Goldsworthy and Commissioner of Taxation (Taxation)
[2022] AATA 2472
•4 August 2022
Goldsworthy and Commissioner of Taxation (Taxation) [2022] AATA 2472 (4 August 2022)
Division:SMALL BUSINESS TAXATION DIVISION
File Number:2019/1470
Re:Brett Goldsworthy
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member R Olding
Date:4 August 2022
Place:Brisbane
The decision under review is affirmed.
.................[SGD]..............
Senior Member R Olding
Catchwords
TAXATION – INCOME TAX – where Commissioner of Taxation assessed applicant’s taxable income on the basis that certain bank account deposits were assessable income – where applicant maintained the deposits were loans – where Commissioner did not confine issues in dispute – where applicant did not adduce evidence or make submissions to discharge the burden of proving his actual taxable income – burden of proof not discharged – decision affirmed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth), s 2A
Taxation Administration Act 1953 (Cth), s 14ZZKCases
Bosanac v Commissioner of Taxation [2019] HCA 41
Kais Jewellery (Syd) Pty Ltd and Commissioner of Taxation [2021] AATA 16
Sibai v Commissioner of Taxation [2021] FCA 1353REASONS FOR DECISION
Senior Member R Olding
4 August 2022
This matter concerns the income tax liability of the applicant, Mr Brett Goldsworthy, for the year ended 30 June 2012, and associated assessments of an administrative penalty and shortfall interest charge (‘SIC’).
Progress towards finalisation of the review was hampered by serious health issues experienced by Mr Goldsworthy. Earlier in the proceeding, Mr Goldsworthy provided evidence by way of a witness statement with appended copies of documents. However, Mr Goldsworthy’s health deteriorated such that it became clear that he would not be able to participate in an oral hearing, as confirmed by medical evidence filed on his behalf. This unfortunate development meant Mr Goldsworthy was not available for cross examination regarding the contents of his witness statement.
In the circumstances, the parties’ representatives – each party was represented by counsel - agreed that the tribunal should admit Mr Goldsworthy’s witness statement into evidence; take into account submissions as to what weight, if any, should be given to that evidence;[1] and decide the review on the papers, without an oral hearing.
[1] This is consistent with the approach taken by the tribunal in Kais Jewellery (Syd) Pty Ltd and Commissioner of Taxation [2021] AATA 16.
DECISION UNDER REVIEW
On 26 June 2013, Mr Goldsworthy lodged an income tax return for the 2012 income year reporting a taxable income of nil. Subsequently, on 21 February 2013, he lodged an amended return reporting taxable income of $7,371.[2]
[2] Exhibit 1, Hearing Bundle for 2019/1470, T48 page 1092, Notice of Amended Assessment dated 3 March 2014.
The Commissioner conducted a preliminary review of Mr Goldsworthy’s return as a result of which an amended assessment issued on 3 March 2015. In that assessment, the Commissioner assessed Mr Goldsworthy’s taxable income at $703,758.[3]
[3] Ibid, T49, pages 1096-1099, Notice of Amended Assessment, 2012 income year, dated 1 September 2014.
A comprehensive audit followed, in which the Commissioner identified what he considered to be various ‘unexplained deposits’ to Mr Goldsworthy’s bank accounts. A further amended assessment issued on 3 May 2017. Additionally, the Commissioner assessed an administrative penalty at the rate of 75% of the alleged shortfall, on the footing that Mr Goldsworthy’s conduct amounted to intentional disregard of the law, and SIC.
Mr Goldsworthy objected to the assessments. The decision under review is the Commissioner’s decision dated 25 February 2019 in relation to that objection. The Commissioner’s objection decision partly allowed the objection by omitting part of the deposits from one source from the calculation of Mr Goldsworthy’s taxable income. The penalty and SIC assessments were reduced proportionately, but not otherwise.
The remaining amounts in dispute are:[4]
(a)primary tax: $2,377,470.86
(b)penalty: $1,552,789.36
(c)SIC: $590,230.45.
[4] Exhibit 3, Respondent’s Submissions, page 16, paragraph 53.
It is submitted on Mr Goldsworthy’s behalf that the amounts the Commissioner treated as income are, in fact, amounts loaned to him by a third party located outside Australia and by his parents, and therefore are not income.
BURDEN OF PROOF
The applicant has the burden of proving that the assessments are excessive and what the assessments should have been: Taxation Administration Act 1953 (Cth), s 14ZZK. It is clear that, unless the Commissioner agrees to confine the issues in dispute, this means that to succeed the applicant must prove what his actual taxable income is for 2012.[5]
[5] See, for example, Sibai v Commissioner of Taxation [2021] FCA 1353, and the authorities comprehensively outlined therein.
Put another way, on the premise that the Commissioner has not confined the issues in dispute, the applicant could not succeed by merely proving that the ‘unexplained deposits’ were amounts loaned to him rather than income. The applicant would need to prove what amount should have been assessed as his taxable income; that is to say, the applicant would have to prove what is the actual amount of his taxable income for the income year.
PRIMARY TAX ASSESSMENT - HAS THE APPLICANT DISCHARGED THE BURDEN OF PROOF?
The answer to that question must start with another: Has the Commissioner agreed to confine the issues in dispute to whether the amounts assessed were income or loans?[6]
The Respondent’s Statement of Issues, Fact and Contentions dated 30 October 2020[7] states, in its Preamble, that the ‘review is primarily concerned with the correct characterisation of unexplained deposits in various accounts of the applicant and related entities in the 2012 year’. However, it goes on to state, in the Issues section, that the issues to be determined include whether the applicant has satisfied the tribunal of ‘his actual taxable income for the year ended 30 June 2012’.
[7] Exhibit 1, Hearing bundle for 2019/1470, Tab 7.
Further, in the Contentions section, the Commissioner states:[8]
32. Save for any concessions expressly made ahead of the hearing of the application for review, the Commissioner relies on his methodology and puts the applicant to proof to establish:
32.1 that the income tax assessment for the 2012 year is excessive; and
32.2 the amount of his actual taxable income for the 2012 year.
[8] Ibid page 1692.
The Commissioner’s statement of his Contentions goes on to contend that the applicant has not adduced evidence to establish that the ‘unexplained deposits’ were loans. The statement concludes with the comment that:[9]
Further, the applicant’s SFIC does not identify with precision the evidence said to support the actual income earned in the year in dispute. The Commissioner therefore reserves his position in this regard and will file a more detailed assessment of the applicant’s contentions in closing submissions after all the evidence is before the Tribunal.
[9] Ibid page 1693.
After the filing of witness statements, the applicant filed an Outline of Submissions. That document referred to evidence said to support the view that the deposits the Commissioner treated as income were loan payments. It made no submissions regarding Mr Goldsworthy’s actual taxable income.
The Commissioner filed detailed written submissions on 3 March 2022. Those submissions addressed why the Commissioner says the tribunal should not be satisfied that the deposits he treated as income are loans. The submissions then state:[10]
Further, Mr Goldsworthy has made no attempt to demonstrate his actual taxable income for the 2012 income year. That of itself is sufficient to dispose of the review.
[10] Exhibit 3, Respondent’s Submissions, page 24, paragraph 85.
The statements in the Commissioner’s Statement of Issues, Facts and Contentions extracted above indicate that, when the Statement was filed, the Commissioner had not agreed to confine the issues in dispute to whether the deposits he treated as income were loans. The paragraph in the Commissioner’s written submissions extracted immediately above indicates that he did not agree do so after the witness statements were filed.
Nevertheless, the applicant’s subsequent further written submissions dated 22 March 2022, prepared by the applicant’s counsel and filed nearly three weeks after the Commissioner’s submissions confirming that the Commissioner did not agree to confine the issues in dispute, only addressed why the applicant says it is unreasonable of the Commissioner not to accept the applicant’s evidence that the amounts were loans. Indeed, the submissions go on to assert:[11]
12. In summary the Tribunal must ask was there a loan to Mr Goldsworthy? . . .
13. If the loan is proved bona-fide the assessments along with the applicable penalties and interest charges must fall away, and Mr Goldsworthy should be assessed at (sic) per his reported income in 2012 of $7,371.
[11] Exhibit 7, Applicants Submissions in Reply.
If the Commissioner has not confined the issues in dispute to whether the deposits are loans, the statement that if the loan is proved bona fide the assessments must fall away cannot be correct. The opposite conclusion would apply: the objection decision would be affirmed if the applicant does not prove what is his actual taxable income.
In light of the extracts from the Commissioner’s Statement of Issues, Facts and Contentions and his submissions set out above, it is clear the Commissioner has not confined the issues in dispute. It is also clear the applicant was on notice of this.
Ordinarily, that would be the end of the matter. The applicant cannot succeed if he does not prove his actual income. However, as already noted, this matter is being determined on the papers and there is the difficulty that Mr Goldsworthy’s unfortunate health issues would, I expect, present for his representatives in obtaining instructions. In the circumstances, and since a particular issue arose in respect an associated review requiring the tribunal to communicate with the parties in any case, I caused the registry to write to the parties’ representatives seeking views on the extent, at all, to which the Commissioner had confined the issues in dispute.
The applicant’s response did not suggest that I should conclude the Commissioner had confined the issues in dispute in this review. Nor did it make any application for a further opportunity to adduce evidence or make submissions regarding the applicant’s actual taxable income for the 2012 income year. In view of the history of the matter, and since the applicant is represented by counsel experienced in taxation matters, I am satisfied the applicant has been afforded an opportunity, that is reasonable in the circumstances, to put its case forward.
I have also considered whether, having regard to the submissions lodged, I should nevertheless consider in detail the evidence regarding whether the payments are loans. I have concluded that I should not. To do so, would be futile in light of the clear law regarding the taxpayer’s burden of proof as outlined above. This is not a case where consideration of an alternative proposition might lead to a different result. Even if I were to accept everything the applicant says regarding the payments being loans, the outcome must be the same: the applicant has not discharged, indeed has not sought to discharge, the burden of proving the assessment is excessive and, in particular, what amount should be assessed.
In my view, in those circumstances it would not be an appropriate use of Commonwealth funds and the tribunal’s scarce resources, nor consistent with the tribunal’s statutory objectives,[12] to spend the substantial time required to analyse and recite evidence that cannot change the outcome of the review.[13] That course would involve extensive analysis of the evidence, including consideration of the weight to be given to Mr Goldsworthy’s witness statement, and also the weight to be given to a witness statement provided by the alleged lender and an affidavit by a third party both of whom are also not available for cross examination; the significance of three, inconsistent alleged loan agreements; and examination of multiple deposits to bank accounts and a tracing exercise undertaken by the Commissioner. Additionally, there is evidence that a relevant entity of which Mr Goldsworthy is beneficial owner was established in the Cayman Islands; that may or may not be relevant to Mr Goldsworthy’s attitude to taxation compliance and transparency, which again cannot be tested due to Mr Goldsworthy being unable to participate in cross examination.
[12] Administrative Appeals Tribunal Act 1975 (Cth), s 2A.
[13] Additionally, as a matter in the Small Business Taxation Division, the tribunal’s decision is required to be given within 28 days of the hearing or receipt of final submissions.
Those considerations arise in the context in which Mr Goldsworthy first filed a return disclosing nil income but later filed an amended return and has not provided any evidence capable of fully explaining his income earning activities, nor even a statement, sworn or affirmed or otherwise, of the amount he maintains is his actual taxable income for the year. That calls to mind the High Court’s observations in Bosanac v Commissioner of Taxation[14] that:
where, as here, an appeal proceeds on the basis that not all of the material facts are known, either because the taxpayer has been less than forthcoming in making disclosures to the Commissioner or for some other reason, the taxpayer cannot succeed by showing only that the basis of the Commissioner’s assessment was in some respects erroneous; since for all that can be told, unless and until the taxpayer proves to the contrary, there may be other income of which the Commissioner is not aware and which the Commissioner has not taken into account. In order to succeed in such a case, the taxpayer must discharge the burden of demonstrating on the balance of probabilities the true amount of the taxpayer’s taxable income and thus that the amount determined by the objection decision is excessive. Here, that required the kind of wide survey and exact scrutiny of the plaintiff’s business activities to which the primary judge referred and which was conspicuously absent from the plaintiff’s presentation.
[14] [2019] HCA 41, [30].
The applicant has not discharged the burden of proving the amount of his taxable income.
PENALTY AND SIC ASSESSMENTS
The submissions made on the applicant’s behalf only addressed whether the deposits the Commissioner treated as income were amounts loaned to the applicant. On the footing that they were loan amounts, the applicant submitted that the penalty and SIC assessments must fall away.
Having determined that the applicant has not discharged the burden of proving the primary tax assessment is excessive, it follows that the applicant cannot on that basis succeed in proving the penalty and SIC assessments were excessive. As the applicant made no other submissions and adduced no relevant evidence concerning the circumstances leading to the shortfall assessed by the Commissioner, or why it would be appropriate to wholly or partly remit the penalty or SIC, there is no basis on which I could conclude that the penalty assessment or the SIC assessment is excessive.
It follows that the objection decision must be affirmed.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding
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Associate
Dated: 4 August 2022
Date of hearing: 30 May 2022 Date final submissions received: 7 July 2022 Counsel for the Applicant: M Donovan Solicitors for the Applicant: Holt Lawyers Counsel for the Respondent: G Coveney Solicitors for the Respondent: Australian Government Solicitor
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