GNBF and Commissioner of Taxation (Taxation)
[2024] AATA 2152
•24 June 2024
GNBF and Commissioner of Taxation (Taxation) [2024] AATA 2152 (24 June 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2021/3277-3292
Re:GNBF
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member D K Grigg
Date:24 June 2024
Place:Melbourne
The Tribunal affirms the decisions under review.
.................................[SGD].......................................
Senior Member D K GriggCatchwords
TAX – review under Part IVC of the Taxation Administration Act 1953 (Cth) – amended assessments of income tax pursuant to section 167 of the Income Tax Assessment Act 1936 – whether evasion – consideration of section 170(1) (item 5) of the ITAA 1936 – onus of proof – limited documentation – consideration of extent of corroboration required – penalties – whether intentional disregard, recklessness or lack of reasonable care – whether base penalty uplift applies – whether penalties should be remitted – whether shortfall interest charge should be remitted – decisions affirmed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)Taxation Administration Act 1953 (Cth)
Cases
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) [2011] FCA 1090; 196 FCR 457
Allied Mills Industries Pty Ltd v Commissioner of Taxation [1989] FCA 135; 20 FCR 288
Allied Pastoral Holdings Proprietary Limited v Commissioner of Taxation [1983] 1 NSWLR 1
Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971
Barakat and Ors and Commissioner of Taxation [2007] AATA 1564; 68 ATR 283
Binetter v Commissioner of Taxation [2016] FCAFC 163; 249 FCR 534
Bosanac v Commissioner of Taxation [2018] FCA 946
Bosanac v Commissioner of Taxation [2019] FCAFC 116; 267 FCR 169
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336Buzadzic and Commissioner of Taxation (Taxation) [2021] AATA 4820
Buzadzic v Commissioner of Taxation [2023] FCA 954
Commissioner of Taxation v Cassaniti [2018] FCAFC 212; 266 FCR 385
Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617; 116 ATR 458
Condon v Commissioner of Taxation [2023] FCA 561
Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) [1949] HCA 25; 79 CLR 296
Federal Commissioner of Taxation v Dalco [1990] HCA 3;168 CLR 614
Fowler v Federal Commissioner of Taxation [2013] FCAFC 69; 212 FCR 149
Fox v Percy [2003] HCA 22; 214 CLR 118
Gauci v Federal Commissioner of Taxation [1975] HCA 54; 135 CLR 81
Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm)
GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32; 97 ALJR 857
Glencore Investment Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1432; 272 FCR 30
Guardian Ait Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619; 114 ATR 136
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Jones v Dunkel [1959] HCA 8; 101 CLR 298
Lehrmann v Network Ten Pty Limited [2024] FCA 369
LDGL v FCT [2017] AATA 2779
Re Hillsea Pty Ltd [2019] NSWSC 1152
McDonald v Director-General of Social Security [1984] FCA 59; 1 FCR 354
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66
Nguyen v Federal Commissioner of Taxation [2018] FCA 1420; 265 FCR 355
QQRK and Commissioner of Taxation (Taxation) [2023] AATA 3493
Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 352
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; 212 FCR 483
Thomas v Commissioner of Taxation [2015] FCA 968
Trautwein v Federal Commissioner of Taxation [1936] HCA 77; 56 CLR 63
Watson v Foxman (1995) 49 NSWLR 315
Wilson v Chambers & Co Pty Ltd [1926] HCA 15; 38 CLR 131
WYVW and Commissioner of Taxation (Taxation) [2023] AATA 4242Secondary Materials
Australian Taxation Office, Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods (5 May 2008)
Australian Taxation Office, Practice Statement Law Administration PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 (11 September 2008)
Australian Taxation Office, Practice Statement Law Administration PS LA 2008/6: Fraud or evasion (20 March 2008)
Australian Taxation Office, Practice Statement Law Administration PS LA 2012/5: Administration of penalties for making false or misleading statements that result in shortfall amounts (23 August 2012)
Australian Taxation Office, Practice Statement Law Administration PS LA 2014/4: Default assessment penalty (17 December 2014)
Commissioner of Taxation, Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable, care, recklessness and intentional disregard (12 November 2008)Commissioner of Taxation, Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted (6 January 1994)
REASONS FOR DECISION
Senior Member D K Grigg
24 June 2024
TABLE OF CONTENTS
Decision
Reasons for Decision
Table of Contents
Introduction
Contentions – Brief Overview
Finding – SummaryIssues for the Tribunal
Legislative Background
Assessable Income
Income According to Ordinary Concepts
What is Not Assessable Income
Notice of Amended Assessments
Unexplained Income
Objection to Assessments
Burden of ProofPractical Burden
Shortfall Interest Charge
Penalties
Evasion
What does “evasion” mean?
Process of Hearing
Applicant’s Submissions – Overview
Records Provided
Lay WitnessesCommissioner’s Submissions – Overview
Group 1 Witnesses
Group 2 Witnesses
Other Potential Witnesses Not CalledConclusion
The Evidence
Documents Marked for Identification
Applicant
Background
Corporate Interests
Real Property Interests
Bank Accounts/Credit Cards
Loan From a Friend (Mortgage Facility)
Company LoansCar Loans to the Company
Family Finances
Joint Venture
Business Sale
Etihad Corporate Box/Melbourne Cricket Ground BoxEtihad Box
MCG Box
Travel Expenditure
Flights
Mr K
Mr M
Ms DFamily
Hotel Accommodation
Hire Cars
Overseas Travel
Overseas Trip 2011
Overseas Trip 2014
Property Sale
Holden Astra
Mercedes Benz
Seadoo Jet Skis
Holden Maloo
Rental Income
Income in 2011
Income in 2012
Income in 2013
Income in 2014
Income in 2015
Tax Agent – ASJR
Tax Agent – KBB AccountantsGroup 1 Witnesses – Corporate Boxes, Flights
Mr U
Credit Card Usage
Mr M
Flights
Mr L
Etihad Stadium/MCG Box
Flights/Accommodation
Mr G
Etihad Stadium
Flights
Ms T
Etihad Stadium/MCG Box
Flights/Accommodation
Miscellaneous Credit Card Purchases
Mr C
Etihad Stadium
Flights
Other
Mr E
Etihad Stadium/MCG
Flights
Mr B
Etihad Stadium
Mr I
Etihad Stadium
Mr R
Etihad Stadium
Flights
Mr J
Etihad Stadium
Mr K
Etihad Stadium/MCG Box
Group 2 Witnesses – Cars, Jet Skis
Mr I
Mercedes Benz
Mr U
Holden Astra
Seadoo Jet Skis
Holden Maloo
Accounting Evidence
Steven Wright – Accountant
2011
2012
2013
2014
2015
2011 Financial Year
2012 Financial Year
2013 Financial Year
2014 Financial Year
2015 Financial Year
Expert Witness – Anthony Cerantonio
Conclusion on Evidence
Introduction
Personal Reimbursement Contention
Loan from a Friend
Company Loan Repayment Contention
Engagement of Accounts and Tax Agents
Conclusion Regarding the Applicant’s EvidenceLack of Records
Business Sale
Etihad Box and MCG Box
Travel ExpenditureFlights
Mr K
Hire Cars
Other Purchases
Motor Vehicles and Jet Skis
Property Sale
Mortgage Facility
Rental Income
Mr C
Joint Venture
Credit Card #3217
The Applicant’s Overall Lack of Recollection/Other Issues
Conclusion regarding Group 1 Witness Evidence
Mr U
Mr M
Mr L
Mr G
Ms T
Mr C
Mr E
Mr B
Mr I
Mr R
Mr J
Mr K
Conclusion regarding Group 2 Witnesses
Mr I
Mr U
Conclusion Regarding Accounting Evidence
Mr Wright
Mr Cerantonio
Jones v Dunkel Inferences
Potential Witnesses that Did Not Give EvidenceAre the Amended NOAs Excessive/Has the Applicant Demostrated his Actual Income?
Contentions/Consideration Regarding Deficiencies
Witness Credibility/Veracity of the EvidenceEvasion
Applicant’s Contentions
Commissioner’s ContentionsConsideration
Finding
Penalties
Administrative Penalties
Shortfall Amount
Base Penalty Amount
Increase in Base Penalty
Remission of Penalty
Applicant’s Contentions
Commissioner’s ContentionsConsideration – Penalties
What is the Appropriate Penalty?
Does the “Safe Harbour” Apply in the 2010 – 2013 Income Years?Uplift
Failing to Lodge Documents on TimeShould the Penalties be Remitted in Whole or Part Having Regard to the Taxpayer’s Particular Circumstances?
Shortfall Interest Charge 2011 – 2013
Applicant’s Submissions
Commissioner’s Submissions
Consideration – Shortfall Interest ChargeFinding
Decision
INTRODUCTION
This matter concerns amended income tax assessments issued to the Applicant by the Commissioner of Taxation (Commissioner) for the 2011 to 2015 financial years (Relevant Years).
The Commissioner was not satisfied with the income tax returns (ITRs) filed by the Applicant for the Relevant Years. The Commissioner submits that certain income was not declared by the Applicant in those ITRs.
The Applicant’s ITRs were lodged on the following dates:[1]
[1] Exhibit 1, T-Documents, T2: Reasons for decision, p 21; T90: Letter from the Respondent to the Applicant enclosing Reasons for Decision dated 8 August 2018, p 2076; T83: Audit position paper, p 1604.
Year Due Date Date Lodged 2011 21 November 2011 22 May 2013 2012 21 November 2012 22 May 2013 2013 5 June 2014 11 February 2015 2014 21 November 2014 25 February 2016 2015 23 November 2015 25 February 2016
The Commissioner provided the following summary of the Applicant’s lodged ITRs:[2]
[2] Exhibit 5, Respondent’s Amended Statement of Facts, Issues and Contentions dated 31 July 2023 (RSFIC), p 11; Exhibit 1, T-Documents, T2: Reasons for decision, p 21; T90: Letter from the Respondent to the Applicant enclosing Reasons for Decision dated 8 August 2018, p 2076; T83: Audit position paper, p 1604.
As part of an audit into the Applicant’s income tax affairs for the Relevant Years, the Applicant was interviewed by authorised officers of the Australian Taxation Office (ATO) in October 2017 in accordance with a compulsory notice issued under section 353-10(1) of Schedule 1 of the TAA (Audit).[3] The Applicant instructed Mr O, a tax agent from a company the Tribunal will refer to as ASJR to file a response to the ATO’s Audit Position Paper on 30 May 2018.[4]
[3] Exhibit 1, T-Documents, T69: Letter from the Respondent to the Applicant advising of audit commencing for the 2012 to 2015 financial years, p 1459; T80: Letter to the Applicant from the Respondent advising that the audit period has been expanded, p 1580. The audit initially covered the 2012 to 2015 years and was later extended to include the 2011 year: Exhibit 6, Applicant’s Statement dated 23 August 2022 (Applicant’s First Statement), Annexure 38, Tab 42 of Tribunal Book.
[4] Tab 43 of Tribunal Book, Annexure 39 to Applicant’s First Statement.
The Commissioner examined the Applicant’s bank accounts and credit card accounts and determined through an analysis of the transactions that there were unexplained cash deposits made into the Applicant’s accounts. These deposits had not been included as part of the Applicant’s assessable income in the lodged ITRs.
The Commissioner’s position is that during the Relevant Years there were 99 unexplained deposits totalling $765,461 from unknown sources into the Applicant’s bank accounts. Without a satisfactory explanation of the source and characterisation of the deposits, the Commissioner has treated those amounts as income.
The Commissioner has provided the following summary of the unexplained deposits in issue (Relevant Deposits):[5]
[5] RSFIC, p 10; Exhibit 1, T-Documents, T90: Letter from the Respondent to the Applicant enclosing Reasons for Decision dated 8 August 2018, pp 2082, 2128, 2130, 2132, 2134-2138.
Applicant’s Account 2011 2012 2013 2014 2015 Total NAB Gold Banking – Choice (#9060) $10,250 $10,250 NAB Choice Package Home loan (#7564) $6,878 $6,878 ANZ Frequent Flyer Platinum (#2457) $36,700 $36,700 ANZ Frequent Flyer Platinum (#6341) $140,354 $140,354 ANZ Frequent Flyer Platinum (#4893) $7,764 $194,454 $170,720 $147,700 $50,639 $571,227 Total unexplained deposits $195,069 $194,454 $170,720 $147,700 $57,518 $765,461
For the purpose of the hearing the Relevant Deposits were individually identified and numbered in Appendix A to the Commissioner’s closing submissions.[6]
[6] Respondent’s Closing Submissions dated 12 April 2024 (Respondent’s Closing Submissions), Annexure A, pp 63-65. An amended version of the Annexure was tendered at hearing and marked ‘Exhibit 30’.
Following the Audit the Commissioner formed the view that there had been evasion.[7] As a result, the Commissioner says he was entitled to amend the Applicant’s ITRs at any time pursuant to item 5 in the table in section 170(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).
[7] Exhibit 1, T-Documents, T90: Letter from the Respondent to the Applicant enclosing Reasons for Decision dated 8 August 2018, p 2072.
Following the Audit, on 16 August 2018, the Commissioner issued amended notices of assessment (Amended NOA) for the Relevant Years pursuant to section 167 of the ITAA 1936.[8]
[8] Exhibit 1, T-Documents, T29-T33: Notices of Amended Assessment for the Relevant Years.
In each of the Relevant Years the Commissioner added to the amounts of income the Applicant had reported in his ITRs in the Relevant Years.
Administrative penalties were imposed on the shortfall amounts under section 284-75(1) of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) at the base rate of 75% for the Relevant Years (Penalty Assessments) on the ground that the Applicant’s agent made a false or misleading statement resulting in a shortfall amount.[9] The base penalty amount was then increased by 20% for the 2012 to 2015 income years under section 284-220(1)(c) of Schedule 1 to the TAA.
[9] Exhibit 1, T-Documents, T34-T38: Notices of Amended Assessment of shortfall penalty for the Relevant Years.
The Commissioner concluded that the base penalty amount should be uplifted by 20% in each of the 2012 to 2015 income years pursuant to section 284-220(1)(c) of Schedule 1 of the TAA by reason that in each of those income years the Applicant would have previously had a base penalty amount under item 1 (intentional disregard) of section 284-90(1) of Schedule 1 of the TAA.[10]
[10] Exhibit 1, T-Documents, T83: ATO Audit Position Paper, TB2115, at [231].
The Applicant was also penalised for failing to lodge his ITRs for the 2011, 2012 and 2015 income years on time pursuant to section 286-75(1) of Schedule 1 to the TAA.
Shortfall interest charges (SIC) for the Relevant Years were also issued.
The table below summarises the income tax adjustments, penalties and shortfall interest charge imposed by the Commissioner following the Audit:[11]
[11] RSFIC, p 15; Exhibit 1, T-Documents, T23, T24, T25, T27, T28, T29, T30, T31, T32, T33, T34, T35, T36, T37, T38, T90, pp 365, 367, 369, 373, 375, 379, 383, 387, 391, 395, 399, 407, 415, 2073.
On 17 May 2020 and 25 June 2020, the Applicant lodged objections to the Amended NOAs, Penalty Assessments, and SICs.[12]
[12] Exhibit 1, T Documents, T95: Objection form – for taxpayers lodged by the Applicant for the years ending 30 June 2011 to 30 June 2015, pp 2150-2154; T97: Objection form – for taxpayers lodged by the Applicant for the years ending 30 June 2011 to 30 June 2015, pp 2246-2247.
On 27 November 2020, the Commissioner made his decision on the objections. The Commissioner disallowed the Applicant’s objections in full (Objection Decision).[13]
[13] Exhibit 1, T-Documents, T100: Objection Notice of Decision.
In relation to the objections against the Penalty Assessments, the Commissioner (Penalty Decision):[14]
(a)refused to exercise his discretion under section 298-20 of Schedule 1 of the TAA to remit any part of the tax shortfall penalty imposed and refused to exercise his discretion to remit any part of the SIC under Division 280 of Schedule 1 to the TAA;
(b)allowed the objection in part in relation to the penalty for the failure to lodge on time. The Commissioner remitted the penalty for the 2013 and 2014 years to nil given that the Applicant had been recovering from a serious accident. On 16 November 2013 the Applicant was involved in an incident whereby he was struck by a car. He sustained significant injuries including a shattered L2, fractured L3 vertebrae, damage to his shoulder, right knee, and left foot (Accident). As a result of his injuries the Applicant was unable to continue working in the construction industry.
[14] Exhibit 1, T-Documents, T2: Reasons for decision.
On 19 May 2021 the Applicant filed an application for a review in the Tribunal of the Objection Decisions and Penalty Decisions and SIC Decisions.[15]
[15] Exhibit 1, T-Documents, T1: Application for review dated 19 May 2021.
Contentions – Brief Overview
The Applicant has contended that the Relevant Deposits are not assessable income but rather can be characterised as follows:
(a)loan arrangements between himself and his wife;
(b)cash reimbursements from friends and family members for personal expenses incurred by the Applicant on their behalf (including for flights, accommodation, and use of sport stadium corporate boxes);
(c)cash proceeds from the sale of three motor vehicles and three jet skis;
(d)cash proceeds from the sale of a house;
(e)a cash loan for the re-mortgaging of a property; and
(f)rental income.
The Commissioner has not accepted the Applicant’s contentions because he says, among other things:[16]
(a)there is a lack of corroborating evidence;
(b)there is no supporting evidence of the purported loans; and
(c)during the Relevant Years the Applicant’s wife was not working and therefore the source of funds purportedly loaned by her to the Applicant is unexplained.
[16] RSFIC, 10.
To overcome the Commissioner’s assessments, the Applicant must establish on the balance of probabilities that the deposits in question are not properly classified as income, and therefore not assessable.
Finding – Summary
For the reasons set out below, the Tribunal finds that the Applicant has failed to demonstrate what his actual income was during the Relevant Years and that the Amended NOAs were excessive.
Due to a lack of contemporaneous records the Applicant’s case rested on the Tribunal’s acceptance of his and the other witnesses’ oral evidence. The Tribunal found the Applicant and some of lay witnesses’ evidence to be unreliable, implausible, and inconsistent. The evidence overall lacked the requisite specificity and at times was speculative. It was not sufficiently persuasive. For reasons also outlined below the accountants’ evidence was unable to be given any significant weight.
The Tribunal finds that the Applicant has not adequately identified the source of the Relevant Deposits and that he has not discharged his burden of proving those amounts do not constitute assessable income.
ISSUES FOR THE TRIBUNAL
It is not in dispute that the Tribunal has jurisdiction to review the Decisions pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) and Part IVC of the TAA.[17]
[17] Section 14ZZ(1)(a)(i), Taxation Administration Act 1953 (Cth).
The issue for determination by the Tribunal is whether the Applicant has discharged the burden of proof that the Amended NOA assessment issued in the Relevant Years were excessive and by showing what the taxable income should be. These questions involve a consideration of whether the Applicant engaged in conduct amounting to evasion for the purposes of section 170(1) (Table, item 5) of the ITAA 1936 in respect of the Relevant Years.
The Tribunal also has to consider:
(a)whether the administrative penalty for the 2011, 2012 and 2015 income years was incorrectly imposed for failure to lodge under section 286-75(1) of Schedule 1 to the TAA, and if so, whether the penalty should be remitted.
(b)whether there is a shortfall amount for the purpose of section 284-80(1) of Schedule 1 of the TAA for any of the Relevant Years;
(c)whether, if there is a shortfall amount in any of the Relevant Years, the Applicant is liable to an administrative penalty under section 284-75(1) of Schedule 1 of the TAA. This involves a consideration of:
(i)whether section 284-215 of Schedule 1 of the TAA applies to reduce the shortfall amount;
(d)whether section 284-76(6) of Schedule 1 of the TAA applies in each of the 2012 to 2015 income years in which there was a shortfall amount with the result that the Applicant is not liable to an administrative penalty;
(e)what is the base penalty amount worked out in accordance with section 284-90(1) of Schedule 1 of the TAA;
(f)whether the base penalty amount should be increased by 20% for any of the 2012 to 2015 income years pursuant to section 284-220 of Schedule 1 of the TAA; and
(g)whether all or part of the administrative penalties should be remitted pursuant to section 298-20 of Schedule 1 of the TAA; and
(h)if there is a shortfall amount in any of the Relevant Years, should the SIC for the 2011 to 2013 years be remitted in whole, or in part, pursuant to section 280-160 of Schedule 1 of the TAA.
LEGISLATIVE BACKGROUND
Assessable Income
Assessable income, as defined in Division 995 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), has the meaning given by sections 6-5, 6-10, 6-15, 17-10 and 17-30 of the ITAA 1997.
Section 6-5 of the ITAA 1997 provides:
6-5 Income according to ordinary concepts (ordinary income)
(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Note: Some of the provisions about assessable income listed in section 10 5 may affect the treatment of ordinary income.
(2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
(3) If you are a foreign resident, your assessable income includes:
(a) the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and
(b) other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source.
(4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
(emphasis added)
Section 6-10 of the ITAA 1997 provides:
6-10 Other assessable income (statutory income)
(1) Your assessable income also includes some amounts that are not *ordinary income.
Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10 5.
(2) Amounts that are not *ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income.
Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non-assessable non-exempt income under another provision: see sections 6 20 and 6 23.
Note 2: Many provisions in the summary list in section 10 5 contain rules about ordinary income. These rules do not change its character as ordinary income.
(3) If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.
(4) If you are an Australian resident, your assessable income includes your *statutory income from all sources, whether in or out of Australia.
(5) If you are a foreign resident, your assessable income includes:
(a) your *statutory income from all *Australian sources; and
(b) other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source.
Income According to Ordinary Concepts
What is meant by income according to ordinary concepts was discussed in this Tribunal’s decision in WYVW and Commissioner of Taxation (Taxation) [2023] AATA 4242 as follows (emphasis added):[18]
[18] See also Hayes v. Federal Commissioner of Taxation [1956] HCA 21; 96 CLR 47 at 55; Federal Coke Co Pty Ltd v Federal Commissioner of Taxation [1977] FCA 3; 34 FLR 375 at 402 per Brennan J.
79. Section 6-5 provides “ordinary income”, which is income according to ordinary concepts, forms part of a person’s assessable income.
80. “Ordinary income” includes things like wages, salaries, commissions, and other payments made for services rendered, from personal exertion.
81. The concept has been discussed in numerous cases.
82. In Scott the High Court referred to the assessment of whether an amount constituted income depended upon the nature of the transaction. Windeyer J said:[19]
[19]
[22] “Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income.”
83. In The Commission of Taxation of the Commonwealth of Australia v Harris, G.O [1980] FCA 74; 30 ALR 10, the Full Federal Court stated:
“It is clear that the whole of the circumstances must be considered…
Whether or not a particular receipt is income depends upon its quality in the hands of the recipient …
The regularity and periodicity of the payment will be a relevant though generally not decisive consideration …
A generally decisive consideration is whether the receipt is the product in a real sense of any employment of, or services rendered by the recipient, or of any business, or, indeed, any revenue producing activity carried on by him …”
(citations omitted)
84. To determine whether an amount has the character of income, the Full Federal Court in Richard Walter Pty Ltd v Commissioner of Taxation [1996] FCA 454; 67 FCR 243 held that:
“…it is necessary to look at that amount and determine its character in the hands of the taxpayer.”
85. The fact that money is transferred from one party to another does not, absent an obligation to repay the money, classify the transaction as a loan.
What is Not Assessable Income
Section 6-15 of the ITAA 1997 sets out what is not assessable income:
6-15 What is not assessable income
(1) If an amount is not *ordinary income, and is not *statutory income, it is not assessable income (so you do not have to pay income tax on it).
(2) If an amount is *exempt income, it is not assessable income.
Note: If an amount is exempt income, there are other consequences besides it being exempt from income tax. For example:
• the amount may be taken into account in working out the amount of a tax loss (see section 36-10);
• you cannot deduct as a general deduction a loss or outgoing incurred in deriving the amount (see Division 8);
• capital gains and losses on assets used solely to produce exempt income are disregarded (see section 118-12).
(3) If an amount is *non-assessable non-exempt income, it is not assessable income.
Note 1: You cannot deduct as a general deduction a loss or outgoing incurred in deriving an amount of non-assessable non-exempt income (see Division 8).
Note 2: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12).
Notice of Amended Assessments
Pursuant to section 166 of the ITAA 1936 the Commissioner must make an assessment of the taxable income of a person, the tax payable thereon, and any tax offset refunds, from ITRs and/or from any other information in the Commissioner's possession.
Section 167 of the ITAA 1936 provides that the Commissioner may issue a default assessment of the amount upon which income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166 in the following circumstances:
(a)where a person makes default in furnishing a return;
(b)where the Commissioner is not satisfied with the return furnished by any person; or
(c)where the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income.
Unexplained Income
Practice Statement Law Administration PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 (PS LA 2007/24) outlines the Commissioner’s practice regarding the authority to issue assessments under section 167 of ITAA 1936.
It provides that the Commissioner must make a genuine attempt to determine a taxpayer’s assessable income but he is not bound to using a particular methodology to do so.[20]
[20] PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936, [3]
In circumstances such as here where there allegedly “unexplained” deposits, PS LA 2007/24 provides an example of the approach to be taken by the Commissioner:
12. Examples
Example 1 - unexplained deposits
A taxpayer who has not lodged any income tax returns has used funds sourced from a series of significant cash bank deposits over several years to pay for living expenses for himself and his family. The taxpayer has provided several unsatisfactory explanations for these deposits. A default assessment under section 167 is made for the amounts of unexplained deposits in each year as taxable income. The assessment does not include any allowable deductions based on the insufficient evidence concerning the source of the funds.
(emphasis added)
Objection to Assessments
Section 175A of the ITAA 1936 sets out when a taxpayer can object to an assessment. It provides relevantly:
175A Objections against assessments
(1) A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.
Burden of Proof
In relation to the primary tax assessment, section 14ZZK(b)(i) of the TAA provides that the Applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been. The reason for this, as was explained by Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971 (Anglo American) at [115], is that “the Commissioner, unlike a participant, is a stranger to transactions forming the taxable facts”.
In relation to the penalty and SIC remission, section 14ZZK(b)(ii) of the TAA provides the Applicant has the burden of proving those decisions should not have been made or should have been made differently.
The standard of proof a taxpayer must meet is the civil standard of the balance of probabilities,[21] not the criminal standard of beyond a reasonable doubt. In the recent decision of Lehrmann v Network Ten Pty Limited [2024] FCA 369 (Lehrmann), Lee J stated the following considerations may be relevant to take into account when assessing whether the burden of proof has been met:
[97]…the inherent likelihood of the occurrence of the fact alleged and the notion that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and the other to have contradicted: Blatch v Archer (1774) 1 Cowp 63 (at 65 per Lord Mansfield).
[21] Guardian Ait Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619; 114 ATR 136 at [3]. See also section 140, Evidence Act 1995 (Cth) and McCormack v Federal Commissioner of Taxation [1979] HCA 18; 143 CLR 284 at 301 per Gibbs J.
Lee J explained in Lehrmann that the concept of the balance of probabilities “is often misunderstood”. He stated:
[98]… It does not mean a simple estimate of probabilities; it requires a subjective belief in a state of facts on the part of the tribunal of fact. A party bearing the onus will not succeed unless the whole of the evidence establishes a “reasonable satisfaction” on the preponderance of probabilities such as to sustain the relevant issue: Axon v Axon (1937) 59 CLR 395 (at 403 per Dixon J). The “facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied”: Jones v Dunkel (1959) 101 CLR 298 (at 305 per Dixon CJ). Put another way, as Sir Owen Dixon explained in Briginshaw v Briginshaw (1938) 60 CLR 336 (at 361), when the law requires proof of any fact, the tribunal of fact must feel an actual persuasion of its occurrence or existence before it can be found.
…
[100] …a “[m]ere mechanical comparison of probabilities independent of a reasonable satisfaction will not justify a finding of fact”: NOM v DPP [2012] VSCA 198; (2012) 38 VR 618 (at 655 [124] per Redlich and Harper JJA and Curtain AJA); Brown v New South Wales Trustee and Guardian [2012] NSWCA 431; (2012) 10 ASTLR 164 (at 176 [51] per Campbell JA, Bergin CJ in Eq and Sackville AJA agreeing).
(emphasis added)
As will be outlined later in this decision, the lay evidence was largely based on witnesses’ purported recollections of events and transactions which were said to have occurred ten to fourteen years ago. In Lehrmann Lee J referred to the decision in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) (Gestmin) where Leggatt J discussed how to approach fact finding based on recollection. Leggatt J said:
Evidence based on recollection
15. An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.
16. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people's memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.
17. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called 'flashbulb' memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description 'flashbulb' memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness's memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).
18. Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.
19. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party's lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.
20. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness's memory has been "refreshed" by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness's memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.
21. It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.
22. In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.
(emphasis added)
The above citation was referred to by Lee J in Lehrmann (at [122]). Lee J said, with this in mind:
[125] The helpful working hypothesis of paying close regard to the contemporaneous documents and representations to disinterested third parties is of signal importance, especially where, as I will explain, I have misgivings as to the reliability of aspects of the accounts given by a number of important witnesses.
(emphasis added)
Lee J also referred to the High Court decision in GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32; 97 ALJR 857 (GLJ) where (at 874–875 [57]) Kiefel CJ, Gageler and Jagot JJ observed:
…[the Evidence Act reflects] the position of the common law that the gravity of the fact sought to be proved is relevant to “the degree of persuasion of the mind according to the balance of probabilities”. By this approach, the common law, in accepting but one standard of proof in civil cases (the balance of probabilities), ensures that “the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved”.[22]
(some citations removed; emphasis added)
[22] Rejfek v McElroy [1965] HCA 46; 112 CLR 517 at 521, citing, amongst other cases, Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 at 362.
In Condon v Commissioner of Taxation [2023] FCA 561 (Condon),Derrington J (at [57]) acknowledged that how the burden of proof is met is not stipulated and “will no doubt vary with the circumstances of each case”.
In Trautwein v Federal Commissioner of Taxation [1936] HCA 77; 56 CLR 63 (Trautwein) Latham CJ found (at 88) that, as a general rule in taxation matters such as this one:
…the taxpayer must… show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right.
In Guardian Ait Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619; 114 ATR 136 Logan J referred to the obligation on an applicant in taxation appeals noting that the standard of proof does not require proof of facts to demonstration.[23]
[23] At 140, [3]. The appeal from this decision was partly dismissed: Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3; 115 ATR 316.
The High Court in Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 (Dalco) explained that where, as in this matter, the Commissioner and taxpayer have not agreed on the assessment:[24]
… the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment … unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail.
[24] (1990) 168 CLR 614 at 624, citing Gauci v Federal Commissioner of Taxation [1975] HCA 54; 135 CLR 81 at 89.
The approach in Dalco has become known as the “all or nothing” approach.[25]
[25] See Condon v Commissioner of Taxation [2023] FCA 561 at [29].
It is important to note that in these matters the Commissioner is under no obligation to tender evidence in support of its assessments; Mason J explained this in Gauci v Federal Commissioner of Taxation [1975] HCA 54; 135 CLR 81 at 89:
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.
Practical Burden
The Applicant in this matter does not have complete records of the source of the Relevant Deposits. In Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 352, Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records but also noted:
[31] …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 Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.
In Bosanac v Commissioner of Taxation [2018] FCA 946 Steward J highlighted the difficulty a taxpayer will have in demonstrating excessiveness without records, or a reconstruction of those records. His Honour said:[26]
[9] The onus is on the taxpayer to prove on the balance of probabilities the extent to which an impugned assessment is excessive. 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. This was the very problem which the applicant faced here.
[26] Upheld on appeal: Bosanac v Commissioner of Taxation [2019] FCAFC 116; 267 FCR 169; Bosanac v Commissioner of Taxation [2019] HCA 41; 93 ALJR 1327 (Nettle J) at [10].
In Condon (at [58]), Derrington J reiterated that it is not a legal requirement for the taxpayer to prove matters only by reference to contemporaneous records.
Derrington J also referred to Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; 44 ALR 607 (Allied Pastoral Holdings) where Hunt J (as his Honour then was) considered (at 615) that:
… it is not obligatory for a taxpayer, before he can discharge his burden of proof, to call all the material witnesses and to produce all the material documents which support his evidence … It is certainly wiser for the taxpayer to do so in most cases so as to ensure that his own evidence is accepted, but even where he does not do so the tribunal of fact may nevertheless be sufficiently impressed with the taxpayer as a witness that his evidence is accepted without such corroboration or without the whole of such corroboration.
(emphasis added)
Derrington J then addressed the extent to which a taxpayer’s own evidence can be relied upon and the necessary precision in satisfying the civil standard of proof:
[59] Although a decision-maker will, in the evaluation of the evidence, be cautious of a taxpayer’s self-serving statements, they are not “prima facie unacceptable”: McCormack v Federal Commissioner of Taxation at 302: and the arbiter of fact is entitled to accept them where the taxpayer is regarded as truthful. Moreover, the taxpayer is not required to corroborate each piece of evidence that is adduced before it can be accepted: Cassaniti at 409 [88].
[60] Mathematical precision is not required in order to prove on the balance of probabilities what the correct assessment should have been. The Court is entitled to decide the appeal by reference to estimates upon inexact evidence: Allard v Commissioner of Taxation (1992) 24 ATR 493 at 499 per Hill J. This approach was adopted by Burchett J in Ma at 233 in relation to an assessment based on the asset betterment method. His Honour said:
Futhermore, the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision-making, cannot be uniquely excluded from appeals against betterment assessments. To refuse to consider the credit, not only of the Applicant, but also of his independent and unchallenged witnesses, simply because the effect of the evidence was to support his accountant’s generalisations about double-counting rather than to hit upon a precise figure, was to fall into an error of law.
…
[72] … general evidence of a person’s financial dealings may be sufficient for the taxpayer to succeed in an appeal of an Objection Decision.
(emphasis added)
In Commissioner of Taxation v Cassaniti [2018] FCAFC 212; 266 FCR 385 (Cassaniti) the Full Federal Court considered the issue of burden of proof and how a court or Tribunal should determine whether that burden of proof has been discharged. Steward J set out five propositions which he derived from Allied Pastoral Holdings:
[88] …
(1) 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…
(2) secondly, for that purpose it is not obligatory for a taxpayer, in order to discharge his burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position;
(3) fourthly, there is no requirement that evidence can only be accepted as admissible and probative if it is corroborated;
(4) fifthly, the tribunal of fact is free to accept the evidence of the taxpayer alone if it finds the taxpayer to be truthful;
(5) finally, it would usually be prudent to corroborate the evidence of a taxpayer. It is also prudent to adduce contemporaneous objective evidence. But prudence should not be confused with the requirements of the law.
Even if there are no records available, the evidence provided orally still must be scrutinised: Cassaniti, at [88].
The High Court in GLJ noted cases often need to be decided on incomplete evidence. Despite this, the High Court pointed out:
[60] A court is not bound to accept uncontradicted evidence. Uncontradicted evidence may not be accepted for any number of reasons including its inherent implausibility, its objective unlikelihood given other evidence, or the trier of fact simply not reaching the state of “actual persuasion” which is required before a fact may be found. “To satisfy an onus of proof on the balance of probabilities is not simply a matter of asking whether the evidence supporting that conclusion has greater weight than any opposing evidence ... It is perfectly possible for there to be a scrap of evidence that favours one contention, and no countervailing evidence, but for the judge to not regard the scrap of evidence as enough to persuade him or her that the contention is correct.” The evidence must “give rise to a reasonable and definite inference” to enable a factual finding to be made; mere conjecture based on “conflicting inferences of equal degrees of probability” is insufficient. As Dixon CJ said in Jones v Dunkel, the law:
does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied.
(citations removed; emphasis added)
Traditionally a loan agreement is set out in a legal written document which specifies terms and conditions such as repayment amounts, the time and regularity of repayments, whether any interest is payable and so on.
In relation to contracts formed orally, Hammerschlag J said, in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]-[96]:
… the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences …
…
[The plaintiff] has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the Court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding.
(emphasis added)
There needs to be some objective indicia that a loan exists – such as confirmation of the period of the loan, what interest is payable and some kind of documentation in the form of an agreement or similar to validate the loan. For example, if there are no formal documents, one would expect email or text exchanges may have occurred between the parties, particularly parties that had known one another for some time.
Each case ultimately turns on its facts. As noted by the Full Federal Court in Allied Mills Industries Pty Ltd v Commissioner of Taxation [1989] FCA 135; 20 FCR 288, where a payment is made pursuant to an agreement, the whole circumstances surrounding the agreement must be examined.[27]
[27] [1989] FCA 135; 20 FCR 288 at 309 citing Federal Coke Co. Pty. Limited v Federal Commissioner of Taxation [1977] FCA 3; 34 FLR 375 per Bowen CJ at 385.
Whether, on the objective facts, a loan arrangement is inherently probable, is a matter that should be emphasised in circumstances where there is undocumented oral evidence.[28] It is also reasonable to take into account what a party stands to win or lose.[29]
[28] Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; 161 ALR 599 at [15].
[29] Helton v Allen [1940] HCA 20; 63 CLR 691 at 712.
Shortfall Interest Charge
Pursuant to section 5-10 of the ITAA 1997:
5-10 When shortfall interest charge is payable
An amount of *shortfall interest charge that you are liable to pay is due and payable 21 days after the day on which the Commissioner gives you notice of the charge.
Note: Shortfall interest charge is imposed if the Commissioner amends an assessment and the amended assessment results in an increase in some tax payable. For provisions about liability for shortfall interest charge, see Division 280 in Schedule 1 to the Taxation Administration Act 1953.
Division 280 of Schedule 1 of the TAA sets out how the SIC is calculated and imposed. Section 280-100 provides:
280-100 Liability to shortfall interest charge–income tax
(1) You are liable to pay *shortfall interest charge on an additional amount of income tax that you are liable to pay because the Commissioner amends your assessment for an income year.
(2) The liability is for each day in the period:
(a) beginning at the start of the day on which income tax under your first assessment for that income year was due to be paid, or would have been due to be paid if there had been any; and
(b) ending at the end of the day before the day on which the Commissioner gave you notice of the amended assessment.
(3) However, if an amended assessment reinstates all or part of a liability in relation to a particular that had been reduced by an earlier amended assessment, the period for the reinstated liability begins at the start of the day on which income tax under the earlier amended assessment was due to be paid, or would have been due to be paid if there had been any.
The Commissioner may also remit all or part of a shortfall interest charge as follows:
280-160 Remitting shortfall interest charge
(1) The Commissioner may remit all or a part of an amount of *shortfall interest charge you are liable to pay if the Commissioner considers it fair and reasonable to do so.
(2) Without limiting subsection (1), in deciding whether to remit, the Commissioner must have regard to:
(a) the principle that remission should not occur just because the benefit you received from the temporary use of the shortfall amount is less than the *shortfall interest charge; and
(b) the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments.
Penalties
Administrative penalties can be imposed in the following circumstances pursuant to section 284-75 of Schedule 1 to the TAA:
284-75 Liability to penalty
(1) You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
Note: This section applies to a statement made by your agent as if it had been made by you: see section 284-25.
…
(3) You are liable to an administrative penalty if:
(a) you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b) that document is necessary for the Commissioner to determine a *tax-related liability (other than one arising under the *Excise Acts) of yours accurately; and
(c) the Commissioner determines the tax-related liability without the assistance of that document.
Penalties are considered further below in paragraphs from paragraph 574.
Evasion
Pursuant to section 170(1) (item 5) of the ITAA 1936 the Commissioner may amend an assessment at any time if he or she is of the opinion there has been fraud or evasion. Where there is no fraud or evasion, generally the Commissioner may only amend an assessment of an individual for a year of income within two years after the day on which the Commissioner gives notice of the assessment to the individual (section 170(1), item 1) or four years (section 170(1), item 4).
What does “evasion” mean?
Evasion is an intentional or deliberate act to conceal or withhold income from the ITR.
The High Court in Denver Chemical Manufacturing Co v Commissioner of Taxation(NSW) [1949] HCA 25; 79 CLR 296 described “evasion” as meaning “more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information”. Dixon J said (at 313):
It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible, is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.
In the present case the Board concluded that the appellant intentionally omitted the income from the return and that there was no credible explanation before them why he did so. They thought that the conduct of the taxpayer answered the description of an avoidance of tax by evasion.
(emphasis added)
In Wilson v Chambers & Co Pty Ltd [1926] HCA 15; 38 CLR 131 Knox CJ (at 136):
The distinction in meaning between the words “evade” and “avoid” is well established, and a charge of evading payment is not made out by evidence which proves no more than that the person charged failed or omitted to pay an amount payable by him.
Whether there has been evasion is to be assessed objectively.
PROCESS OF HEARING
All witnesses provided witness statements in addition to their oral evidence. The following witnesses gave evidence on behalf of the Applicant (in the following order):
Witness name (in order of appearance) Relationship Mode of attendance Witness statement/Report GNBF Applicant In person Statement dated 23 August 2022;[30] Supplementary statement dated 25 May 2023;[31] Further supplementary statement dated 1 March 2024.[32] Mr U Friend/acquaintance In person Statement dated 23 August 2022;[33] Supplementary statement dated 1 April 2023.[34] Mr M Friend/acquaintance In person Statement dated 22 August 2022;[35] Supplementary statement dated 12 February 2024.[36] Mr L Friend/acquaintance In person Statement dated 2 April 2023.[37] Mr G Friend/acquaintance In person Statement dated 22 August 2022.[38] Ms T Mother-in-law By video link Statement dated 29 January 2023.[39] Mr C Friend/acquaintance In person Statement dated 19 August 2022.[40] Mr E Friend/acquaintance By video link Statement dated 24 August 2022;[41] Supplementary statement dated 14 February 2024.[42] Mr B Friend/acquaintance In person Statement dated 22 August 2022.[43] Mr I Friend/acquaintance By video link Statement dated 29 March 2023;[44] Supplementary statement dated 13 February 2024.[45] Mr R Friend/acquaintance In person Statement dated 30 January 2023 as amended at the hearing.[46] Mr J Friend/acquaintance By video link Statement dated 23 August 2022.[47] Mr K Friend/acquaintance In person Statement dated 22 August 2022.[48] Steven Wright Applicant’s accountant and tax agent, engaged in 2019 By video link Statement dated 23 August 2022;[49] Supplementary statement dated 6 April 2023;[50] Further supplementary statement dated 13 February 2024.[51] Anthony Cerantonio Expert witness; Forensic Accountant In person Report signed on 6 April 2023.[52] [30] Exhibit 6.
[31] Exhibit 7.
[32] Exhibit 35.
[33] Exhibit 9.
[34] Exhibit 10.
[35] Exhibit 13.
[36] Exhibit 14.
[37] Exhibit 15.
[38] Exhibit 16.
[39] Exhibit 17.
[40] Exhibit 18.
[41] Exhibit 19.
[42] Exhibit 20.
[43] Exhibit 21.
[44] Exhibit 22.
[45] Exhibit 23.
[46] Exhibit 24; Transcript of proceedings, pp 427-435.
[47] Exhibit 25.
[48] Exhibit 26.
[49] Exhibit 27.
[50] Exhibit 28.
[51] Exhibit 29.
[52] Exhibit 31 (Cerantonio Expert Report).
No witnesses were called by the Commissioner.
APPLICANT’S SUBMISSIONS – OVERVIEW
The Applicant submits the Amended NOAs for the Relevant Years are excessive on the grounds that the Deposits:[53]
(a)are not ordinary income of the Applicant pursuant to section 6-5 of the ITAA 1997 and therefore are not assessable;
(b)are reimbursements from friends and family for personal expenses (attendances at Etihad Stadium and Melbourne Cricket Ground Boxes, airline tickets and travel related expenses and other personal expenses) incurred by the Applicant on their behalf;
(c)further or alternatively, the amount of $10,250 deposited into the NAB Gold Banking - Choice account on 27 July 2010 was a loan to his company (Company) for the refinance of property held by Company; and
(d)further or alternatively, the other deposits to the Applicant's bank accounts are transfers from other accounts and/or loans from the Applicant's bank accounts.
[53] Tribunal Book, Tab 1, Applicant’s Statement of Facts, Issues and Contentions dated 23 August 2022 (ASFIC), [71]-[81].
The Applicant contends the Deposits are sourced from funds from the following categories:[54]
(a)Money received from the sale of the Applicant’s wife small business in or around late 2011 for $90,000 (Business Sale);
(b)Etihad Stadium Box cash reimbursements from friends and family for the use of the Etihad Box (Etihad Box);
(c)Melbourne Cricket Ground Box cash reimbursements from friends and family for the use of the MCG Box (MCG Box);
(d)Reimbursements from friends for the purchase of flights (domestic and international) and other travel expenses incurred by the Applicant on their behalf (Travel Expenditure);
(e)Other items purchased for friends and family using the Applicant’s credit cards (Other Purchases);
(f)Sale of motor vehicles and jet skis (Motor Vehicles and Jet Skis):
(i)The Applicant states that during the Relevant Years he sold three cars and three jet skis as follows:
[54] Transcript of proceedings, pp 21-44.
Vehicle
Sold to
When
How much?
Holden Astra
Mr U
2009
$25,000 in cash
Mercedes-Benz CLK55
Mr I
2010
$100,000 in cash
Jet ski (2008 model) and Jet ski (2009 model)
Mr U
2010 - 2013
$40,000 in cash
Jet ski (2010 model)
Mr U
2014
$20,000 in cash
Holden Maloo
Mr U
2012
$55,000 in cash
Total
$240,000
(ii)The Applicant provided copies of invoices indicating the price he originally paid for the jet skis.[55] No records of motor vehicle purchases or ownership were produced.
(g)Sale of a property (Property Sale);
(h)Loan for the purpose of a mortgage facility (Mortgage Facility); and
(i)Rental income earned during the 2011 income year.
[55] Tribunal Book, Tabs 48-50, Annexures 43-45 to Applicant’s supplementary statement dated 25 May 2023 (Applicant’s Second Statement/Exhibit 7), pp 2293-2295, 2297, 2300-2303.
The Applicant states he:
(a)stores the cash reimbursements in his safe which is located at his home; and
(b)used the cash reimbursements received in or around the Relevant Years to pay off his credit card balance at the end of each month.
Records Provided
The Applicant provided the following documents in support of his claims:
(a)Australian Securities and Investment Commission business searches;[56]
[56] Tribunal Book, Tab 5, Annexure 1 to Applicant’s First Statement.
(b)bank account balance summaries and bank statements;[57]
(c)a loan agreement between the Company and the Applicant;[58]
(d)credit card transaction statements in relation to the ANZ credit cards #2547, #6341 and #4893;[59]
(e)a police report and medical report from the Accident;[60]
(f)some invoices and receipts for Etihad Box and MCG Box expenses, as well as the purchase of the Jet Skis;[61]
(g)some flight itineraries and emails;[62]
(h)copies of the Applicant’s ITRs, assessments and rejections as well as the record of interview with the ATO and the Audit Position Paper Response in May 2018;[63]
(i)documents relating to the Property Sale, including the contract of sale;[64]
(j)financial statements of the Company between 2011 and 2015;[65]
(k)a Deed of Licence for the Etihad Box.[66]
[57] Tribunal Book, Tabs 6-8, Annexures 2-4 to Applicant’s First Statement.
[58] Tribunal Book, Tab 9, Annexure 5 to Applicant’s First Statement.
[59] Tribunal Book, Tab 10, Annexure 6 to Applicant’s First Statement.
[60] Tribunal Book, Tab 11, Annexure 7 to Applicant’s First Statement.
[61] Tribunal Book, Tab 12, Annexure 8 to Applicant’s First Statement; Tribunal Book, Tabs 45, 48-50, Annexures 40, 43-45 to Applicant’s Second Statement.
[62] Tribunal Book, Tabs 13-37, Annexures 9-33 to Applicant’s First Statement; Tribunal Book, Tabs 51-52, Annexures 46-48 to Applicant’s Second Statement.
[63] Tribunal Book, Tabs 38-43, Annexures 34-39 to Applicant’s First Statement.
[64] Tribunal Book, Tabs 46-47, Annexures 41-42 to Applicant’s Second Statement.
[65] Tribunal Book, Tabs 54-58, Annexures 49-53 to Applicant’s Second Statement.
[66] Tribunal Book, Tab 145, Appendices C to Cerantonio Expert Report, pp 3653-3670.
Lay Witnesses
The Applicant submitted that:[67]
[67] Applicant’s Closing Submissions dated 12 April 2024, paras [130]-[132].
(a)the evidence of twelve lay witnesses was sufficient to satisfy the Tribunal on the balance of probabilities that the Amended NOAs are excessive;
(b)the Tribunal can reasonably draw inferences from the evidence given by the lay witnesses that:
(i)there were other people who attended the corporate boxes;
(ii)the Applicant purchased flights and accommodation for many people during the Relevant Period and was repaid in cash for the purchases he made on their behalf;
(c)it is reasonable, given the passage of time that witnesses could not recall the exact dates or the exact amounts of the transactions with the Applicant;
(d)the witnesses were honest and credible; and
(e)the evidence of the lay witnesses should be accepted.
COMMISSIONER’S SUBMISSIONS – OVERVIEW
The Commissioner contends, among other things, that the Applicant has not discharged his burden of proof because the supporting/corroborating evidence relied on by the Applicant regarding the nature and source of the explained deposits is self-serving evidence from friends and family and should not be accepted.[68]
[68] RSFIC at [23].
The Commissioner submitted that:[69]
123. …the Applicant’s evidence should be approached with great caution. This is consistent with CDPV Pty Ltd v CSR [2016] VSC 322 (CDPV), ‘self-serving, non-contemporaneous statements made by taxpayers must be treated with caution – especially statements that are “general, vague and lack[ing] detail required” to prove the facts in issue
[69] Respondent’s Closing Submissions at [123].
The Commissioner divides the lay witnesses into two groups:[70]
[70] RSFIC at [24]-[34].
(a)the first group consists of (Group 1 Witnesses):
(i)the statements dated August 2022 of Mr U, Mr C, Mr K, Mr B, Mr G, Mr M, Mr J, and Mr E;
(ii)the statements dated January 2023 of Ms T and Mr R; and
(iii)the statement dated April 2023 of Mr L; and
(b)the second group consists of (Group 2 Witnesses):
(i)the statement dated March 2023 of Mr I; and
(ii)the statement dated April 2023 of Mr U.
Group 1 Witnesses
The Group 1 Witness evidence concerns the payments of unspecified amounts, in cash, on unspecified dates, as reimbursements of un-itemised expenses relating to corporate box entertainment, travel/holidays and/or purchases incurred on the Applicant’s credit card that the Applicant states were paid for by the Applicant on the lay witnesses’ behalf.[71]
[71] RSFIC at [24].
In relation to the Group 1 Witnesses, the Commissioner states this evidence should not be accepted because although some travel itineraries and airfare receipts have been provided:[72]
(a)in some instances, the names of the passengers have been wholly or partially redacted;
(b)some of the travel itineraries do not include any details about how the payments were made;[73]
(c)parts of the credit cards used for payment are missing. For example, see pages 2, 4, 6 and 8 of Annexure 46 to the Applicant’s Second Statement which states, “Payment: CC AX … 3118/EXP0412”. The Commissioner states this suggests that an American Express credit card ending 3118 was used to make the payment. However, there is no evidence before the Tribunal that the Applicant holds a credit card ending 3118;[74]
(d)other than travel itineraries, there is no corroborating or contemporaneous documentary evidence the expenses were incurred by the Applicant on the associates’ behalf;
(e)the available evidence lacks specificity; and
(f)the documents exhibited are insufficient on their own to corroborate the Applicant’s assertion that he incurred these expenses on these witnesses’ behalf.
[72] RSFIC at [24]-[29].
[73] See, for example, Tribunal Book, Tab 12, Annexure 9 to Applicant’s First Statement pp 3, 13, 22, 31.
[74] See Applicant’s First Statement at [47]-[52], [64]-[78] and the Annexures cited there. See also, Cerantonio Expert Report at Appendix C.
Group 2 Witnesses
The Group 2 Witness evidence concerns the purchase of motor vehicles and jet skis.
In relation to the Group 2 Witnesses, the Commissioner states this evidence should not be accepted because:[75]
(a)in respect of the Mercedes Benz, Holden Astra and Holden Maloo, there is no evidence which identifies the vehicle or establishes the Applicant owned these vehicles;
(b)there is no evidence of any legal transfer of the motor vehicles or jet skis from the Applicant to the purchasers;
(c)there is no corroborating evidence of these transactions; and
(d)the available evidence lacks specificity.
[75] RSFIC at [30]-[34]
Other Potential Witnesses Not Called
The Applicant has claimed that he was reimbursed in cash from several individuals who were not called to give evidence. The Commissioner states an adverse inference can be drawn from the Applicant’s failure to call those witnesses and a failure to explain their absence.
Conclusion
The Commissioner submits that in the circumstances:
(a)the Applicant understated his assessable income by not reporting the Relevant Deposits;
(b)the Applicant has not discharged his burden of proving the Relevant Deposits were not his income;
(c)the Applicant has not positively demonstrated what the assessments should have been, and therefore has failed to demonstrate that the amended assessments are excessive.
The Commissioner determined that the Applicant conduct was evasive.[76]
THE EVIDENCE
[76] Exhibit 1, T-Documents, T23: ATO Audit Position Paper at [228]-[240].
Documents Marked for Identification
Throughout the hearing several documents were marked for identification.
The Commissioner questioned lay witnesses regarding the source of cash used to reimburse the Applicant. As part of that cross-examination the Commissioner showed several witnesses official ATO documents which recorded whether they had lodged ITRs in the Relevant Years (Documents MFI4 to MFI6).
The Applicant submitted MFI4 to MFI6 should not be exhibited on the ground that they were not relevant to the proceeding because the mere fact that certain witnesses did not lodge ITRs does not mean they did not have sufficient cash (or access to cash), to reimburse the Applicant.[77]
[77] Applicant’s Closing Submissions dated 12 April 2024 (Applicant’s Closing Submissions), [306]-[309].
The Tribunal agrees with the Applicant that the fact a person did not lodge an ITR in any given year does not of itself disclose a person’s income or financial means. It may be that ITRs were not lodged to avoid paying tax, or it could mean they did not earn enough income to warrant the lodgement of an ITR. Even so, the information the ATO records contain are a part of the context in which the Tribunal is attempting to determine the probability of a matter having occurred. The availability of the means of a person to repay the Applicant the amounts they say they owed goes to the inherent likelihood of whether such reimbursement occurred (presuming the expense was incurred on their behalf to begin with). The Tribunal will exhibit those documents for this limited purpose to be considered as part of the evidence of each witness as to their source of cash and the likelihood of the purported reimbursement having occurred.
APPLICANT
Background
The Applicant is, and was at all relevant times, an Australian resident for tax purposes.[78] He has operated a construction business since 2003 through the Company.[79] The Applicant is the sole director and shareholder of the Company.[80]
[78] ASFIC at [19].
[79] Applicant’s First Statement at [16]-[22].
[80] Applicant’s First Statement at [23]-[30]; Tribunal Book, Tab 5, Annexure 1 to Applicant’s First Statement.
Corporate Interests
In addition to the Company, during the Relevant Years the Applicant had the following corporate interests:[81]
[81] Applicant’s First Statement at [17]-[19], [23]-[30]; Tribunal Book, Tab 5, Annexure 1 to Applicant’s First Statement.
Company Interest LPRB Sole director and shareholder LPSC Owner of 100% issued share capital since 4 March 2015 LPRD Owner of 9% issued share capital LPRC Owner of 9% issued share capital LPSE Owner of 9% issued share capital Real Property Interests
Property Owned By Date Purchased Date Sold Property A Applicant 22 November 2001 23 July 2018 - $580,000 Property B Applicant 24 September 2009 15 August 2021 - $4,000,000 Property C Applicant 12 June 2014 - Gifted Property D Company 19 December 2006 2015
Between 1 July 2010 and 30 June 2015, the Applicant and the Company owned the following properties:[82]
[82] Applicant’s First Statement at [37]-[46].
Bank Accounts/Credit Cards
The Applicant stated he held the following accounts in his own name, or in the name of a Company of which he was the sole director and shareholder, during the Relevant Years:[83]
[83] Applicant’s First Statement at [47]-[52]; Tribunal Book, Tabs 6-8, Annexures 2-4 to Applicant’s First Statement.
Institution Owners Account Account Number National Australia Bank The Applicant Gold bank – Choice Ending #9060 National Australia Bank The Applicant Choice Package Home Loan Ending #2273 National Australia Bank The Applicant Choice Package Home Loan Ending #7564 National Australia Bank The Applicant Classic Banking Ending #1911 Bendigo Bank The Company Business Cheque Account Ending #5329 National Australia Bank The Company Portfolio Account Ending #1165
The Applicant states he also held and operated several bank accounts with other various financial institutions during the Relevant Years:
Institution Owners Account Account Number HSBC The Applicant Day to Day Account Ending #6412 Citigroup The Applicant Ready Credit Ending #4025 American Express The Applicant Qantas American Express Ultimate Credit Card Ending #6003 Westpac The Applicant Gold Mastercard Ending #7823 Westpac The Applicant Altitude Platinum Card Ending #3319
The Applicant stated he had three credit cards from ANZ Bank which were in his name during the Relevant Years:[84]
(a)card ending #2457;
(b)card ending #6341; and
(c)card ending #4893.
[84] Applicant’s First Statement at [48], [64].
The Applicant stated the ANZ Bank Frequent Flyer Platinum credit card account numbers were changed through time because the card was lost or stolen.[85]
[85] Applicant’s First Statement at [48(e)].
The Applicant stated he used the ANZ Bank credit card for personal use during the Relevant Years.[86]
[86] Applicant’s First Statement at [66].
The Applicant stated he gave one of his credit cards to his wife. The Applicant’s wife did not give evidence before the Tribunal. The Applicant states he never questioned his wife’s purchases. She used his credit card because she had a bad credit rating.[87]
[87] Applicant’s First Statement at [72]-[73].
The Applicant’s written evidence was that his credit cards were used by several people apart from his wife and children to fund their personal living expenses.[88] The Applicant also stated his mother-in-law, Ms T, had access to his credit cards.[89]
[88] Applicant’s First Statement at [77].
[89] Applicant’s First Statement at [68]-[69].
At the hearing the Applicant stated he would use the credit cards to buy things for “everyone” and that he had lost count of how many people he let use his credit card.[90] He said:[91]
I can’t remember all of them at once. But there’s about 13 or 14 of them. But there’s actually more than 14. There’s probably about 20 or something. But we chose 14. We thought that was enough witnesses. That should be enough witnesses to convince you
…
So you’re saying that – you know, 14 or whatever number of witnesses coming, but there are many, many others that do - - -?---There’s many others, don’t you worry about it. But we haven’t included them. Because the trial will go on forever.
So you used your credit cards to buy tens of people’s things?---Yes. Twenty, maybe. I don’t know. I lost count. I can’t remember exactly
[90] Transcript of Proceedings, p 199.
[91] Transcript of Proceedings, p 200.
The Applicant states he was always paid back with cash.[92]
[92] Applicant’s First Statement at, [71].
On some occasions his ANZ bank facility would automatically direct debit any amounts owing on the credit cards at the end of each ANZ credit card statement period. On other occasions he would deposit money onto the credit cards.
The Applicant states he would take money from the safe or his wife’s bank accounts to pay off the credit cards.[93] The Applicant’s wife’s bank accounts were not in evidence. He stated he would keep payments of cash to pay off the credit card to less than $10,000 per transaction “[b]ecause we believe it to be illegal to carry $10,000 or more cash on oneself at any one time”.[94]
[93] Applicant’s First Statement at, [75].
[94] Applicant’s First Statement at, [71]; Tribunal Book, Tab 10, Annexure 6 to the Applicant’s First Statement is the transaction statement for the credit cards during the Relevant Years..
In his supplementary statement dated 25 May 2023 the Applicant elaborated:
2. Between 1 July 2010 and 30 June 2015, I took money from my safe and paid these amounts with various banks. I said to the bank tellers to pay these amounts towards my ANZ and other credit card bills. I did this to avoid paying interest and charges on the ANZ and other credit cards.
3. If I had not paid enough cash to meet the credit card statement amount, I would return with more cash taken from the safe at [Property B]. I again would ask the bank teller to apply the paid amounts against my credit card bill and ANZ credit card.
Loan From a Friend (Mortgage Facility)
The Applicant states a friend lent him $10,250 in 2010 for the purposes of re-mortgaging. The Applicant states he needed the money to be able to refinance a redraw facility he had over Property D.[95]
[95] Applicant’s First Statement at [56]-[57].
The Applicant gave the following evidence concerning a loan agreement with a friend:
55. I had an existing mortgage for $1.3 million for [Property B] with NAB.
56. In July 2010 I took out a re-mortgage with a redraw facility at $880k for [Property D] where I was $10,000 short for the deposit. Because I was $10,000 short for the deposit for the re-mortgage of [Property D] I borrowed money from a friend. I borrowed $10,000 from my friend. He gave me $10,000 in cash.
57. On 27 July 2010 I deposited the $10,250 into the NAB Gold Banking – Choice Account.
58. I repaid my friend the $10,000 over time.
59. From 16 November 2013 I had a redraw loan facility BSB:[redacted], Account Number: [redacted]. I was living off the redraw loan. I would regularly draw down on the loan to pay my personal expenses. I continued to draw down on the redraw facility until it was maxed out.
60. After I maxed out the redraw facility the first time, in early 2017 I mortgaged [Property C] for $500,000.
61. After I maxed out that redraw loan facility, I sold [Property A].
62. I then continued to draw down on the redraw facility. Again, I maxed out the redraw facility.
63.After I maxed out the redraw facility again, I sold my dream home ([Property B]) which paid off the debt and left me with some money.
…
167. The amount of $10,250 deposited into Gold Banking - Choice was a loan given to me by a friend to re-finance [Property D] for the Company.
Company Loans
Following Binetter and Nguyen, the Tribunal, for reasons outlined above, does not accept the Applicant’s evidence or submissions regarding the source of the income. As a result, the Applicant has not discharged the onus of proof regarding evasion.
Therefore, the statutory condition for the power to amend his NOAs is satisfied.
Finding
The Tribunal has found that the Applicant has not established his actual income or that the assessed income was excessive. In these circumstances the Applicant has failed to prove his conduct did not amount to evasion within the meaning of item 5 of subsection 170(1) of the ITAA 1936 for the Relevant Years.[390]
[390] Buzadzic v Commissioner of Taxation [2023] FCA 954, at [136] following Binetter at [94]; approved on appeal, Buzadzic v Commissioner of Taxation [2024] FCAFC 50 at [38]-[40].
PENALTIES
Administrative penalties can be imposed pursuant to section 284–75(3) of Schedule 1 to the TAA in the following circumstances:
(a) you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b) that document is necessary for the Commissioner to determine a tax-related liability (other than one arising under the Excise Acts) of yours accurately; and
(c) the Commissioner determines the tax-related liability without the assistance of that document.
Note: You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286-C.
The base administrative penalty is 75% of the relevant tax related liability.[391] The base penalty is increased by 20% if the taxpayer “took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated”.[392]
[391] Section 284–90 item 7, Schedule 1, TAA.
[392] Section 284-220(1), Schedule 1, TAA.
Pursuant to section 298–20 of Schedule 1 of the TAA the Commissioner has the power to remit all, or part of the penalty amount calculated.
The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice Statement Law Administration PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount (PS LA 2012/5) explains the circumstances in which a taxpayer will become liable to a penalty pursuant to section 284-75(1) to Schedule 1 of the TAA and how that penalty is assessed including any remission.
PS LA 2012/5 sets out what matters should and should not be taken into account in considering whether to remit a penalty:
16F. Relevant matters to consider in making a remission decision include:
·that the purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations
·that the penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty; this objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and
·that the amount of the penalty rate alone is not a valid reason for remission, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances.
16G. Matters that you should not usually consider include:
·behaviour or situations unrelated to the relevant statement, such as the entity or registered agent becoming ill at the time of the examination, well after the statement was made
·that there is 'no harm to the revenue', such as when a refund has been stopped before issuing or a credit was available in another accounting period
·where GST was 'not included' in working out the selling price for the transaction, because the entity could not or would not collect the GST on that supply from the purchaser, or
·whether there is a capacity to pay the penalty (except in relation to determining whether a trustee or beneficiary is the more appropriate entity to bear their penalty).
The Commissioner has issued a ruling, Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted (TR 94/7). TR94/7 provides relevantly:
[2] The discretion to remit penalty otherwise attracted under a shortfall section should be exercised in only those exceptional cases where, having regard to all of the circumstances, the application of a particular shortfall section and/or the rate of penalty prescribed under that section would provide a clearly unreasonable or unjust result.
(emphasis added)
Administrative Penalties
Division 284 of Schedule 1 of the TAA sets out when a person is liable for a penalty in relation to a false or misleading statement and the amounts of those penalties.
Section 284-75(1) provides:
You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a taxation law (other than the Excise Acts); and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
Section 284-75(6) provides for an exception:
You are not liable to an administrative penalty under subsection (1) or (4) if:
(a) you engage a registered tax agent or BAS agent; and
(b) you give the registered tax agent or BAS agent all relevant taxation information; and
(c) the registered tax agent or BAS agent makes the statement; and
(d) the false or misleading nature of the statement did not result from:
(i) intentional disregard by the registered tax agent or BAS agent of a taxation law; or
(ii) recklessness by the agent as to the operation of a taxation law.
(emphasis added)
The burden of establishing that the exception applies rests on the Applicant: section 284-75(7).
Shortfall Amount
Section 284-80 sets out when there is a shortfall amount:
284-80 Shortfall amounts
(1) You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.
Shortfall amounts
Item
You have a shortfall amount in this situation:
1
A tax-related liability of yours for an accounting period, or for a taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999, worked out on the basis of the statement is less than it would be if the statement were not false or misleading
Subsection 284-75(5) provides:
You are not liable to an administrative penalty under subsection (1) or (4) for a statement that is false or misleading in a material particular if you, and your *agent (if relevant), took reasonable care in connection with the making of the statement.
A false or misleading statement is a statement that is objectively incorrect. It matters not the intention, or lack thereof, of the taxpayer in making the statement. Where a shortfall is found in the amount of assessable income, it inevitably means that a false or misleading statement has been made in the ITR lodged and declared by the taxpayer to be true and correct.
Base Penalty Amount
Base penalties are worked out in accordance with section 284-90. Base penalties may be imposed if the recklessness or failure to take reasonable care was due to the taxpayer or the taxpayer’s agent.
Section 284-90 relevantly provides:
284-90 Base penalty amount
The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:
Base penalty amount
Item
In this situation:
The base penalty amount is:
1
You have a shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and
the amount, or part of the amount, resulted from intentional disregard of a taxation law (other than the
Excise Acts) by you or your agent75% of your shortfall amount or part
2
You have a shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the
amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a taxation law (other than the Excise Acts)50% of your shortfall amount or part
3
You have a shortfall amount as a result of a statement described in
subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a taxation law (other than the Excise Acts)25% of your shortfall amount or part
7
You are liable to an administrative
penalty under subsection 284-75(3)75% of the tax-related liability concerned
A shortfall resulting from:
(a)intentional disregard attracts a 75% penalty;
(b)recklessness attracts a 50% penalty;
(c)failure to take reasonable care attracts a 25% penalty.
The graduated base penalty scheme increases or decreases the penalty percentage based on the gravity of the taxpayer's conduct.
The Commissioner’s taxation ruling, MT 2008/1 Penalty relating to statements: meaning of reasonable, care, recklessness and intentional disregard (MT 2008/1) provides some guidance also. MT 2008/1 is a public ruling and an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. It sets out the Commissioner’s interpretation of the concepts ‘reasonable care’, ‘recklessness’ and ‘intentional disregard’ as used in Subdivision 284-B and ‘intentional disregard’ and ‘recklessness’ as used in section 286-75(1A) of Schedule 1 to the TAA. It provides:
Meaning of intentional disregard of a taxation law
[110] The adjective ‘intentional’ means that something more than reckless disregard of or indifference to a taxation law is required.
[111] … the test for intentional disregard is purely subjective in nature. The actual intention of the entity is a critical element.
[112] Intentional disregard means that there must be actual knowledge that the statement made is false. To establish intentional disregard, the entity must understand the effect of the relevant legislation and how it operates in respect of the entity’s affairs and make a deliberate choice to ignore the law.
[113] Dishonesty is a requisite feature of behaviour that shows an intentional disregard for the operation of the law. This is another significant difference between this type of behaviour and behaviour that shows a want of reasonable care or recklessness where dishonesty is not an element.
[114] Evidence of intention must be found through direct evidence or by inference from all the surrounding circumstances, including the conduct of the entity.
…
Meaning of recklessness as to the operation of a taxation law
[99] … ‘recklessness’ connotes conduct that is more culpable than a failure to take reasonable care…
[100] … conduct that falls short of the standard of a reasonable person … dishonesty is not an element of establishing recklessness. The actual intention of the entity is of no relevance.
[101] Behaviour will indicate recklessness where it falls significantly short of the standard of care expected of a reasonable person in the same
…
Meaning of reasonable care
[27] … Taking ‘reasonable care’ in the context of making a statement to the Commissioner or to an entity within the meaning of subsection 284-75(4) means giving appropriately serious attention to complying with the obligations imposed under a taxation law.
[28] The reasonable care test requires an entity to take the same care in fulfilling their tax obligations that could be expected of a reasonable ordinary person in their position…
[29] Judging whether there has been a failure to take reasonable care turns on an evaluation of all the circumstances surrounding the making of the false or misleading statement to determine whether a reasonable person of ordinary prudence in the same circumstances would have exercised greater care.
(emphasis added)
An intentional disregard of a taxation law will be found where there has been dishonesty; where there has been a cognisant decision, an awareness on the part of the taxpayer, to make a false statement, and to leave that statement uncorrected.
A finding of dishonesty is not required for “recklessness” and intention of the taxpayer does not play a role. However, something more than a failure to take reasonable care is required.
Increase in Base Penalty
The base penalty amount may be increased by 20% in the following circumstances (section 284-220 to Schedule 1 of the TAA):
(1) The *base penalty amount is increased by 20% if:
(a) you took steps to prevent or obstruct the Commissioner from finding out about a *shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated; or
(b) you:
(i) became aware of such a shortfall amount after a statement had been made to the Commissioner about the relevant *tax-related liability; or
(ii) became aware of the false or misleading nature of a statement made to the Commissioner or another entity after the statement had been made;
and you did not tell the Commissioner or other entity about it within a reasonable time; or
(c) the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items previously; or
(ca) the base penalty amount was worked out using item 3A, 3B or 3C of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items previously; or
(d) the base penalty amount was worked out using item 4, 5 or 6 of that table and a base penalty amount for you was worked out under that item previously; or
(e) your liability to a penalty arises under subsection 284-75(3) and you were previously liable to a penalty under that subsection.
Remission of Penalty
The Commissioner may remit all or part of a penalty (section 298-20 of Schedule 1 of the TAA).
Applicant’s Contentions
The Applicant submits no penalty should have been applied. He states he did not intentionally disregard the taxation law in preparing and lodging his assessments for the period 1 July 2010 to 30 June 2015 and further, that he relied on his tax agent to lodge his ITRs based on his taxable income.[393]
[393] ASFIC, [88]; Applicant’s Closing Submissions, [360]-[369].
Further or alternatively, the Applicant states he acted with reasonable care in preparing and filing his ITRs for the 2011 to 2015 income years.[394]
[394] ASFIC, [89].
If, as the Tribunal has found, penalties are applicable, the Applicant submits they should be remitted in whole or in part under section 298-20 of Schedule 1 of the TAA because the penalties are harsh in the circumstances.[395]
[395] ASFIC, [89].
The Applicant submits there should be no uplift of the base penalty because either:
(a)there is no shortfall amount, or alternatively,
(b)no base penalty should be imposed.
In addition to the fact that he engaged a registered tax agent, the Applicant submits he should not be liable to an administrative penalty because he acted as a reasonable person would have been expected to act in the circumstances. The Applicant stated he believed the Relevant Deposits were personal in nature and therefore did not have to be disclosed in his ITRs.[396]
[396] Applicant’s Closing Submissions, [369]-[371].
The Applicant submits that the Commissioner should have exercised its general discretion to remit the failure to lodge penalty in full for the 2011, 2012 and 2015 years as he did for the 2013 and 2014 income years.[397]
[397] Applicant’s Closing Submissions, [372]-[376].
Commissioner’s Contentions
The Commissioner contends that the Applicant has not discharged his burden of proving that the penalty assessments in the Relevant Years are excessive because:[398]
(a)the Applicant has made materially false and misleading statements in his ITRs by failing to declare amounts which represented amounts of assessable income, the outcome of which has resulted in a shortfall as defined in section 284-80(1) of Schedule 1 to the TAA;
(b)the Applicant should have been aware, as the sole account holder, of the frequent deposits being made into his accounts and reported them accordingly.
[398] RSFIC, [27].
The Commissioner submits the Applicant’s behaviour amounts to an intentional disregard and that therefore the appropriate penalty amount is 75% in accordance with section 284-75(1) of Schedule 1 of the TAA.[399]
[399] RSFIC, [28]; Respondent’s Closing Submissions, [238].
CONSIDERATION – PENALTIES
Here there is a shortfall in the amount of declared assessable income in each of the Relevant Years.
The base administrative penalty applied is 75% of the relevant tax related liability.[400] The base penalty is increased by 20% if the taxpayer “took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated”.[401]
[400] Section 284–90, Schedule 1, TAA.
[401] Section 284-220(1), Schedule 1, TAA.
Pursuant to section 298–20 of Schedule 1 of the TAA the Commissioner has the power to remit all, or part of the penalty amount calculated.
The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice Statement Law Administration PS LA 2014/4: Default assessment penalty (PS 2014/4) explains the circumstances in which an entity will become liable to a penalty pursuant to section 284-75(3) of the TAA and how that penalty is assessed including any remission.
Paragraphs 5K and 5L of PS 2014/4 goes on to provide that the discretion to remit penalties should be approached in a fair and reasonable way and sets out that a remission, either in full or in part will generally occur, as follows:
5K. The remission decision should be approached in a fair and reasonable way. Remission, in full or in part, is generally appropriate when:
• an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, its obligation
• an entity understood the obligation to lodge but circumstances beyond its control affected its ability to lodge
• the amount of penalty imposed by law causes an unjust result in the circumstances, or
• there were credits (such as PAYGW) available to offset the amount of the tax-related liability payable which have not been taken into account in determining the penalty.
5L. Remission may be appropriate where an entity went beyond what was asked or expected to assist us during an examination.
There are shortfall amounts for each of the Relevant Years: section 284-80(1), Schedule 1, TAA.
By underreporting his assessable income, the Applicant is liable to the administrative penalties assessed because the underreporting resulted in false statements being made in his ITRs.
The Tribunal finds penalties were appropriately imposed. The issue is the appropriate amount of penalty.
The Applicant’s behaviour amounts to intentional disregard because:
(a)he is not an inexperienced taxpayer – he operates a company and a family trust and has engaged a number of tax agents over the years to assist him with the preparation of financial statements and ITRs;
(b)during cross-examination when it was identified that the 2014 financial statements of the Company prepared by the ASJR showed the Applicant earned $100,000 in director’s salary, the Applicant stated ASJR prepared them incorrectly:[402]
[402] Transcript of Proceedings, pp 129-130.
Okay. So you’re saying that they got it wrong. So when they say director’s salary, you’re saying that that’s wrong?---Yes. They would have got it wrong, yes. How can I work if I’m injured?
So did you – have you seen this before?---No. I don’t know. I’m not sure.
It’s exhibited to your witness statement?---Yes. Well, they made a mistake obviously.
Did you raise this with them?---Pardon?
Did you raise the mistake with them?---I didn’t notice it. I think I actually said it. I don’t know why they’d done it that way because I remember distinctly saying, ‘it’s classed as salary until that day, the day I had the accident’. I distinctly remember telling them that. So if they got it wrong - - -
(c)And again:
…under currently liabilities, so these are liabilities owed by the company, I understand owed to you because you’re the sole director. Now, I’m not able to answer why it’s referred to as a director’s loan 2015 because these are 2014 accounts. Are you able to explain to the tribunal that labelling?---No. Sorry. This is all numbers that my accountant would know.
Now, could I just get you to look across the page, right. It shows that in 2013 – I’m going to use round numbers, sir, but you’ll see the exact numbers on your screen – year 2013, $65,000. That was owed by the company to you. And then 2014 there was $32,000 owed by the company to you. So that’s a difference of, what, $33,000?---Yes. I’m not sure.
So I put to you that’s already taken into account, that the - - -?---I’m not sure. If that’s from [ASJR] – can’t rely on them.
(emphasis added)
(d)And again:[403]
[403] Transcript of Proceedings, pp 134-135.
No. Okay. If I could please take you to – so the page before, 2,447. It should be headed ‘current assets’. I’m after ‘receivables’, which is at about 20 point 3 of the page. GNBF, it says, ‘director’s loan 2015’ and there’s an amount of $97,922.34. Do you see that?---M’mm.
Are you able to provide the tribunal with a breakdown of that number?---No idea.
Okay?---Seriously. It’s too long ago and lot’s happened since (indistinct).
Could I just ask you to just try to remember this number of 97,922. I’ll repeat it to you, but just pay attention to that?---Yes, 97,000.
I’m after folder 1, please, tab 9, page 750. GNBF, this is your exhibit 5. It is a loan agreement from [the Company] to you. Do you see that?---Yes.
If we could please go to the last page in this tab, which is page 766, please?---The first thing I’m going to say - - -
Yes?--- - - - it’s got the heading ‘[ASJR]’. I don’t trust anything that’s in there at all.
Apologies, sir. I missed that. Sorry, sir?---If it’s got the heading ‘ASJR’, my ex-accountant, I don’t trust anything that’s in there at all.
Why is that?---Because he’s the one that caused all the trouble for me. He’s the one – he’s the reason why I’m here, because of them.
What do you mean by that?---Because he done all my tax wrong, he didn’t tell me about the credit card where he could’ve declared it, you know. I told him about the credit card and I said, ‘Should we declare it?’ and he told me, ‘No.’ So you guys have brought it up, and this is why I’m here explaining all the cash deposits.
Right?---So it’s like I was set up. I feel like – I feel that way. I feel I was set up.
(emphasis added)
There are decisions where the engagement of, and reliance upon, a tax agent and/or solicitor have supported a contention that the taxpayer had acted with reasonable care. See Thomas v Commissioner of Taxation [2015] FCA 968; 101 ATR 576 (Thomas) at 666 [584] and Barakat and Ors and Commissioner of Taxation [2007] AATA 1564; 68 ATR 283 (Barakat).
In Barakat, a factor in that case that indicated the Applicant had taken reasonable care was the engagement of a tax agent and lawyer, and the taxpayer’s reliance on professional advice. In Thomas, Greenwood J took into account that the taxpayer had acted on the advice of his solicitor in assessing whether he had taken reasonable care.
The Tribunal cannot be not satisfied that the Applicant took reasonable care. It is unclear what instructions were given to the accountant or what advice was given.
The Tribunal acknowledges that a taxpayer should be able to rely on their tax agent and accountant, but this does not relieve the taxpayer of the requirement to take reasonable care.
A similar issue regarding reliance on advisers arose in Fowler v Federal Commissioner of Taxation [2013] FCAFC 69; 212 FCR 149 (at [128]) where the Full Court noted that the primary judge had found the taxpayer’s evidence was “general, limited and vague”. The Full Court set out some of the evidence given by the taxpayer and held the primary judge was correct in describing the evidence in this way:
In those circumstances, did you make any inquiries concerning the tax treatment of the options that were issued to you?---I believe so, yes. There would have been, obviously recalling events back then is a long ago, but I would have spoken to people like Brendan Brown, who was advising the company. But in my personal circumstances I had an account, obviously, with my tax agent. So all tax matters I would discuss, at some point, with them.
Okay. Brendan Brown was advising the company, you say?---Yes.
Were you given advice – on what basis did you form the decision not to include an amount in your assessable income?---On the basis of the view of mine at the time, which forms a basis of the case, I guess, your Honour, in that I agreed to salary sacrifice from 1 July. So I take myself out of the company. I mean, this is about me as a tax payer. And had a commitment and financial risk from that point onwards by sacrificing my salary for options in the company. So if those options, for instance, had have gone the other way, as they did in the following year, my remuneration would have been nil.
And you made inquiries to that effect?---I believe I did, yes.
[129] Having referred to that evidence her Honour set out her reasons for concluding that the appellant had not discharged the onus of showing that the Commissioner had erred (at [130]):
Having regard to Mr Fowler’s position as a company director and the nature of agreement pursuant to which the options were granted, a reasonable person in the circumstances of Mr Fowler would be expected to have made some reasonable enquiries concerning the tax treatment of the options under the relevant tax law — here Division 13A of the ITAA 1936 Act. Indeed, given that Mr Fowler had agreed to forego cash fees that were undeniably in the nature of assessable income in his hands, a reasonable person in his position would have expected his agreement to forego cash for options in lieu would have some income tax consequences. Such a person would have foreseen, as reasonably likely, that the failure to include in his assessable income an amount in respect of the options would result in a shortfall amount. The lack of cogent evidence that Mr Fowler made any relevant enquiries and his failure to keep basic records relating to the grant of the options justified the imposition of administrative penalty for failure to take reasonable care.
(emphasis added)
The Full Court found no error in the primary judge’s reasoning.[404]
[404] [2013] FCAFC 69; 212 FCR 149, at [130].
The Applicant has not, for the reasons outlined earlier, established that he and his agents did not act with intentional disregard. There is no evidence from anyone other than the oral evidence of the Applicant on this issue.
The Applicant maintained no records of the circumstances surrounding the Relevant Deposits. His understatement of his income was not insignificant and occurred across a five year period.
The Applicant sought to blame his accountant several times stating he felt “set up”.[405] Why would the Applicant’s accountant want to set him up?
[405] Transcript of Proceedings, p 135.
What is the Appropriate Penalty?
It is for the taxpayer to appropriately and fully inform and instruct their tax agents.
There is no indication that the Applicant had any real appreciation of whether his ITRs were false and misleading. There is no evidence before the Tribunal from the tax agents addressing whether reasonable care was taken in the preparation of the Applicant’s ITRs. The impression from the Applicant’s evidence is that he acted with intentional disregard.
We know from the evidence of Mr Wright and Mr Cerantonio that an accountant acting reasonably based solely on the Applicant’s instructions, without regard to source documents and analysis, could not say whether the Relevant Deposits were assessable in the hands of the applicant.
The Tribunal finds a base penalty of 75% for intentional disregard behaviour was correctly imposed.
Does the “Safe Harbour” Apply in the 2010 – 2013 Income Years?
The Applicant submits that the safe harbour in subsection 284-75(6) of Schedule 1 of the TAA applies in each of the Relevant Years in which there was a shortfall amount with the result that the Applicant is not liable to an administrative penalty in that income year.
Subsection 284-75(6) of Schedule 1 of the TAA provides:
(6) You are not liable to an administrative penalty under subsection (1) or (4) if:
(a) you engage a *registered tax agent or BAS agent; and
(b) you give the registered tax agent or BAS agent all relevant taxation information; and
(c) the registered tax agent or BAS agent makes the statement; and
(d) the false or misleading nature of the statement did not result from:
(i) intentional disregard by the registered tax agent or BAS agent of a *taxation law (other than the *Excise Acts); or
(ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts).
(7) If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6)(b).
PS LA 2012/5 provides the following in relation to the safe harbour provision:
11E. The safe harbour exception will only apply if the entity provides their registered agent with all relevant taxation information about a particular matter.
11F. Whether or not all the relevant taxation information was provided needs to be considered objectively. It does not matter if the entity genuinely believed they provided all relevant information. The exception will not apply if the entity omitted or did not supply any part of the relevant information, or gave incorrect or conflicting information.
11G. Registered agents are not required to view all source documents, and it is often impractical for them to do so.
11H. An entity may provide some information to their registered agent in a summary and the registered agent may reasonably rely on that for preparation of the statement. However, a summary which is incorrect or omits material information will not meet the requirement to provide all relevant taxation information, even if reasonable care for a registered agent would have involved querying the information.
11I. The entity has the burden of proof to establish that they provided all relevant taxation information. The standard of proof required is 'on the balance of probability' or 'more likely than not'. If the probability either way is equal, then the standard is not satisfied.
11J. You would usually need to contact the registered agent if the entity is claiming the safe harbour exception to the penalty. Without doing so, it would be difficult to assess their actions and whether they exercised reasonable care or know what information they requested from their client.
(emphasis added)
The Applicant engaged ASJR to prepare and lodge his ITRs.
The burden is on the Applicant to prove he gave ASJR “all relevant taxation information” (see from paragraph 582 above).
The Applicant’s evidence was as set out from paragraphs 163 above.
The Applicant has not proven that he provided his tax agent with “all relevant taxation information”. In fact, the evidence points to a finding that he did not provide the tax agent with all relevant information.
The Tribunal finds that the Applicant has not established that the safe harbour provisions apply. There is insufficient evidence to establish, on the balance of probabilities, that the tax agents were provided with all relevant taxation information. There are no corroborating records. One of the only records available is the letter from the tax agent to the ATO which confirms that:[406]
(a)it was the Applicant’s “opinion that the Credit Card transactions were of a personal nature”, not the tax agent’s;
(b)“no credit card information was provided to [the Applicant’s] accountants for their professional assessment in preparing Tax returns or Audit review for the periods 2011through to 2016”.
[406] Tribunal Book, pp 2553-2554.
Uplift
Because there has been a penalty imposed for the 2011 Year, the further issue of whether an uplift is applicable now arises.
The Federal Court in Bosanac v Commissioner of Taxation [2019] FCAFC 116; 267 FCR 169 (Bosanac FC) held (at [144]) that section 284-220(1)(c) is to be constructed as meaning that the additional penalty amount applies where the shortfall amount arose for a previous tax liability.
Derrington J confirmed in Ross (at [198]) (relying on Bosanac FC at [143], [149]) that the uplift applies automatically and is not a matter of discretion for the Commissioner.
The SIC amount was greater than 20% of the tax shortfall amount for the 2011 to 2013 income years, and less than 20% of the tax shortfall amount for the 2014 to 2015 income years.[407]
[407] 2011 income year) Exhibit 1, T Documents, T29, p 379; (2012 income year) Exhibit 1, T Documents, T30, p 383; (2013 income year) Exhibit 1, T Documents, T31, p 387; (2014 income year) Exhibit 1, T Documents, T32, p 391; (2015 income year) Exhibit 1, T Documents, T33, p 395
Therefore an uplift of 20% for the 2012 to 2015 income years under s 284-220(1)(c) of Sch 1 to the TAA is automatically imposed.[408]
[408] Exhibit 1, T-Documents, T2, p 13; T90, p 2115
Failing to Lodge Documents on Time
Penalties were also imposed for failing to lodge his ITRs for the 2011, 2012 and 2015 Years on time pursuant to section 286-75(1) of Schedule 1 to the TAA.
The Tribunal is not aware of any basis to remit these penalties.
Should the Penalties be Remitted in Whole or Part Having Regard to the Taxpayer’s Particular Circumstances?[409]
[409] Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; 212 FCR 483.
The Commissioner submitted there was no basis to remit any of the administrative penalties under section 298-20 of Schedule 1 to the TAA. The Commissioner referred to the decision of Griffiths J in Sanctuary Lakes v Federal Commissioner of Taxation [2013] FCAFC 50; 212 FCR 483, where Griffiths J held at [249] that:
the question [of the remission of penalty under s 298-20 of Sch 1 to the TAA] is … whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit [the] penalty in whole or in part.
(emphasis added)
The Tribunal may exercise a broad discretion to remit based on the specific circumstances of the case.[410] One example where circumstances would indicate that a penalty should be removed is where the outcome would otherwise be “unreasonable or unjust (and therefore inappropriate)”.[411]
[410] See Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; 212 FCR 483 at 521 [193]; Mangat v Federal Commissioner of Taxation (2018) 108 ATR 688 at 711-712 [97].
[411] Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; 212 FCR 483, at 535 [249].
In considering whether to exercise the discretion to remit the penalties in whole or in part, the Tribunal notes in the submission that the penalties are “harsh” but there is no explanation as to why, in the Applicant’s circumstances, they should be remitted has been identified.
The Tribunal does not consider in light of the matters addressed in this decision that it is appropriate to remit the penalties imposed.
In circumstances where the Tribunal has found the Applicant has acted with intentional disregard it is not appropriate to remit the 20% uplift in relation to the 2012 to 2013 Years.[412]
[412] See example 12 in PS LA 2012/5.
The Tribunal affirms the Penalty Decisions for the Relevant Years.
SHORTFALL INTEREST CHARGE 2011 – 2013
Applicant’s Submissions
The Applicant submits the Tribunal should exercise the discretion to remit SIC applied to the 2011 to 2013 income years in full or in part because it is fair and reasonable to do so given:[413]
(a)it could be expected that the Commissioner would have commenced an audit of the Applicant’s tax affairs by halfway through the Relevant Period;
(b)it is still appropriate to consider remission in an evasion case on a case-by-case basis;
(c)the unremitted SIC in each of the 2014 and 2015 years is less than 20% of the shortfall for those income years;
(d)the interruption of COVID-19, an event outside of the Applicant’s control; and
(e)the Commissioner’s delay in commencing the audit in 2017.
[413] Applicant’s Closing Submissions, [378]-[383].
Commissioner’s Submissions
Pursuant to section 280-170 of Schedule 1 to the TAA 1953 a taxpayer may only object under Part IVC against a decision of the Commissioner not to remit an amount of shortfall interest charge payable on an additional amount of income tax if the amount of the charge that was not remitted is more than 20% of the additional amount.
As a result of section 280-170, the discretion to remit the SIC is only applicable to the 2011, 2012 and 2013 income years, because the unremitted SIC for the 2014 and 2015 years was less than 20% of the shortfall amounts for those years.
The Commissioner submits that the Applicant has not demonstrated that the Tribunal should exercise the discretion to remit any shortfall interest charge in the 2011 to 2013 Years.[414]
[414] RSFIC, [65]; Respondent’s Closing Submissions, [250]-[251].
Consideration – Shortfall Interest Charge
Section 280-170 of Schedule 1 to the TAA states that a taxpayer can only object to the decision not to remit SIC if the SIC amount is not more than 20% of the additional amount.
Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods (PS LA 2006/8) sets out circumstances in which the Commissioner should consider remitting interest charges that are imposed on shortfalls and accrue during the shortfall period.
PS LA 2006/8 provides that generally in a case involving evasion, the shortfall interest charges should not normally be remitted. This is because the taxpayer would have been aware of the potential shortfall and could have taken steps to reduce their exposure to interest charges.
Finding
- The following table in the Commissioner’s submissions sets out the amount of SIC for each Relevant Years:[415]
[415] Respondent’s Closing Submissions, [283].
For the 2014 and 2015 income years, the SIC amount is less than 20% of the tax shortfall amount and therefore cannot be objected to by the Applicant in this Tribunal as part of a Part IVC TAA review. Therefore, the Tribunal has no jurisdiction to consider the remittal of SIC for the 2014 and 2015 income years.
In relation to the 2011 to 2013 income years the Tribunal is not satisfied a discretion should be exercised to remit any of the SIC imposed, particularly in circumstances where the Applicant lodged ITRs late, and where there has been a finding of evasion. The Applicant has not established that the timing of the audit was unreasonable and has not explained the relevance of the COVID-19 pandemic to the Applicant’s circumstances.
DECISION
The decisions under review are affirmed.
I certify that the preceding 657 (six hundred and fifty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member D K Grigg
..........................[SGD]................................
Associate
Dated: 24 June 2024
Dates of hearing:
19, 20, 21, 22, 23, 27, 28 February 2024, 14 March 2024 and
23 April 2024Counsel for the Applicant:
Michael Wyles
Solicitors for the Applicant:
Thomson Geer
Counsel for the Commissioner:
Angela Lee and Khai-Yin Lim
Solicitors for the Commissioner:
Australian Taxation Office
0
34
0