily quantify those profits given lack of records.[289] A lack of profits or a small profit is relevant[290] to the characterisation of these activities but does not exclude a finding that a business was conducted. In this case, this evidence when combined with CMYT’s evidence that he was learning and the purported use of common stock for these and other sales, as well as the fact they were undertaken over a number of years, suggests that these transactions were undertaken as part of building his expertise and the company’s business, rather than having the character of a hobby or isolated events.
[280] See, for example, Transcript 47, lines 1-13.
[281] Hearing Book tabs 190-191, 193.
[282] Transcript 52, lines 39-40.
[283] Ibid 83, lines 15-16.
[284] Ibid 53, lines 1-7.
[285] Ibid 83, lines 12-13.
[286] Ibid 41, lines 24-25.
[287] Ibid 52, lines 42-45.
[288] Ibid 41, lines 20-47.
[289] Ibid 49, lines 1-12.
[290] Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459, 476.
240.I am satisfied, given the evidence, that CMYT’s activities cannot accurately be described as a mere hobby. The more likely explanation on the available evidence is that they formed part of the company’s business activities because they were closely aligned with his company activities and were undertaken in significant volume over an extended period with an eye to profit, and were designed to assist him to develop that business but were not declared.
Should CMYT have been allowed deductions for these sales of watches, jewels, jewellery, and gold?
241.CMYT submits that, should the Tribunal find that certain transactions are business-related and therefore income in the hands of the Applicant, it is bound by Martin v Federal Commissioner of Taxation[291] (‘Martin’) to set aside and remit the objection decision on the basis that CMYT should not be assessed on gross income for these transactions, i.e. without allowing deductions that he would otherwise be allowed in the running of a business. He submits that the Tribunal has before it sufficient evidence to calculate those margins.[292]
[291] Martin v Federal Commissioner of Taxation (1993) 27 ATR 282 (‘Martin’).
[292] Transcript 111, line 25.
242.The Respondent disagrees, submitting that Martin should be distinguished on its facts from the present case as the Respondent has not conceded that the amounts in question represent gross profits (because their source remains unknown). He also submits that CMYT’s evidence about the alleged profit margins arose impermissibly from re-examination and the Respondent successfully objected to the appropriateness of those questions.[293] For that reason, he contends the Tribunal should not give any weight to CMYT’s answer.
[293] Ibid 111, lines 29-42.
243.CMYT did not present affidavit evidence about the profit margin/s for the sale of watches, jewellery, or precious metals or gems. I accept that CMYT did allude to profit when discussing these transactions under cross-examination. For example, and as I have already noted, he referred to an intention to make a profit from these activities, observed that he sometimes but not always made a profit from the activities, and also observed that the profit margins on these transactions could be small. When re-examined, CMYT agreed that he had observed in cross-examination that a margin on a watch, by way of example only, was ‘ten percent max’.[294] The Respondent objected to this line of questioning and so, by consent of CMYT’s counsel, it was not progressed further.
[294] Ibid 111, lines 18-25.
244.I do not accept that these answers by CMYT (either individually or collectively) provide a sufficient basis to permit calculation of profit margin/s for the alleged sales. The transactions in this category were not limited to watches and included jewellery, previous gems and metals across the years in dispute. There is no evidence before the Tribunal about the various profit margins involved for each of these commodities or even sufficient precision to permit it to calculate the margin for watch sales.
245.Further, such analysis is not possible given CMYT has not established:
(a)that the transactions in question were for these types of goods and services;
(b)that all relevant transactions had been identified;[295] and
(c)the source and purchase price for the alleged goods for each transaction.
[295] Ibid 40, lines 33-46.
246.Turning to Martin, and CMYT’s submission that it binds the Tribunal, I am satisfied that case concerns a particular set of facts which are distinguishable from the facts in this case. In Martin, the parties did not dispute the amounts of income assessed, or that they represented gross income from the taxpayer’s scrap metal business dealings as well as his winnings from betting.[296] The Commissioner of Taxation had not used an asset betterment calculation when auditing Mr Martin and had simply assessed him on gross receipts.[297] Davies J was also careful to point out that she relied on very particular evidence relevant to the scrap metal industry to find that Mr Martin’s taxable income from those dealings would not be more than 50% of the identified gross income.[298]
[296] Martin 286.
[297] Ibid 290.
[298] Ibid 290-291.
247.CMYT also referred the Tribunal to Kimche v Federal Commissioner of Taxation[299] (‘Kimche’), and his Honour Ryan J’s observation at [30]:
It follows, I consider, that if, in a case like the present, the taxpayer is able to establish facts tending to show that some part of a particular receipt did not bear the character of income but is unable to quantify with precision the amount of that part then the assessment will be excessive only in respect of the minimum amount which could have borne a different character. I proceed now to apply these principles to each of the assessments in question.
[299] Kimche v Federal Commissioner of Taxation (2004) 57 ATR 28, [30] (‘Kimche’).
248.CMYT suggested that, based on his Honour’s reasoning in Kimche, gross profits of receipts should not be assessable to CMYT if they could be explained by something else, such as a deduction.[300]
[300] Transcript 218, lines 13-35.
249.I am satisfied that the facts in Kimche are also distinguishable from the present case. Ryan J’s observation in Kimche appears to be predicated upon his observation at [28] that the only dispute between the parties in that case was whether particular transactions bore the character of income, which is to say there was no dispute as to the total income or the sources of the taxpayer’s income – matters which are in issue in the present case and, as I have said, CMYT was not in a position to demonstrate such matters.
Have the Applicants discharged their onus in the proceedings?
250.As I have already noted, to succeed on the primary tax issues, the Applicants need to both demonstrate that the Respondent’s assessments were excessive and establish what their taxable income was for the years in dispute.
251.The Applicants contend that they have ‘provided a reasonable explanation as to why amounts assessed by the Respondent are not assessable income’.[301] In particular, they argue that that the Tribunal has before it a ‘reliable body of evidence’ to support CMYT’s activities which impacts both of their overall positions. They submit that, in discharging their onus, ultimate precision in their calculations of their taxable income is not required, and rely on the observations of Burchett J in Ma v Federal Commissioner of Taxation:[302]
If a taxpayer denies any undisclosed sources 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. Any other view would introduce a degree of arbitrariness into liability for tax.
[301] Applicants’ closing submissions [6].
[302] Ma v Federal Commissioner of Taxation (1992) 37 37 FCR 225 at 230; 23 ATR 485. The Applicants also referred to Armirthalingam v Federal Commissioner of Taxation (2012) 90 ATR 204 at [117]; (2012) 90 ATR 204 which referred to the requirement for the decision maker to have reference to all available evidence.
252.Based on the evidence presented to the Tribunal, I cannot agree that the Applicants have met this standard by accounting for or successfully addressing the Respondent’s allegations about the sources of any unexplained income, and also by persuading the Tribunal that all their income has been identified.
253.Further, Burchett J’s observations were recently considered by Perram J in Youssef where his Honour observed that such principles have no application where there is some positive reason why the taxpayer is to be disbelieved.[303]
[303] Youssef [25]-[26].
254.In this case, I have had reason to question the reliability of JDRJ’s evidence. Further, she ultimately made no concessions about her income for the years in dispute.
255.I have also identified on a number of occasions in these reasons, changing evidence from CMYT, inconsistencies between CMYT’s affidavit and oral evidence and inconsistencies between his evidence and that of his witnesses. I have also made a number of findings where I have not accepted CMYT’s evidence and others where I have not accepted the evidence of his witnesses. Further, CMYT has conceded that, while he did his best, he was not able to properly recall the character of all transactions resulting in monies being deposited into his accounts, owing to the lack of records. He has also told the Tribunal that is it at least possible that there are unaccounted for cash transactions and at least some of his witnesses have told the Tribunal they have engaged in cash transactions with CMYT.
256.I am also not satisfied on the available evidence that the Applicants have adequately established what their assessable income was for the years in dispute to the required standard. For the years in dispute, there is much that remains unexplained in terms of the deposits into NAB4857 arising from CMYT’s activities and the alleged company expenses on the credit cards even following the work done by Ms Huang and the cross examination of CMYT. The extent of CMYT’s hobby activities was acknowledged by CMYT to be unresolved and, as I have noted, there is also uncertainty around his silver bullion activities.
257.The Applicants have made a particular submission that the Respondent has failed to suggest ‘any alternative plausible explanation for the existence of some other (as yet) unexplained source of income’.[304] They also argue that ‘when cross-examining third party witnesses of fact the Respondent failed to establish that their evidence was false or that they did not enter into loan arrangements with CMYT or that they did not acquire watches and precious metals from CMYT.’[305]
[304] Ibid.
[305] Applicants’ closing submissions [11].
258.The Respondent did not bear the onus in these proceedings. It was for the Applicants to establish on the balance of probabilities that the unexplained deposits bore the characteristics identified by CMYT and to satisfy the Tribunal about their sources of income. I accept that the Applicants led witness evidence in proceedings. Their witnesses were cross-examined and, for the reasons I have explained, their evidence has not persuaded me. It is not necessary for the Respondent to lead evidence or advance propositions to explain, bolster or support his assessments.
The ‘all or nothing approach’
259.The Applicants also advanced the particular submission that, in discharging their evidentiary burden in this case, they are not required to prove affirmatively that the full amount of the assessment was not assessable income,[306] contending that it is not open to the Tribunal to take ‘an all or nothing approach’ when determining whether this burden has been discharged.[307] For this submission, they relied upon Haritos v Commissioner of Taxation (2015) 233 FCR 315 at [235]-[236]; Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148 at 167 (‘Imperial Bottleshops’); Condon v Commissioner of Taxation [2023] FCA 561 at [29] and [61]; and, in particular, upon the recent decision in Commissioner of Taxation v Bazzo [2024] FCA 452 at [142] (‘Bazzo’).
[306] Transcript 222, lines 43-46.
[307] Applicants’ closing submissions [23].
260.The Applicants drew the Tribunal’s particular attention to paragraph 142 of the reasons of Colvin J in Bazzo, where his Honour stated:
The contention advanced by the Commissioner to the effect that s 14ZZK(b)(i) operates in an all or nothing way such that a taxpayer who fails to demonstrate that the whole of the amount in the disputed assessment is not assessable must be rejected.
261.The Respondent argued that Bazzo is distinguishable from the present case given that there is unexplained income in the case of CMYT. He referred the Tribunal to Bosanac v Commissioner of Taxation,[308] the recent judgment of the Full Court of the Federal Court of Australia in Commissioner of Taxation v Liang[309] and the recent Federal Court decision in Wang v Commissioner of Taxation[310] and contended that CMYT remains obliged to demonstrate to the Tribunal’s satisfaction what his assessable income was for each year in dispute.
[308] Bosanac.
[309] Commissioner of Taxation v Liang [2025] FCAFC 4, [25], per Perram, Wheelahan and Hespe JJ (‘Liang’).
[310] Wang v Commissioner of Taxation [2024] FCA 585, [53]-[57] (Wang).
262.I am satisfied that Bazzo is founded upon facts which are distinguishable from the facts of this case. In the three paragraphs which preceded the extract relied upon by the Applicants (above), Colvin J was careful to distinguish Ms Bazzo’s circumstances from those which existed in Gashi (and the present case) on the basis that the assessments in Bazzo were not true asset betterment assessments and the particular facts of that case did not require substantiation of the source of Ms Bazzo’s wealth.[311]
[311] In contrast, in Bosanac, the Full Court clearly expressed the view that the task Mr Bosanac faced on the facts of his case was to establish what his taxable income was, both as to its sources and amount and found he had failed to do so.
[311] Commissioner of Taxation v Bazzo [2013] FCAFC 30; (2013) 209 FCR 301 per Bennett, Edmonds and Gordon JJ (‘Bazzo’).
263.In Wang (as in the present case), the Commissioner of Taxation had argued that the taxpayer had unexplained source/s of wealth. Perry J rejected the taxpayer’s argument in Wang that the “all or nothing approach” did not apply, finding it ran directly contrary to the established principle in Gashi and noted that Mr Wang was required to positively prove his actual taxable income to discharge his statutory onus.[312]
[312] Wang [63].
264.Perry J also referred to Justice Derrington’s comments in Condon v Commissioner of Taxation [2023] FCA 561 about Haritos and noted, with approval, that the Full Court’s observation in Haritos had no application where the taxpayer is required (as in the present case) to establish what his actual income is.[313]
[313] Condon v Commissioner of Taxation [2024] FCA 585, [50]-[54].
265.Similarly, in Liang the Full Court of the Federal Court confirmed the Tribunal’s finding that the taxpayer in that case had not discharged their obligation to prove that unexplained deposits into the Property Trust’s account were not ordinary income of the Trust. Importantly, the plurality noted the distinction “between showing an error where all material facts are known and showing an error where all material facts are not known”.[314] They observed:
Here the Commissioner assessed the taxpayers on the basis that the Deposits were ordinary income of the trustee of the Property Trust and confined the case before the Tribunal to that issue. As explained further below, this is not a case in which the transaction giving rise to the Property Trust’s entitlement to the Deposits was known. In these circumstances, it was for the taxpayers to disprove the basis of that assessment by establishing the relevant facts. It was not for the Commissioner to posit or prove a basis from which it might be inferred that the Deposits were income but for the taxpayers to place the relevant facts before the Tribunal.[315]
[314] Liang [33], per Perram, Wheelahan and Hespe JJ. Relevantly, the Full Court specifically addressed Elsey v Federal Commissioner of Taxation (1969) 121 CLR 99 at 108 and Krew v Commissioner of Taxation 71 ATC 4213 at 4217 which are relied upon by the Applicants in Applicants closing submissions [19], in support of their submission that there is no presumption that moneys received by a taxpayer form part of his assessable income. The plurality distinguished Elsey and noted that this remains subject to the qualification that “the burden of proving that a receipt is not income under ordinary concepts always remains with the taxpayer”. Cf Liang [35].
[315] Liang [41].
266.The Full Federal Court also relevantly observed in Liang that:
As a general rule, a taxpayer proves an amount is not assessable as income under ordinary concepts by proving what the amount represents and demonstrating that what the amount represents is not ordinary income. It would be a very rare instance where a taxpayer was able to prove an amount was not income under ordinary concepts without positively establishing the source and character of the amount. As a matter of logic, it is difficult to prove a negative by proving a series of other negatives unless those other negatives represent the entire universe of possibilities.[316] [emphasis added]
[316] Ibid [43].
267.In Imperial Bottleshops, Hill J was, in the absence of records, generally satisfied after hearing the witnesses’ evidence that he could perform a calculation which could be used to ascertain the taxpayer’s income without ‘reaching a view on the quantification of the taxable income as a matter of mathematical precision’.[317] However, in coming to this view his Honour made the general observation at page 155 of his judgment:
A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be “tested most closely, and received with the greatest caution”: Pascoe v FCT (1956) AITR 315; 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believe. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as “prima facie unacceptable”, cf McCormack v FCT (1979) 143 CLR 284 at 302 per Gibbs J; 9 ATR 610; 23 ALR 583.
[317] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148, 167 (‘Imperial Bottleshops’).
268.As I have noted throughout these reasons, I have not reached such a state of satisfaction on the evidence in this case.
Finding on the primary tax issue in respect of JDRJ
269.I have found that JDRJ has not rebutted the presumption that she shared equally in the amounts deposited into NAB4857. I have also accepted JDRJ’s disclamation of her prior concessions as to her income for the years in dispute. In accepting that disclamation, I do not accept the Applicants’ submission that it is effectively uncontradicted evidence which has a ‘ring of truth’ about it.[318] It revealed (concerningly) a risk that the affidavit evidence filed for JDRJ may not have reflected her instructions.
[318] Applicants’ closing submissions [47].
270.I do not accept the Applicant’s submission that the Respondent has not contradicted JDRJ’s submission that she had no other income than that which was declared in her income tax returns.[319] As I have noted, the Respondent does not bear the onus to satisfy the Tribunal that his assessments are correct.
[319] Ibid [40], which referred to Transcript 123, line 43.
271.It follows from my findings in respect of each of the categories of transactions and my view in respect of JDRJ’s right of enjoyment of the monies which flowed into NAB4857, that I am also not satisfied that the amendments raised against JDRJ are excessive, or that she has adequately explained her income for the years in dispute.
Penalty
272.As I have already noted, the Commissioner has conceded that there are minor errors in the calculations for penalty for each of CMYT and JRDJ which are in their favour, and these have been addressed in the Tribunal’s proposed orders.
273.CMYT and JDRJ were assessed to base penalty of 75% reflecting a finding that they made false or misleading statements with intentional disregard of his obligations under the taxation laws.[320] Uplift to the penalty (20%) was then applied for the tax years ended 30 June 2016 to 2018 for CMYT and for 2014 to 2018 for JDRJ. The Respondent declined to exercise his discretion to remit penalty in either case.
[320] TAA sch 1, s 284-90.
Should CMYT and JDRJ be liable to administrative penalty?
274.The Respondent submits, and I accept, that CMYT and JDRJ bear the onus of persuading the Tribunal that the penalties imposed by the Commissioner were excessive.
275.The Applicants argue that:
(a) The tax shortfalls did not result from intentional disregard of a taxation law because neither CMYT nor JDRJ knowingly intended to omit assessable income from their income tax returns;
(b) In the alternate, and in light of the lack of intent, penalty should be remitted, either in full or in part, to 25% on the basis that they failed to take reasonable care;
(c) Further, and in the alternate, the shortfalls resulted from recklessness as to the operation of a taxation law.
276.The Applicants further submit that:
(a) CMYT and JDRJ were previously tax compliant, in that they had historically lodged income tax returns and had not previously been subject to penalties;[321]
(b) Neither had English as their first language;[322]
(c) CMYT was only schooled to the age of 11;[323]
(d) JDRJ was ‘not good with tax’ and ‘didn’t think [she] was doing [anything] wrong’;[324]
(e) Neither had expertise in accountancy or tax and had engaged a tax agent to assist with their tax returns and thought they were doing the ‘right thing’ in doing so.[325]
[321] Applicants’ closing submissions [60].
[322] Ibid [58] and [59], which refers to Transcript 28,117.
[323] Ibid [58], which refers to Transcript 28, line 40.
[324] Ibid [59], which refers to Transcript 123, lines 15 and 19.
[325] Ibid [60].
Intentional disregard
277.In Russell v Federal Commissioner of Taxation[326] his Honour, Justice Logan acknowledged the observation made by her Honour Justice Collier in Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 66 ATR 1, that intentional disregard requires among other things ‘an understanding by the taxpayer of the effect of the relevant legislation or regulations, an appreciation by the taxpayer of how that legislation or regulation applies to the circumstances of the taxpayer, and finally, deliberate conduct of the taxpayer so as to flout the ITAA 1936 or regulations.’ [327]
Should a lesser penalty apply?
[326] Russell v Federal Commissioner of Taxation [2009] FCA 1224; 74 ATR 466 (‘Russell’).
[327] Ibid [180], per Logan J.
278.In support of the penalties imposed, the Respondent pointed to the size of the difference between the taxable income originally reported by CMYT and JDRJ in their income tax returns and that assessed by him.
279.In their affidavit evidence filed with the Tribunal, CMYT and JDRJ both made concessions as to their taxable income in respect of each year in dispute. JDRJ then wholly disclaimed the concessions she made in her affidavits. For CMYT, those concessions, lately made, represented his best possible position in terms of an outcome before the Tribunal on the primary tax issue on which he was ultimately unsuccessful, but still fell well short of the assessed amounts.
280.In respect of CMYT and JDRJ’s arguments as to their lack of education and language skills, I do not accept these characteristics would of themselves mean a taxpayer could not demonstrate intentional disregard, but would also observe that CMYT migrated to Australia 35 years ago while JDRJ arrived just under 30 years ago. Both witnesses demonstrably speak, read and write English. Both have been employed in customer sales positions for many years and there was no suggestion they were unable to engage with their customers in English. Both were able to give their evidence to the Tribunal in English and engaged with the Tribunal and counsel in English at the hearing.
281.Further, while neither CMYT nor JDRJ has professional expertise in accountancy or taxation, both have extensive and long-term experience in working in a business and are experienced salespeople. Both maintained a large number of bank accounts and engaged in somewhat convoluted household financial arrangements that saw substantial movement of monies between them and their accounts.
282.CMYT also ran his own business. From his experience in the jewellery business and his company, it would be reasonable to assume that a person in CMYT’s position would know how to manage a business and properly account for sales and expenses. In addition to this, CMYT was the director of multiple companies (a position which imposed significant legal financial and reporting obligations on him each financial year).
283.I acknowledge that there is no evidence to suggest CMYT or JDRJ have failed to lodge income tax returns in the past. I also acknowledge that they had engaged a tax agent to prepare their returns for each of the years in dispute. However, these facts alone are not determinative. Despite their knowledge of matters over a long period, the evidence reveals the Applicants did not disclose to their tax agent all relevant information about CMYT’s activities and the money flowing into NAB5847 for the years in dispute. [328]
[328] In contrast, for example, with the circumstances in Mano v Federal Commissioner of Taxation (2010) 78 ATR 981, [60] to which the Applicants referred to in Applicants’ closing submissions [52].
284.Also relevant to my consideration is the size of the shortfall (which is sizeable), the circumstances in which the shortfall has arisen, including whether it was an isolated incident, and whether they acted appropriately in all the circumstances to ascertain/clarify their position in this case (see below).
285.I have considered each taxpayer’s situation further below, starting with CMYT:
286.CMYT acknowledged that he was obliged to pay capital gains tax on two sales of silver bullion in 2016 but had not done so. He had not disclosed his sales of silver bullion in his tax return and did not suggest he had sought any advice or discussed with his tax agent the consequences of this activity.[329] The proceeds from these two sales in 2016 were very large and, on his own evidence, these were not isolated transactions as he had been acquiring silver bullion 1990 and had brought silver bullion with him to Australia (which he had concealed). He admitted that, despite knowing about the profit associated with this activity over a long period of time, he had not kept records of any acquisitions or sales of silver bullion. On CMYT’s own evidence, I have not been persuaded that all sales of silver bullion have been identified for the years in dispute.
[329] Hearing Book tab 144. See also Transcript 71, lines 23-24.
287.CMYT had also, over a number of years, not reported additional income he earned from the sales of watches and jewellery, or some sort of goods or service. These transactions were also sizeable and regular and were conducted off piste from both his family’s business and the company. Once again, it appears that CMYT said nothing to his tax agent about these activities,[330] sought no advice at any point in time about their tax treatment and made little effort to account for them or keep records, independently of his personal bank accounts. On CMYT’s own evidence, he made a decision on each occasion to engage in these special arrangements to look after ‘special orders’.[331] Despite CMYT’s admission that he earned some income from these transactions, they were not reported as income in his or the company’s returns. Once again, on CMYT’s evidence, I am not persuaded all these sales, and any resulting income, have been identified.
[330] Hearing Book tab 144. See also Transcript 40, lines 1-13.
[331] Transcript 83, lines 12-13.
288.CMYT had also claimed some expenses as business expenses which were properly personal expenses. In this case, it appeared he lacked awareness and education as to what was able to be claimed and also had allowed his personal and business expenses to become intermingled. He also failed to responsibly manage his colleague’s expenditure and claims against the company. There was no evidence before the Tribunal to suggest he had ever discussed with his tax agent what expenses should be claimed as business expenses.
289.CMYT had failed, over a number of years, to keep proper records of assets which attracted capital gains on sale, income from a large volume of sales and the expenses which he claimed for his company. These included records of precious metals which he admitted he had known for many years of dealing could fluctuate in value and lead to profit.[332] Records were not kept of purchases and sales, and it seems documentation was also not provided to the customers for watches, jewellery and precious metals. There was no evidence before the Tribunal that suggested he had sought advice from his tax agent about what records should be kept for various transactions.
[332] Ibid 29, lines 4-14.
290.To the extent that CMYT contends he simply misunderstood his position or was not aware his tax obligations, I do not accept that this is correct. The acquisitions and sales of the silver bullion were for significant amounts and his acquisitions and sales had occurred over many years. CMYT did not dispute that he had long-term experience in trading in silver bullion. The evidence shows that he made a deliberate decision to sell the silver bullion in 2016, to realise a substantial amount which he could use, and did not disclose this to his tax agent or declare in his income tax return.
291.The particular way in which CMYT engaged in the activities which he described as his ‘hobby’ also suggests, on the available evidence, a level of planning and intent which objectively goes beyond what could be considered reckless behaviour or merely a failure to take reasonable care. The evidence demonstrates that CMYT deliberately engaged in conduct over a number of years to undertake certain transactions differently for special customers ‘off the books’.[333]
[333] The Applicants cited Maloney v Commissioner for Railways (NSW) (1978) 52 ALJR 292 at 292 (per Barwick CJ) and Hart v Federal Commissioner of Taxation [2003] FCAFC 105; (2003) 131 FCR 203 at [42] and [44] per Hill and Hely JJ. The circumstances of the case do not constitute a mere error or even negligence or indifference.
292.Finally, to the extent CMYT argues his position was reasonably arguable, I do not accept that argument. On CMYT’s own evidence, not all relevant transactions had been identified, i.e. his true income could not be ascertained. On his own evidence, he conceded that he was not able to adequately explain the source and character of all transactions that resulted in monies which came to him. He has not complied with his legal record keeping obligations and conducted transactions in a manner which was intentionally ‘off record’.
293.In all the circumstances, I am not persuaded that a lower rate of penalty should be applied to CMYT.
294.Turning to JDRJ, I have considered carefully whether she should be treated differently to CMYT given her knowledge and participation in events. The following is relevant to her circumstances:
(a) JDRJ controlled a large number of bank accounts and used these to manage money in a particular way. She participated in a process whereby CMYT gave her funds (including cash) for her use. She could have insisted on access to NAB4857 but made a conscious decision to leave that account “to the more important things”;[334]
(b) JDRJ could have accessed NAB4857 herself to withdraw her salary and knew what she earned each year. It was implausible to suggest that she had a basis to assume all the monies CMYT gave her came from her salary and she conceded she could not vouch for the source of the cash payments she received from him.[335] Her income alone was insufficient to explain the monies coming both to her and being used (e.g. to pay the joint mortgage);
(c) JDRJ lived and worked alongside CMYT. She ultimately did not deny that she was aware of the matters in which CMYT had been involved. While she claimed her knowledge of these events was not contemporaneous, she did not deny awareness of them and told the Tribunal that she trusted CMYT and had decided “I don’t put my nose in his business”;[336]
(d) It was JDRJ’s evidence that CMYT passed information to her about his activities and she did not question him, because he knew what he was doing. He kept her informed and she told the Tribunal that she fully supported him;[337]
(e) She also told the Tribunal she left everything to the accountant and trusted him;[338] and
(f) JDRJ ultimately had the benefit of the income arising from CMYT’s activities, both in respect of NAB4857, cash in the hand, and the payment into the joint mortgage account. There was no evidence that suggested her wage into NAB4857 was quarantined in any way.
[334] Transcript 122- 123.
[335] Ibid 123, lines 1-11.
[336] Ibid 125, lines 28-30 and 35-37.
[337] Ibid 126, lines 1-3.
[338] Ibid 126, lines 26-28.
295.Ultimately, JRDJ, knowing of CMYT’s activities, made a decision not to question them and did not seek guidance from her tax agent. Instead, she continued to enjoy the benefits of the monies which came to her, knowing she could not vouch as to the source of all of them. Despite this, she continued to report significantly lower amounts to the Commissioner of Taxation.
296.In all the circumstances, I do not accept that JDRJ was ignorant of her position, nor do I accept her position was reasonably arguable. Further, her admission of knowledge and participation in the cash arrangements and use of NAB5847 over time suggests a higher level of culpability than negligence or recklessness or mere indifference to risk.
297.The Applicants have not submitted that JRDJ should be treated differently to CMYT and ultimately, I am not persuaded given her evidence that there is reason to apply a lesser penalty in her case.
Are there grounds for remission of penalty in whole or part for CMYT or JDRJ?
298.I acknowledge and accept the Applicants’ submission that the discretion to remit penalty is broad and must take into account all relevant circumstances.[339]
[339] Applicants’ closing submissions [68].
299.I have acknowledged both CMYT and JDRJ’s personal circumstances above and the countervailing arguments.[340] Bearing in mind all the circumstances, I am not persuaded that imposition of the full penalty would lead to an unintended or unjust result, or that it is otherwise appropriate that it should be reduced or waived in full.
[340] Ibid [68]-[71].
Conclusion
300.For the reasons outlined above, the Tribunal affirms the decisions under review, with the exception of the applications concerning penalty, which are amended to reflect the calculations at Appendix A and those are remitted to the Respondent for the purpose of issue of amended penalty assessments.
Date(s) of hearing: 25, 26, 27 and 28 November 2024 and 11 February 2025 Date final submissions received: 5 February 2025 Solicitors for the Applicant: Coleman Greig Solicitors for the Respondent: HWL Ebsworth ANNEXURE A
1.The penalties imposed by the Respondent in each of the proceedings were conceded to contain calculation errors.
2.The correct penalty and the differences are recorded below.
For CMYT:
Year ended 30 June
Shortfall ($)
Base penalty amount including uplift
Correct Penalty ($)26
Difference ($)
2015
38,531.38
75%
28,898.55
175.70
2016
102,476.10
90%27
92,228.50
0.50
2017
101,607.95
90%
91,447.15
0.05
2018
174,062.20
90%
156,656.00
0.10
For JDRJ
Year ended 30 June
Shortfall ($)
Base penalty amount including uplift
Correct Penalty ($)
Difference ($)
2013
22,295.61
75%
16,721.70
0.00
2014
57,485.34
90%
51,736.80
-1502.60
2015
67,414.11
90%
60,672.60
412.45
2016
134,863.60
90%
121,377.25
0.00
2017
74,406.74
90%
66,966.05
206.90
2018
105,091.35
90%
94,582.20
0.00
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Ordinary Income
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Capital Gains Tax
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Administrative Penalties
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Statutory Interest Charge
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