FLLH and Commissioner of Taxation (Practice and Procedure)
[2025] ARTA 216
•14 March 2025
FLLH and Commissioner of Taxation (Practice and Procedure) [2025] ARTA 216 (14 March 2025)
Applicant:FLLH
Respondent: Commissioner of Taxation
Tribunal Number: 2023/9191
Tribunal:Deputy President Thompson SC
Place:Perth
Date:14 March 2025
Decision:The application for confidentiality orders is granted in accordance with the Tribunal’s direction dated 10 March 2025. The application to take evidence via audio-visual link is granted in accordance with the Tribunal’s direction dated 10 March 2025. The application to narrow the scope of review is dismissed.
Statement made on 14 March 2025 at 8:30am
CATCHWORDS
PRACTICE AND PROCEDURE – TAXATION – application for confidentiality orders - agreed list of pseudonyms - application for evidence to be given by video link – Applicant’s witnesses are resident in China – potential logistical issues – potential Chinese sovereignty issue for witnesses to give evidence from China or Hong Kong – insufficient information regarding Chinese sovereignty issue – witnesses to give evidence from Singapore - application for the Tribunal to narrow the scope of review dismissed – asset betterment method – Commissioner’s default assessment – context of the review
LEGISLATION
ADMINISTRATIVE REVIEW TRIBUNAL ACT 2024 (CTH) – SECTIONS 8, 53, 75
CIVIL PROCEDURE LAW OF THE PEOPLE’S REPUBLIC OF CHINA – ARTICLE 284
COMMONWEALTH CONSTITUTION – CHAPTERS II, III
INCOME TAX ASSESSMENT ACT 1936 (CTH) – SECTIONS 166, 167
TAXATION ADMINISTRATION ACT 1953 (CTH) – SECTIONS 14ZZE, 14ZZK(B)
CASES
Auken Animal Husbandry v 3rd Solution Investment [2020] FCA 1153; (2020) 147 ACSR 521
Buzadzic v Commissioner of Taxation [2024] FCAFC 50
Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614
Commissioner of Taxation v Ross [2021] FCA 766; (2021) 174 ALD 77
Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301
Joyce v Sutherland [2011] FCAFC 95; (2011) 195 FCR 213
Liu v Option Funds Management Limited [2022] FCA 444
Ma v Federal Commissioner of Taxation (1992) 37 FCR 225
McPartland v Commissioner of Taxation [2023] FCA 1260
McPartland v Commissioner of Taxation [2025] FCAFC 23
Motorola Solutions v Hytera Communications [2020] FCA 539
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 133 ALD 39
Re Sunnya [2023] NSWSC 1286
Rigoli v Federal Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Wang v Law Society NSW [2022] NSWSC 986
SECONDARY MATERIALS
ADMINISTRATIVE REVIEW TRIBUNAL, COMMON PROCEDURES PRACTICE DIRECTION [5.2] AND [5.3]
‘PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936’
Statement of Reasons
INTRODUCTION
On 5 March 2025 I heard three applications impacting on the upcoming final hearing in this matter. On 10 March 2025 I made orders in two of the applications and dismissed the third application. These are my reasons for doing so.
The substantive matter is listed for hearing before another member for 3 weeks commencing in April. It concerns amended assessments issued to the Applicant, for several income years, made under section 167 of the Income Tax Assessment Act1936 (Cth) (ITAA 36). The amended assessments were calculated using the asset betterment method. The Applicant seeks to set aside the amended assessments.
The matter is highly contentious, and both factually and procedurally complex. There are at present 29 witnesses including the Applicant, scheduled to give evidence for the Applicant. Of those, the overwhelming majority are native Mandarin speakers, many of whom will require their evidence to be interpreted. The Applicant is also a native Mandarin speaker and will have an interpreter to assist him for the entire hearing.
The Applicant made three applications seeking:
(a)confidentiality orders;
(b)directions facilitating 7 of the witnesses to give evidence from either mainland China (PCR) or Hong Kong; and
(c)to narrow the scope of the review.
APPLICATION FOR CONFIDENTIALITY ORDERS
The confidentiality orders were not opposed, the contest between the parties was one of form and breadth. The parties were ultimately in agreement as to what would best suit the matter. Importantly, as will become apparent, the need for confidentiality was not disputed. The parties were in agreement that these orders were necessary for the protection of all those who gave evidence in the matter. I propose to say nothing further about the confidentiality orders.
APPLICATION TO TAKE EVIDENCE BY AUDIO-VISUAL LINK
The Tribunal’s practice is to take evidence by whatever mode is most appropriate in the circumstances of the matter at hand.[1] Whilst the use of electronic means to take evidence was historically uncommon, and generally not regarded as being as reliable as in-person evidence, the Covid-19 pandemic changed the practice of Courts and Tribunals throughout Australia, and with it changed opinions on the reliability of hearing evidence by audio-visual link (AVL). Taking evidence and conducting hearings by AVL is a daily occurrence in the Tribunal and affords us great flexibility in the way in which the Tribunal hears cases, throughout the whole of Australia. Furthermore, the Tribunal is specifically empowered to take evidence outside Australia.[2]
[1] Administrative Review Tribunal, Common Procedures Practice Direction, [5.2] and [5.3].
[2] Administrative Review Tribunal Act 2024 (Cth) (ART Act) section 75
Commissioner’s objections
The application concerned the evidence of seven Mandarin-speaking witnesses. Five of whom were willing to travel to Hong Kong for the purposes of giving evidence by AVL, with the remaining two proposing to give their evidence from the PRC by AVL. Most of these witnesses would require access to the documents filed in the proceedings for the purposes of their cross-examination, and all would require an interpreter throughout their evidence. All of these witnesses are the subject of the confidentiality orders I have made, and those orders are, at least in part, intended to protect their personal identity in light of the issues being raised in the matter. These factors plainly raise a number of logistical issues which are not yet resolved.
The Commissioner’s opposition to AVL evidence was primarily based on two propositions, being the reliability and utility to the Tribunal of evidence given by AVL, and secondly, the difficulties caused by the logistical issues. A third issue raised was as to the reliability of the evidence of the seven witnesses, based on written witness statements they have submitted in support of the AVL application.
Despite some issues with the underlying evidence in support of the AVL application, I have no difficulty in accepting that the seven witnesses would prefer, for a variety of reasons essentially relevant to their own convenience, to give evidence by AVL. This is not an uncommon preference, particularly with witnesses who must travel considerable distances to a hearing and, by reason of that, be absent from their homes and employment for much longer periods of time than witnesses who live in the location where the hearing is taking place. The fact that the witnesses would prefer to give evidence by AVL, whilst not determinative of an application, it is not by itself a reason to refuse an AVL hearing.
I do not accept the proposition that the evidence will be less reliable or useful if given by AVL. The ability to see a witness ‘up-close’ on camera has its distinct advantages, not least of which is the ability to observe a witness at much closer quarters, and in unguarded moments, than is possible in person.
The logistical issues present particular challenges in this matter, involving thousands of pages of documents, interpreters, secrecy requirements, time zone differences which may require witnesses to be ready to start quite early in the morning, and the need for witnesses to travel to a location, either in PRC or Hong Kong, to give evidence. I do not downplay these challenges, but in my view a well-resourced Applicant, as this one is, will be able to overcome the issues providing their representatives have good administrative skills, which appears to be the case. I note that both Hong Kong and the areas from which the witnesses proposed to give evidence in PRC are very much high-tech environments where the technical capabilities of undertaking a hearing via the link would be unlikely to be an issue.
I would not dismiss the application by reason of the logistical objections raised by the Commissioner.
Chinese sovereignty
An issue which I first raised with the parties, effectively on the morning of the hearing,[3] was whether consent of the PRC would be necessary for these witnesses to give AVL evidence. There are a number of cases where this question has been raised, typically in the contest of an adjournment application.[4]
[3] This was as a result of a late change in the person hearing the interlocutory applications, arising out of the impact of Cyclone Alfred.
[4] Auken Animal Husbandry v 3rd Solution Investment [2020] FCA 1153; (2020) 147 ACSR 521; Joyce v Sutherland [2011] FCAFC 95; (2011) 195 FCR 213; Liu v Option Funds Management Limited [2022] FCA 444; Motorola Solutions v Hytera Communications [2020] FCA 539; Re Sunnya [2023] NSWSC 1286; Wang v Law Society NSW [2022] NSWSC 986.
The question of the infringement of Chinese sovereignty was considered in Liu, where the relevant passage of article 284 of the Civil Procedure Law of the People’s Republic of China was set out. It said, in part:
Except for the circumstances set forth in the preceding paragraph, no foreign agency or individual may without the consent of the competent authorities of the People’s Republic of China, serve documents, carry out an investigation or collect evidence within the territory of the People’s Republic of China.
(Emphasis added)
In Liu, the Court found that article 284 did not require PRC consent for witnesses to give evidence by AVL from China. This finding relies on the expert opinion of a Chinese Professor of Law, at a Chinese University, whose opinion was that giving evidence to an Australian Court by AVL would not be considered “collecting evidence” under Chinese law. I do not doubt the correctness of the decision, however it does not entirely resolve the issue in this matter.
The Court in Liu was dealing with civil litigation between two private parties in a Court established under Chapter III of the Commonwealth Constitution. Similarly, in each of the other matters I have been taken to, the litigation was between two private individuals or parties in the civil jurisdiction of the Federal Court of Australia, or a State Court.
Several issues arise, some of which are novel, as a result of the nature of the Tribunal and the parties to this matter.
First, the Tribunal is not a Court. It was established under the ART Act,[5] and is a body which sits within the powers of the Commonwealth under Chapter II of the Commonwealth Constitution. It is administrative, not judicial. Whilst independent, the Tribunal forms part of the wider system of government in Australia.
[5] ART Act section 8.
Secondly, the Commissioner is not a private citizen seeking to enforce or uphold their private rights in the same way that a party to civil litigation is. The Commissioner is part of the executive branch of the Commonwealth of Australia and is, whilst independent, an integral part of the system of government in Australia.
Thirdly, arising from both the first and second issue, is the question of whether the processes of the Tribunal might be regarded under Chinese law as carrying out an investigation, and so fit within the prohibition in article 284, even if hearing matters in the Tribunal does not constitute 'collecting evidence’.
Fourthly, five of the seven witnesses intended to give evidence from Hong Kong. It is unknown whether PRC law on this issue applies in Hong Kong. I do not know, and the parties are, understandably, unable to assist in any real way on that point.
Fifthly, the relevant article of Chinese law cited in various cases that I have been taken to has different article numbers. There are a range of quite understandable explanations as to why this may be the case, and it may ultimately be of no moment. However, this does highlight the need for consideration of the current law, as it stands today, and not to rely on an assumption that the law remains as it was in a case decided recently, but now several years ago. The short point is that I have no information to allow me to be comfortable that the article in the legislation which was considered in Liu is the present law in China, or how the article may apply in the Tribunal given the above issues, so that the hearing of evidence by AVL to the PRC or Hong Kong would not infringe Chinese sovereignty.
The Commissioner was unable to make fulsome submissions on the questions before the Tribunal on this issue because it was a matter on which specialist advice from the Attorney-General’s department was necessary and, given I had raised it only hours prior to the hearing, that was not possible. There is no criticism to be made of the Commissioner for this.
In my view, a cautious approach to the question is essential because of the potential ramifications of unintentionally infringing Chinese sovereignty; I am acutely conscious that it is extremely undesirable for the Tribunal to infringe, or be seen to infringe, Chinese sovereignty. Whilst possible that the specialist advice becomes available prior to the commencement of the substantive hearing, that may not leave sufficient time for the necessary administrative arrangements to be made, so a decision must be made in the present lacuna.
A further issue which concerns me is the potential impact on the witnesses, and others, by making orders enabling an AVL from the PRC or Hong Kong, despite not having a clear understanding of the true legal position. It would be highly undesirable to place the witnesses in any danger, particularly as they are amongst those who are covered by the confidentiality orders.
Whilst I am conscious that the Applicant submits that the witnesses will not come to Australia to give evidence, none of the witnesses themselves have said that; they have stated their personal preferences based on private and business matters they say they need to attend to. Even if they choose to not give evidence, the Tribunal may still permit their statements to be tendered, even if the Commissioner objects. That is a question for the member who hears the matter.
Ultimately, given the range of unknown factors impacting the sovereignty issue, caution is the better course. I would not have allowed an AVL to the PRC or Hong Kong.
Singapore AVL
During the course of the hearing, some discussion took place on the possibility of the witnesses giving evidence from a third location, where the Chinese sovereignty issue does not arise. The obvious location was Singapore, being closer and more convenient to the witnesses living in the PRC than Australia.
The Commissioner’s objections to the witnesses giving evidence by AVL from Singapore were those matters discussed in paragraphs 8 - 12 above and which I do not accept as impediments in the circumstances.
The Applicant was given leave to obtain instructions from his client on this question, and file short submissions. In those submissions the Applicant withdraws the application for AVL in PRC and Hong Kong, and instead seeks evidence to be given by AVL from Singapore. This appears to me to be a sensible solution which avoids the difficulties of the sovereignty issue, but provides less disruption to the witnesses than would be the case if they have to travel to Australia.
Any logistical issues, for example, start times for taking evidence by AVL, are best left to the member hearing the substantive matter. Notably, by the time the hearing takes place the time zone difference to Sydney will be 2 hours, which should be reasonably manageable.
I therefore made orders allowing seven witnesses to give evidence by AVL from Singapore.
APPLICATION TO NARROW THE SCOPE OF REVIEW
The substantive matter concerns a review of amended income tax returns issued by the Commissioner for the Applicant’s personal income for the years ending 30 June 2015, 30 June 2016, and 30 June 2018. The amended assessments were issued following an extensive audit into the business and personal taxation affairs of the Applicant.
The Tribunal undoubtedly has the power to control the scope of its review, including by narrowing the issues in the review.[6] The question before me is whether I should exercise the discretion to do so, in circumstances when the Commissioner did not support that course.
[6] ART Act section 53.
In issuing the amended assessments the Commissioner used his powers under section 167 of the ITAA 36, which permits the Commissioner to make a default assessment if not satisfied with the return filed by the taxpayer (section 167 assessment). In doing so, the Commissioner uses his powers under section 166 of the ITAA 36 to make an assessment of the amount of taxable income, and the tax payable on it.[7]
[7] See generally ‘PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936’.
In making a default assessment under section 167 the Commissioner is obliged to make a genuine attempt to determine a taxpayer’s assessable income, and ensure the ascertainment of that income is based on reasonable and rational grounds. Importantly, the Commissioner is not required to calculate assessable income and apply allowable deductions, and errors made do not negate the assessment made. Hence the process of making a default assessment differs markedly from the usual methodology for making an assessment.
A common and accepted methodology used by the Commissioner when making a section 167 assessment is the asset betterment method. This involves the Commissioner forming a judgement about the taxpayer’s income based on the increase in a taxpayer’s personal asset base from year to year, and taking into account expenses and funds available to the taxpayer. The method is inherently imprecise, and likely to be inaccurate. This is hardly surprising given that the Commissioner is assessing without the benefit of full knowledge, which only the taxpayer has.
The inaccuracy of the outcome of an assessment issued arising from an asset betterment methodology is largely irrelevant to the task of the Tribunal on review, as discussed below.
In challenging a section 167 assessment, the taxpayer bears a heavy burden. He or she must discharge the dual onus of showing that the Commissioner’s assessment is excessive and what the assessment should have been.[8] That is, a taxpayer is best served by proving, on the balance of probabilities to the civil standard, what his or her total income from all sources was in the relevant year. Next, a taxpayer shows what deductions they are entitled to make for the year, to arrive at the true amount of assessable income, thereby demonstrating the section 167 assessment is excessive. By proving their assessable income, they discharge the second part of the onus, i.e. proving what the assessment should have been.
[8] Buzadzic v Commissioner of Taxation [2024] FCAFC 50; Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301; Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63; Commissioner of Taxation v Ross [2021] FCA 766; (2021) 174 ALD 77; Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; Ma v Federal Commissioner of Taxation (1992) 37 FCR 225.
As a general approach, the utility of attacking the asset betterment methodology in seeking to discharge this onus is limited. This is because the asset betterment methodology is merely the best estimate, made on a reasonable and rational basis, of what the Commissioner believes the taxpayer’s income is.
In this matter, the taxpayer has sought to raise two alternative arguments against the assessments. These are:[9]
First, the Respondent had sufficient information, prior to making the Notices of Amended Assessment to which the Applicant objected, so that the Respondent could not be dissatisfied with the Applicant’s income tax returns . . . (the primary contention)
Second, whilst the Respondent’s Asset Betterment method statement is in the familiar form found in Gashi, the statement incorrectly applied principle to a small number of items (the alternate contention).
[9] Applicant’s Outline of Submissions Narrowing of the Grounds dated 26 February 2025, pages 1 – 2.
It is not my intention to say anything further regarding the primary contention the taxpayer wishes to pursue, which is a matter for the member hearing the substantive matter.
The Applicant’s proposed amendments to his case essentially consist of abandoning the primary contention and limiting the scope of the review to the alternative contention by reference to a list of items, or integers, in the asset betterment statement which he says are in contention, the remaining items being, apparently, not contested by the taxpayer.
The primary concern I have with the amendment proposal is that it seeks, consciously or unconsciously, to avoid the statutory onus placed on the taxpayer by section 14ZZK(b) of the Taxation Administration Act (TAA). The provision relevantly says:
(b) the applicant has the burden of proving:
(i) if the taxation decision concerned is an assessment — that the assessment is excessive or otherwise incorrect and what the assessment should have been;
It is not in doubt that section 14ZZK operates to modify the task of the Tribunal. The authorities which deal with this all deal with the former Administrative Appeals Tribunal,[10] but there is nothing that suggests to me that these authorities do not apply to the current Tribunal. I did not hear the Applicant say otherwise, his argument centred on the use of section 53 of the ART Act as a source of power to take the path being urged, which I accept is the relevant source of power.
[10] Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; (2013) 133 ALD 39; Rigoli v Federal Commissioner of Taxation (2014) 141 ALD 529; McPartland v Commissioner of Taxation [2023] FCA 1260 and on appeal, McPartland v Commissioner of Taxation [2025] FCAFC 23.
Consideration of section 14ZZK of the TAA directs attention to the assessment, specifically in this case, the three amended assessments made under section 167 ITAA 36. Notably, it does not direct attention to the objection decision, or the audit report, or any other aspect of the process by which the Commissioner came to the point of making the assessment. It renders the asset betterment statement extraneous to the task at hand in the Tribunal.
Focusing on some of the items in the asset betterment statement is likely to lead to error because it does not place the case in the context of a review before the Tribunal.[11] The Tribunal is required to conduct a review pursuant to its statutory powers and stands in the shoes of the Commissioner in making its decision. It cannot simply ignore the statutory context of the review, and an integral part of the statutory context is the onus in section 14ZZK(b) of the TAA.
[11] Ross at [75] – [76].
Whilst there are undoubtedly cases where one or two issues may resolve the outcome in a review of section 167 assessment, I am not convinced this is one of them.
It remains open to the Applicant to formally concede those aspects of the asset betterment statement which he says are not in contention. That may narrow the scope of evidence to be led, but does not of itself necessarily address the fundamental issue required to be determined by the Tribunal in this review.
ORDERS
For these reasons, I made the orders set out below.
1.Until further order:
(a)the disclosure of information tending to reveal the identity of the Applicant, any witness called to give evidence or whose statement is tendered in evidence, or any entity associated with a witness in these proceedings, be restricted to the parties, their representatives, experts retained by the parties, and any agency of the government of the Commonwealth of Australia required to be consulted for the purposes of these proceedings; and
(b)the publication of any information relating to these proceedings which may tend to reveal the identity of the Applicant, any witness called to give evidence or whose statement is tendered in evidence, or any entity associated with a witness in these proceedings, is prohibited.
2.Pursuant to section 14ZZE of the Taxation Administration Act 1953 (Cth), the hearing of the matter be held in private.
3.For the purposes of giving effect to order 1, on or before 25 March 2025, the parties are to file an agreed list of pseudonyms they seek to have the Tribunal use to protect the anonymity of each witness, person, entity, real property, business, or other thing, relevant to or arising in the proceedings.
4.Subject to any further order, the table filed pursuant to order 3 may be amended as required by the parties by consent, or the Tribunal on its own initiative.
5.The interlocutory application to allow witnesses to give evidence via audio-visual link (AVL) from Singapore is allowed.
6.The Applicant is to do all things necessary to ensure that in taking evidence by AVL from Singapore:
(a)the hearing is conducted in private in compliance with order 1 above;
(b)the witnesses have available to them copies of the Tribunal documents; and
(c)the witnesses have available to them a person who speaks the Mandarin language who is able to assist with any technical or other practical matters that arise in the course of them giving evidence.
7.The interlocutory application to narrow the scope of the review is dismissed.
I certify that the preceding 50 (fifty) paragraphs are a true copy of the reasons for the decision herein of Deputy President Clare Thompson SC
.................................[sgd]..................................
Associate
Dated: 14 March 2025
Date of hearing: 5 March 2025 Counsel for the Applicant: Mr I J Stanley Solicitors for the Applicant: Kelly + Partners Tax Legal Counsel for the Respondent: Ms J Gatland Solicitors for the Respondent: Australian Taxation Office, Litigation and Legal Services
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