Crane and Commissioner of Taxation
[2005] AATA 61
•21 January 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 61
ADMINISTRATIVE APPEALS TRIBUNAL )
) No QT2003/13-17
TAXATION APPEALS DIVISION ) Re LORNA CRANE Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr SC Fisher Date21 January 2005
PlaceBrisbane
Decision The Tribunal affirms the decisions under review.
. ........[Sgd]...........
SC Fisher
Member
CATCHWORDS
TAXATION – Income Tax – Whether assessments of income raised by Respondent were excessive – Applicant unable to discharge burden of proving assessments were excessive – Decision under review affirmed.
Income Tax Assessment Act 1936 s 167, 190
Taxation Administration Act 1953 s 14Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81; (1075) 75 ATC 4257
Secretary, Department of Social Security v Murphy , Federal Court, 29 June 1998, 908/98; (1998) 52 ALD 268
Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248; [2003] 74 ALD 21
Bantick and Secretary, Department of Family and Community Services [2003] AATA 472
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598; (1981) 4 ALD 198
Liedig v Commissioner of Taxation (1994) 50 FCR 461Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Marijancevic v Deputy Commissioner of Taxation [2004] FCA 1084
Federal Commissioner of Taxation v Munro 97 ATC 5041
McCauley v Federal Commissioner of Taxation (1988) 88 ATC 4605
The Taxpayer and the Commissioner of Taxation [2004] AATA 1026
MacMine Pty Ltd v Federal Commissioner of Taxation (1979) 79 ATC 4133
Kimche v Commissioner of Taxation [2004] FCA 1108
Martin v Federal Commissioner of Taxation (1993) 93 ATC 5200
Southern Pacific Petroleum NL (Receiver and Manager Appointed), (Administrator Appointed) v Esso Australia Resources Pty Ltd [2004] FCA 1327
Way v Deputy Commissioner of Taxation (No 2) [2004] FMCA 373
Liu v Commissioner of Taxation [2003] FCA 124REASONS FOR DECISION
21 January 2005 Mr SC Fisher, Member Introduction and Background
1. Ms Lorna Crane (the Applicant) at all material times was a working director of a company called MICE Technology Pty Ltd (the company). The Applicant’s husband was also a working director of the company. The Applicant did not lodge income tax returns with the Commissioner of Taxation (the Respondent) for the fiscal years ended 30 June 1995, 30 June 1996, 30 June 1997, 30 June 1998 and 30 June 1999. The Respondent conducted an audit and as result, the Respondent raised assessments under section 167 of the Income Tax Assessment Act 1936 (ITAA 1936) on 20 June 2001.
2. The section 167 assessments indicated the Applicant’s taxable income was as follows:
Year Taxable Income 1995 $10,000 1996 $26,000 1997 $62,400 1998 $66,144 1999 $100,000
3. Following the issue of the section 167 assessments by the Respondent, the Applicant lodged amended income tax returns on 11 January 2002 stating that for each of the fiscal years 30 June 1995, 30 June 1996, 30 June 1997, 30 June 1998 and 30 June 1999, her taxable income was $6,000. The Respondent treated these income tax returns as objections against the assessments.
4. The Applicant’s objections against the section 167 assessments were disallowed by the Respondent in full. Subsequently, the Applicant appealed to the Tribunal on 9 January 2003. Technically these appeals were out of time. The Respondent did not object to the Tribunal granting an extension of time within which to appeal to this Tribunal, which the Tribunal did.
5. The substantive provisions governing this appeal are contained within the Taxation Administration Act 1953 (Commonwealth).
Jurisdiction
6. The Tribunal has jurisdiction in this appeal by virtue of sections 14ZZA – 14ZZM of the Taxation Administration Act 1953.
The burden of proof
7. Under section 14ZZK(a) of the Taxation Administration Act 1953, the taxpayer is limited to the grounds stated in the taxation objection to which the decision relates unless this Tribunal orders otherwise. Among other things, the taxpayer has the burden of proving that the assessment is excessive or that the taxation decision concerned should not have been made or and that it should have been made differently: section 14ZZK(b). In general, the taxpayer must go further than showing the assessment is excessive or wrong and show what the correct assessment should be: Trautwein v Federal Commissioner Taxation (1936) 56 CLR 63 at 87 – 88. In the absence of evidence, the Tribunal is not able to infer facts in favour of taxpayers: McCormack v Federal Commissioner of Taxation (1979) 143 CLR 289. The scheme of the ITAA 1936 and the ITAA 1997 does not place any onus on the Respondent to show that the assessment was correctly made: Gauciv Federal Commissioner of Taxation (1975) 75 ATC 4257 at 4261.
The Decisions under Review
8. The decisions under review are decisions made by the Respondent on 21 June 2001 to raise default assessments under section 167 of the ITAA 1936 for the fiscal years ended 30 June 1995, 30 June 1996, 30 June 1997, 30 June 1998 and 30 June 1999.
The Role of the Tribunal
9. The role of the Tribunal is to review the merits of the decision before it: Section 43 of the Administrative Appeals Tribunal Act 1975 and Secretary, Department of Social Security v Murphy , Federal Court, 29 June 1998, 908/98; (1998) 52 ALD 468. The Tribunal is guided by the norm that it should reach the correct and preferable decision on the basis of the material before it: Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248 at [33]. The Tribunal is required to stand in the shoes of the original decision-maker and consider all evidence anew, bearing in mind statutory provisions and any significant legal precedent: Bantick and Secretary, Department of Family and Community Services [2003] AATA 472 at [23]. The Tribunal must base its decision upon the material that is logically probative of the existence of facts that emerge from the evidence before it: Collins v Minister for Immigrationand Ethnic Affairs (1981) 36 ALR 598 at 601. In undertaking this review, the Tribunal is constrained by the provisions of the Taxation Administration Act 1953, in particular section 14ZZK: see Liedig v Commissioner of Taxation (1994) 50 FCR 461 at 465 per Hill J.
The Material Before the Tribunal
10.The following documentary evidence was before the Tribunal:
Exhibit 1 Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (Documents T1 – 23).
Exhibit 2Applicant’s file of documents and correspondence.
Exhibit 3Bundle of correspondence between the Applicant and Respondent.
Exhibit 4Computer print-outs of landholdings involving the Applicant and her husband.
11. The Applicant tendered documentary Exhibit 2, which was taken into evidence by the Tribunal. The Applicant was self-represented.
12. The Respondent lodged documents T1 to T23 under section 37 of the Administrative Appeals Tribunal Act 1975 and tendered documentary Exhibits 1, 3, and 4, which were taken into evidence by the Tribunal. The Respondent was represented by Mr Aftanas of the ATO Legal Practice.
13. The Tribunal read closely the correspondence between the Applicant and the Respondent concerning her contentions and arguments concerning her taxation liability.
14. The Respondent lodged a statement of facts and contentions as well as an outline of submissions.
Evidence
15. The Applicant gave evidence in person. The effect of this evidence, to the extent that is material to the issues of these appeals, can be summarised in these terms:
A.The Applicant said that she cannot produce figures to demonstrate her income.
B.The Applicant said that the time of preparing and lodging her income tax returns, she put in $6,000 as a nominal figure. In cross-examination, the Applicant conceded that $6,000 was put in as a “round” figure.
C.The Applicant said that she was confused about the records of the company, that she is not a trained accountant and that there was some intermingling of her private affairs and company affairs when it came to using company resources and assets for private purposes (for which she later reimbursed the company), as well as using private resources for company purposes. The Applicant said that the primary tax liabilities of the company have been paid.
D.The Applicant explained the history of her company, how it came to be formed and how it had taken off very quickly. The Applicant said that she and her husband had been working very hard in the company and this made it difficult for her to spend the necessary time to attend to the accounting and other affairs of the company.
E.The Applicant complained about the audit that the Respondent had undertaken of her affairs.
F.In cross-examination, the Applicant adhered to her contention that she had earned only $6,000 for each of the relevant years of income.
G.In cross-examination, the Applicant conceded that she did not have any evidence to substantiate her claim that she had earned only $6,000 for each of the relevant years of income.
H.The Applicant said that she has no income with which to pay any personal tax liability.
I.In re-examination, the Applicant said that she would be able to prove her case if she had more time.
16.The Respondent did not call any evidence.
Issue
17. The issue in this case is whether the assessments of income raised by the Respondent under section 167 of the ITAA 1936 for fiscal years ended 30 June 1995, 30 June 1996, 30 June 1997, 30 June 1998 and 30 June 1999 were excessive.
Applicant’s Submissions
18. The Applicant said during the hearing that she had not really had an opportunity to prepare adequately for the hearing because of private matters and work commitments, including family sickness involving herself and husband. The Applicant said that she was “utterly defeated” in not preparing her case. The Tribunal noted that the Applicant’s application for review was dated 7 January 2003, that it was received by the Registry of the Tribunal on 9 January 2003 and that the appeals were heard on 21 October 2004.
19. Making due allowance for the fact that the Applicant was not represented and is not legally qualified or otherwise experienced in taxation affairs, as it appeared to the Tribunal the gist of the Applicant’s submissions is that the Respondent’s assessment of income for the relevant fiscal years were excessive in her case. When pressed by the Tribunal to elaborate on and justify this basic contention, the Applicant said that she was unable to do so and referred the Tribunal to Exhibit 2 filed in these proceedings. The Tribunal took into account this material together with a letter from the Applicant to the Registry of the Tribunal dated 27 February 2004.
20. The balance of the Applicant’s submissions can be summarised in these terms:
A.The Applicant said that she is “innocent”, and that she is upset at any suggestion that she is dishonest.
B.The Applicant said that she has not earned the money that the Respondent asserts that she has.
C.The Applicant asked the Tribunal to take into account the overall position, that she has no assets, no motor vehicle and that she is living from her day-to-day earnings.
D.The Applicant said that she is not able to substantiate her case at the hearing. The Applicant said that she is in a catch 22 situation. The Applicant said that as she saw things, she does not owe the claimed tax to the Respondent, but at the same time she cannot prove her level of earnings.
E.The Applicant submitted that law is about justice, and in her case, if the Tribunal affirmed the decisions under review, this would cause her significant hardship. This, the Applicant submitted in effect, would be productive of injustice in her case.
Respondent’s Submissions
21.The submissions of the Respondent can be reduced to the following account:
A.The Applicant has not discharged the burden of showing that any of the assessments are excessive within section 14ZZK of the Taxation Administration Act 1953: McCormack v Federal Commissioner of Taxation (1979) 143 CLR 289 (a decision on former section 190 of the ITAA 1936, which is in pari materia with section 14ZZK).
B.The Applicant must show, not only negatively that the assessments are wrong, but also positively what corrections should be made to them in order to make it right or more nearly right: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 – 88.
C.An assessment might not be erroneous in fact, if the reasons which led to the assessment were erroneous: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623; 90 ATC 4088 at 4091 per Brennan J.
D.If a taxpayer has not proved that his or her actual income is less than the amount assessed, the court does not know all the material facts and it cannot find that the amount assessed as wrong: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623; 90 ATC 4088 at 4093 - 4094 per Brennan J.
E.The Applicant has not provided any positive or good evidence to show that her income for each of the fiscal years in question is $6,000 per annum.
F.The Applicant has not discharged the burden imposed upon her by section 14ZZK of the Taxation Administration Act 1953 of showing that the Respondent’s assessments are excessive.
G.Therefore, the Tribunal should affirm the decisions under review.
22. The parties, and particular the Applicant, did not differentiate between any of the relevant fiscal years’ assessments in conducting the appeals. The Tribunal was prepared to conduct its review on this basis.
Findings of Fact
23. Based upon the oral evidence and documentary material before it, the Tribunal makes the following findings of fact:
A.At all material times the Applicant was a director of the company, MICE Technology Pty Ltd A.C.N. 056 966 253 (“the Company”).
B.On 27 April 1999 the Respondent requested by letter that the Applicant lodge income tax returns for the income years ending 30 June 1995, 1996, 1997 and 1998.
C.On 20 January 2000, the Respondent wrote to the Applicant advising that as a result of her failure to lodge the relevant returns requested, default assessments would be made pursuant to section 167 of the ITAA 1936 and that it was the Respondent’s intention to issue assessments as follows:
Year Taxable Income 1995 $10,000 1996 $26,000 1997 $62,400 1998 $66,144 1999 $100,000
D.During the year ended 30 June 1995 the following property was purchased in the name of Albert Crane and Lorna Crane: Vacant land at 59 Auckland Street, Gladstone for $8,000.
E.During the year ended 30 June 1999 the following properties were purchased in the name of Albert Crane and Lorna Crane:
(i) 31 July 1998, Willangi Street, Ogmore from W Lowe (vacant urban land for $20,000;
(ii) 31 July 1988, Willangi Street, Ogmore from W Lowe (single dwelling unit) for $20,000;
(iii) 28 September 1998, group title unit at 59 Auckland Street for $64,000; and
(iv) 28 September 1998, group title unit at 59 Auckland Street for $61,000
F.During the year ended 30 June 1996 the following properties were purchased in the names of Albert Crane and Lorna Crane:
(i) 26 April 1996, Tooloomba Street, Ogmore from Queensland Railways (vacant urban land) for $2,000;
(ii) 26 April 1996, Wilangi Street, Ogmore from Queensland Railways (vacant urban land) for $2,000.
G.During the year of income ended 30 June 1999 at least $579,641.30 was deposited into the company accounts and at least $585,092.69 was withdrawn from the accounts. Of the withdrawals, $256,118.76 were drawings by the Applicant and her spouse for private expenses.
H.The following drawings made by the Applicant and her spouse from the Company’s account are in relation to the above properties:
(i) 15 September 1998 payment to Ray White Real Estate Deposit for $4,500;
(ii) 18 September 1998 payment to Ray White Real Estate Deposit for $500;
(iii) 18 September 1998 payment to Tony Goodwin Trust Account (Solicitor) for $6,400;
(iv) 28 September 1998 transfer to A & L Crane Northern Building Society Account for $30,000; and
(v) 11 December 1998 payment entitled “contract completion” for $49,329.59.
I.On 20 June 2001 the Respondent issued Notices of Assessment for the years of income ended 30 June 1995, 1996, 1997, 1998 and 1999 in the amounts stated in para 23C above.
J.On 13 July 2001, the Applicant forwarded letters regarding the assessments for the years of income ended 30 June 1995 to 1999 advising that the assessments were incorrect. No supporting material was provided to substantiate the Applicant’s claim.
K.On 27 June 2002, the Respondent disallowed the objections and a Notice of Decision on Objection was forwarded to the Applicant.
The Legislation
24. The legislative provision that is central to the resolution of these appeals is section 14ZZK of the Taxation Administration Act 1953. This provision reads as follows:
“14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a)the Applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the Applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii)if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii)in any other case—the taxation decision concerned should not have been made or should have been made differently.”
25. Section 167 of the ITAA 1936 provides the basis for the Respondent to issue default assessments, which the Respondent did in this case. Section 167 provides that if any person makes default in furnishing a return the Respondent may make an assessment of the amount upon which, in his judgment, income tax ought to be levied: see Marijancevic v Deputy Commissioner of Taxation [2004] FCA 1084 at [3] per Heerey J.
Tribunal’s Reasons
26. Under section 14ZZK of the Taxation Administration Act 1953, the Applicant bears the onus of proving that the Commissioner’s assessment was excessive. This is clear from decisions of the courts in cases such as Federal Commissioner of Taxation v Munro(1997) 97 ATC 5041; McCormack v Federal Commissioner of Taxation (1979) 79 ATC 4111; Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81; (1975) 75 ATC 4257; and McCauley v Federal Commissioner of Taxation (1988) 88 ATC 4605 (see The Taxpayer and the Commissioner of Taxation [2004] AATA 1026 at [15]).
27. The onus on the Applicant of demonstrating that the assessments are excessive is not one of providing strict proof, but of satisfying the Tribunal on the balance of probabilities: see Federal Commissioner of Taxation v Munro (1997) 97 ATC 5041 per Lockhart J at 5049-5050 and MacMine Pty Ltd v Federal Commissioner of Taxation (1979) 79 ATC 4133; (1979) 53 ALJR 362 per Gibbs J: Kimche v Commissioner of Taxation [2004] FCA 1108 at [27].
28. Adapting what Ryan J said in Kimche v Commissioner of Taxation [2004] FCA 1108 at [28], if it is established that a payment was received in a particular year of income, the onus is on the taxpayer to establish, on the balance of probabilities, circumstances which deprive that receipt of the character of income, eg because it was a repayment of a loan or other capital advance or by way of gift. If the taxpayer fails in respect of a particular receipt to discharge that onus which is imposed by section 14ZZK of the Taxation Administration Act 1953, then the amount of that receipt remains assessable to tax.
29. To this may be added what Davies J said in Martin v Federal Commissioner of Taxation (1993) 93 ATC 5,200 at 5,202;
“A court may set aside an assessment and remit the matter for reconsideration by the Commissioner where the court is satisfied that there was an error of law in the Commissioner's approach which led to an excessive assessment and that the taxable income should be recalculated by the Commissioner on a particular basis. But that is not to say that it is sufficient for a taxpayer merely to show that there was some error in the Commissioner's assessment. The taxpayer must demonstrate what is the amount which should be substituted for the taxable income assessed by the Commissioner or the basis upon which a calculation of that taxable income should be undertaken. The ultimate burden of the taxpayer is to show not merely that the assessment was in theory excessive, but that the amount assessed was excessive. Ordinarily, such a burden can be discharged only by proving what was the amount of the taxpayer's true taxable income and by comparing that sum with the taxable income assessed.”
30. There is a difference between the Tribunal’s powers of review appeal under section 14ZZK and an appeal to the Federal Court under sections 14ZZO and 14ZZP because there are institutional differences between the Tribunal and the Federal Court coupled with differences based on the nature of the power (executive/administrative versus judicial) exercised by each body.[1] That said, the grounds of review are identical between these provisions. Accordingly, what the Court said in Kimche v Commissioner of Taxation and Martin v Federal Commissioner of Taxation is of assistance in the present case because it shows some of the operative second-order elements to be invoked and satisfied following a first-order test that requires the taxpayer to demonstrate that the relevant assessments are excessive. Somewhat less abstractly, a taxpayer may succeed in a contention that an assessment is excessive if (among other things):
A.The taxpayer demonstrates, not only negatively that the assessments are wrong, but also positively what corrections should be made to them in order to make it right or more nearly right: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 – 88.
B.The taxpayer demonstrates that the Respondent’s assessment is an approximation made upon no intelligible basis: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88.
C.The taxpayer satisfies the Court or Tribunal that receipts by the taxpayer do not have the character of income.
D.The taxpayer satisfies the Court or Tribunal what is the amount which should be substituted for the taxable income assessed by the Commissioner or the basis upon which a calculation of that taxable income should be undertaken.
[1] “The essential function of judicial power is the quelling of controversies between subjects, or between subject and state, by ascertainment of the facts, by application of the law and by exercise, where appropriate, of judicial discretion”: Southern Pacific Petroleum NL (Receiver and Manager Appointed), (Administrator Appointed) v Esso Australia Resources Pty Ltd [2004] FCA 1327 at [32] per Emmett J.
31. In this case, the Applicant has done none of these things and the evidence does not point to any of these grounds.
32. Some of the evidence and submissions of the Applicant were directed to attacking the process by which the Respondent raises the section 167 default assessments. The Applicant complained about the audit that the Respondent had undertaken of her affairs. This is not one of those cases where there is any substance to a contention, real or imagined, that the Respondent contravened the rules of natural justice (or procedural fairness) in undertaking the default assessment procedure (as to which see Way v Deputy Commissioner of Taxation (No 2) [2004] FMCA 373).
33. In this case, the Applicant was not able to show what her true taxable income was for each of the fiscal years in question. In effect, the Applicant left this aspect of her case to the Tribunal. This is not the role of the Tribunal on merits-based administrative review of taxation decisions. The Applicant did not adduce relevant, reliable and cogent evidence to show what her true taxable income was and then compare this to the taxable income assessed in order to show that the latter was excessive. The Applicant did not show by reliable evidence marshalled appropriately that the amounts said to be income in her hands were not derived by her. In Liu v Commissioner of Taxation [2003] FCA 124 at [16] per Allsop J said “A taxpayer cannot get an advantage by losing either his memory or his books, but must show the true position” (citing Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87). The Tribunal is not saying that the Applicant’s memory failed or that she lost her books of account as much as the Applicant has simply failed to show her true taxable income. In the opinion of the Tribunal, it does not know all the material facts and it cannot find that the amounts assessed as income during the relevant fiscal years to be wrong (see Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623; 90 ATC 4088 at 4093 - 94 per Brennan J).
Tribunal’s Conclusion
34. In this case, the correct and preferable decision is that the Applicant has failed to demonstrate that any of the assessments raised by the Respondent in relation to the fiscal years of income ended 30 June 1995, 30 June 1996, 30 June 1997, 30 June 1998 and 30 June 1999 are excessive as required by section 14ZZK of the Taxation Administration Act 1953. Accordingly, the Applicant’s challenge to the section 167 default assessments fails.
Tribunal’s Order
35.The Tribunal decides to affirm the decisions under review.
I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Mr SC Fisher, Member
Signed: Camille Banks
Associate
Date/s of Hearing 21 October 2004 (Bundaberg)
Date of Decision 21 January 2005 (Brisbane)
The Applicant appeared in person
Solicitor for the Respondent Mr S Aftanas, ATO Legal Practice
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